Paul Simshauser, Leonard Smith, Patrick Whish-Wilson and Tim Nelson
The purpose of this article is to analyse electricity supply in the Solomon Islands face extraordinarily expensive electricity tariffs – currently set at 96 c/kWh – making them…
Abstract
Purpose
The purpose of this article is to analyse electricity supply in the Solomon Islands face extraordinarily expensive electricity tariffs – currently set at 96 c/kWh – making them amongst the highest in the world. Power is supplied by a fleet of diesel generators reliant on imported liquid fuels. In this article, the authors model the 14,100 kW power system on the island of Guadalcanal and demonstrate that by investing in a combination of hydroelectric and solar photovoltaic generating capacity, power system costs and reliability can be improved marginally. However, when the authors model a 3-Party Covenant (3PC) Financing structure involving a credit wrap by the Commonwealth of Australia, electricity production costs fall by 50 per cent, thus resulting in meaningful increases in consumer welfare.
Design/methodology/approach
This study’s approach uses an integrated levelised cost of electricity model and dynamic partial equilibrium power system model. Doing so enables the authors to quickly analyse the rich blend of fixed, variable and sunk costs of generating technology options. The authors also focus on the cost of capital that is likely to be achieved under various policy settings.
Findings
The authors find that a 3PC Financing policy can substantially reduce the production costs associated with capital-intensive power projects in an unrated sovereign nation. Such a policy and associated prescriptions are not specific to the Solomon Islands or power generation. The conceptual framework and associated financial logic that underpins the initiative can be generalised to other “user pays” infrastructure projects and to other developing nations. The broad applicability of 3PC financing means that it is not country specific, project specific or asset class specific.
Research Limitations/implications
It is important to note that the analysis in this paper has a number of limitations in that the authors do not deal with rural electrification or distribution network costs. The focus of this paper is to identify policy interventions that are capable of making profound changes to the cost and the reliability of wholesale electricity production.
Originality/value
The focus of this paper is to identify a policy intervention capable of making profound changes to the cost and the reliability of wholesale electricity production. While there is nothing novel associated with a 3PC Financing per se, the authors are unaware of its direct use as a form of delivering foreign aid. A 3PC Financing has the effect of shifting the source of aid funding from fiscal account surplus/deficit (i.e. cash outlays) to balance sheet (i.e. credit wrap). However, this is not a “magic pudding” – 3PC Financing creates an asset-backed contingent liability and will have the effect of reducing the donor country’s own debt capacity by a commensurate amount, holding the nation’s credit rating constant.
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Paul Simshauser and Tim Nelson
The most problematic area of any carbon policy debate is the treatment of incumbent CO2 intensive coal‐fired electricity generators. Policy applied to the electricity sector is…
Abstract
Purpose
The most problematic area of any carbon policy debate is the treatment of incumbent CO2 intensive coal‐fired electricity generators. Policy applied to the electricity sector is rarely well guided by macroeconomic theory and modeling alone, especially in the case of carbon where the impacts are concentrated, involve a small number of firms and an essential service. The purpose of this paper is to examine the consequences of poor climate change policy development on the efficiency of capital markets within the Australian electricity sector.
Design/methodology/approach
The authors conducted a survey of Australian project finance professionals to determine the risk profiles to be applied to the electricity sector, in the event a poorly‐designed climate change policy is adopted.
Findings
The Australian case study finds that if zero compensation results in the financial distress of project financed coal generators, finance costs for all plant rises, including new gas and renewables, leading to unnecessary increases in electricity prices. Accordingly, an unambiguous case for providing structural adjustment assistance to coal generators exists on the grounds of economic efficiency.
Originality/value
Accordingly, the paper shows that an unambiguous case for providing structural adjustment assistance to coal generators exists, on the grounds of economic efficiency.
