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The role of affordability in the definition of Security of Supply
27 April 2009

 Dear SECURE partners,

In our meeting in Brussels we moved forward in our attempt to arrive at a more precise definition of Energy Security of Supply .
A consensus was reached on the physical aspects of the definition, whereas on the economic aspects we took a bit more time to decide.
 In this first e-conference we ask you to express your preferences about alternative views regarding the affordability of energy security. Please express your degree of accord with  each  statement above by ticking the correspondent boxes  in the range.

 Alternative criteria to define the value side of energy security may entail the following options (See additional information on question 4 at this link):



Affordability is not a real issue. Prices are there to give the right scarcity signal to the market, and allow firms and households to calibrate their consumption choices in the most efficient way. excessive price swings may be a limited problem in the very short run, while in the long run the world economy has always found a new, viable equilibrium.

A) strongly disagree : 5.88 % - 1 vote(s)
B) disagree : 52.94 % - 9 vote(s)
C) neither disagree nor agree : 0 % - 0 vote(s)
D) agree : 29.41 % - 5 vote(s)
E) strongly agree : 11.76 % - 2 vote(s)

Affordability is a real issue but it is useful to distinguish between households and industrial consumers. For households it matters more than for industrial consumers.

A) strongly disagree : 0 % - 0 vote(s)
B) disagree : 35.29 % - 6 vote(s)
C) neither disagree nor agree : 23.53 % - 4 vote(s)
D) agree : 35.29 % - 6 vote(s)
E) strongly agree : 5.88 % - 1 vote(s)

Affordability is a real issue but it is useful to distinguish between households and industrial consumers. For industrial consumers it matters more than for households.

A) strongly disagree : 5.88 % - 1 vote(s)
B) disagree : 47.06 % - 8 vote(s)
C) neither disagree nor agree : 23.53 % - 4 vote(s)
D) agree : 23.53 % - 4 vote(s)
E) strongly agree : 0 % - 0 vote(s)

Affordable prices may be defined in terms of a range of variation beyond which prices swings can be regarded as unnaturally large and therefore above or below what can be usually expected. This may be implemented operatively by applying a Value-at Risk approach to energy commodity prices.

A) strongly disagree : 5.88 % - 1 vote(s)
B) disagree : 17.65 % - 3 vote(s)
C) neither disagree nor agree : 23.53 % - 4 vote(s)
D) agree : 47.06 % - 8 vote(s)
E) strongly agree : 5.88 % - 1 vote(s)

One can draw on the information embedded in the Willingness to Pay for increasing energy security. Since this WTP can be regarded as the risk premium that consumers are prepared to pay in order to receive a reliable supply of energy, any energy commodity price exceeding its long term normal price level by more than (the average level of) this WTP might be regarded as excessively costly. This approach may be problematic because there is not a single value of this WTP, but it varies across countries and across consumers. Hence some average value must be computed.

A) strongly disagree : 5.88 % - 1 vote(s)
B) disagree : 5.88 % - 1 vote(s)
C) neither disagree nor agree : 17.65 % - 3 vote(s)
D) agree : 64.71 % - 11 vote(s)
E) strongly agree : 5.88 % - 1 vote(s)

From a normative point of view, an unique absolute definition is not conceivable. The relevance of any definition (and of the policy recommendations it underpins), depends ultimately on the objective function of the policy maker (e.g. the weight the EU places upon prices, quantities, infrastructures, the environment, etc.)

A) strongly disagree : 0 % - 0 vote(s)
B) disagree : 5.88 % - 1 vote(s)
C) neither disagree nor agree : 5.88 % - 1 vote(s)
D) agree : 76.47 % - 13 vote(s)
E) strongly agree : 11.76 % - 2 vote(s)

This e-conference is closed.
Seventh Framework Programme

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