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Paul Simshauser and Jude Ariyaratnam
This paper aims to present a multi-period dynamic power project financing model to produce pragmatic estimates of benchmark wholesale power prices based on the principles of…
Abstract
Purpose
This paper aims to present a multi-period dynamic power project financing model to produce pragmatic estimates of benchmark wholesale power prices based on the principles of normal profit. This, in turn, can guide policymakers as to whether price spikes or bidding above marginal cost in wholesale electricity markets warrants any investigation at all. One of the seemingly complex areas associated with energy-only wholesale electricity pools is at what point market power abuse is present on the supply side. It should not be this way. If a theoretically robust measure of normal profit exists, identification of potential market power abuse is straightforward. Such a definition readily exists and can be traced back to the ground-breaking work of financial economists in the 1960s.
Design/methodology/approach
Using a multi-period dynamic power project model, the authors produce pragmatic and theoretically robust measures of normal profit for project financed plant and plant financed on balance sheet. These model results are then integrated into a static partial equilibrium model of a power system. The model results are in turn used to guide policymaking on generator bidding in energy-only power markets.
Findings
Under conditions of perfect plant availability and divisibility with no transmission constraints, energy-only markets result in clearing prices which are not economically viable in the long run. Bidding must, therefore, deviate from strict short-run marginal cost at some stage. To distinguish between quasi-contributions to substantial sunk costs and market power abuse, a pragmatic and robust measure of normal profit is required.
Originality/value
This article finds policymakers can be guided by an ex-post analysis of base energy prices against pragmatic estimates for the long-run marginal cost of the base plant, and an ex-ante analysis of call option prices along the forward curve against pragmatic estimates of the carrying cost of the peaking plant.
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With the objective of developing an evidence‐based corporate responsibility program aligned to core business functions, this article aims to outline the review process undertaken…
Abstract
Purpose
With the objective of developing an evidence‐based corporate responsibility program aligned to core business functions, this article aims to outline the review process undertaken by AGL in identifying the long‐term focus for new strategic partnerships. It also seeks to lay the foundation for AGL to better assess the outcomes of the program in the future.
Design/methodology/approach
In undertaking the review, AGL drew on employee surveys, stakeholder consultation, sustainability indicators and new research on the demographics of customer hardship. Core focus points of financial hardship and household safety were identified as priorities for the program and new long‐term partnerships were developed to specifically address these causes.
Findings
The research underscores the priority placed by AGL on the development of long‐term strategic charity partnerships and the integration of various components of the program including employee giving, volunteering and specific targeted initiatives.
Research limitations/implications
There is greater scope to expand on the foundations laid in the paper, in particular to explore outcomes‐based measurement techniques as they are applied to community investments and employee engagement.
Practical implications
The paper outlines the potential benefit of developing an evidence‐based strategic approach to charity partnerships, which can be integrated with employee engagement opportunities.
Originality/value
This paper is intended to contribute to building the body of knowledge for the implementation of integrated, evidence‐based corporate responsibility programs. In particular, the authors hope that the framework provided in the paper can outline the practical steps companies can take in developing targeted, long‐term partnerships, moving towards outcomes‐based assessment.
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Jan Gunter Langhof and Stefan Güldenberg
Management literature commonly suggests authoritarian leadership (AL) as the ideal leadership style during crises and extreme situations. This study aims to question this view…
Abstract
Purpose
Management literature commonly suggests authoritarian leadership (AL) as the ideal leadership style during crises and extreme situations. This study aims to question this view, exploring servant leadership (SL) as an alternative.
Design/methodology/approach
In the field of leadership research, surveys and interviews are the most dominant research methods. In light of this dominance, this paper draws on a rather unorthodox research approach: a historical examination.
Findings
The elaborations in this paper suggest that SL exerts a higher influence on followers than AL, when organizational structures are absent or disregarded. Consequently, the higher influence of SL implies a lower need for regulations and directives within organizations.
Practical implications
Bureaucracy and red tape can be reduced. Particularly in situations of crises, SL’s relatively reduced reliance on formalized organizational structures can be advantageous to leaders.
Originality/value
The relationship among leadership (SL and AL) and formalized organizational structures is elaborated and illustrated in a historical examination.