New York University
M.S. Program in Global Affairs
The Economics and Finance of Energy, Y45.2420
Fall
2008,Wednesday, 6:30-9:10pm
September 17, 2008
INSTRUCTOR: Chris Gadomski
OFFICE HOURS: Wednesdays by appointment
OFFICE PHONE: 914.993.9060
E-mail: gadomski@nyu.edu
The law of supply and demand is fundamental to the study of economics and it plays an integral part in the evolution of today’s energy markets. In the last few months especially, energy costs are rising—a basic economic premise resulting from the world’s growing demand for energy in the first decade of the 21st century and the depletion of supplies of cheap oil. A look at the energy supply side is where we start this course.
The supply side of oil and gas, however, is just the beginning. Although oil has evolved into a marginal fuel source for electrical power generation, natural gas remains a very important fuel source for electrical power generation. In many ways, it has become a benchmark against which competing technologies and fuel are compared.
Hence, when we talk about energy in this course we will examine both fuel markets—principally oil and gas—and electricity markets, i.e. “sparking” these fuels into electricity and how the two intertwine.
During this course our discussion will migrate to an examination of the financing of energy projects. As the cost of capital rises, innovative financing strategies become key to hedge against fluctuating fuel costs and even to the success of projects like wind, solar and nuclear where fuels costs are either negligible or marginal cost factors.
It will be our goal to understand from an economic and financial perspective how all of these factors combine to lead countries/companies to choose different generating options including nuclear, renewables, natural gas and coal.
It will also be a goal to develop in this course a thorough understanding of project finance—specifically non-recourse project financing of energy projects in emerging economies and in the developed world. We will use computer models and simulations to project the internal rate of return (IRR) used by developers to assess the attractiveness of various energy projects.
Through our readings and our class discussions, we are going to examine the alleged decline of Saudi Arabian oil and the factors that precipitated the California Energy crisis in 2000 and 2001. We will study the difficulties Enron faced with its huge international power project in Dabhol, India and examine Sempra Energy’s continuing LNG project in Mexico. We will close by looking at the market for carbon tax/credits as a means for developing environmentally benign projects.
Course Structure
We will learn about energy and financing through lectures, case analysis and class discussion. Our starting point will be a variety of books and the daily newspapers that will form the foundation for our class lectures and discussions. We will complete our course with a semester-long individual project that will examine the economic and financing concerns of a major energy project or issue.
q Will McNamara, The California Energy Crisis, (Tulsa, Oklahoma: Pennwell Publishing, 2002) ISBN 0-87814-844-2
q Matthew R. Simmons, Twilight in the Desert, (Hoboken, New Jersey: John Wiley & Sons, 2005) ISBN 0-471-73876-x
q Hossein Razavi, Financing Energy Projects in Emerging Economies, (Tulsa, Oklahoma: Pennwell Publishing, 2007) ISBN 0-87814-469-2
q The Wall Street Journal, orThe Financial Times, orThe New York Times. Bring relevant articles to each class for discussion.
q The Harvard Business School cases/articles supplementing the reading are:
Product #: 9-207-107: An Overview of Project Finance & Infrastructure Finance—2006 Update, April 12, 2007;
Product #: HKU707: Politics, Institutions and Project Finance: The Dabhol Power Project, March 19, 2008
Product #: 9-706-015: E.ON Corporate Strategy, February 8, 2006
Several of your classmates have advised me that the Harvard Business Online articles and cases are available through the NYU library at no charge. Try getting them for free. If not, I will set up a course number where you can download them directly.
q Vivek Chandra, Fundamental of Natural Gas, (Tulsa, OK, Pennwell, 2006) ISBN 978-1-59370-088-1
q Malcom Grimston and Peter Beck, Double or Quits? The Future of Civil Nuclear Energy, (London: Earthscan/James & James Press, 2002) ISBN 1853839132
q Travis Bradford, Solar Revolution, (Cambridge, MIT Press, 2006) ISBN 978-0-262-02604-8,
q Sonia Labatt and Rodney White, Carbon Finance, (Hoboken, NJ, John Wiley & Sons, Inc., 2007) ISBN 978-0471-79467-7
q Peter Fusaro and Ross Miller, What Went Wrong at Enron Hoboken, New Jersey: John Wiley & Sons, 2005) ISBN 0471265748
I will also post supplementary reading on the blackboard. Check before class.
Your Grade
Class Attendance and Participation 25%
Midterm
25%
Semester Paper/In-Class Presentation
25%
Take Home Final Exam 25%
I expect you to be prepared for every class by doing the assigned readings. I will open each class by asking you to summarize the topic of the day and to relate news stories you have clipped to present or past discussions. If you are not prepared, letting me know ahead of time will save us both some embarrassment. 25% of your grade will be from class participation and discussion….it is important that you read the material before class and voice your opinions in class.
INDIVIDUAL Semester Paper/IN-Class Presentation
We will examine a wide variety of energy and finance issues in this class. To give you an opportunity to become an expert on a particular topic, and to develop your oral and written communications skills, each of you will complete an in-depth research paper and present your findings to the class on one of the following topics:
1-The European Investment Bank (EIB) is investing a lot of money in renewables and in natural gas-fired power generation. A tremendous amount of money is being invested in LNG trains. Quantify global natural gas resources. Document global supply, rate of consumption, and forecast of a day of “peak gas”. How much gas do we have left?
2-Given the renewable portfolio standards of many states in the U.S., there is now a tremendous amount of interested in renewable technologies such as solar and wind. Complete a review of existing and planned solar thermal power plants in the United States and analyze their cost comptitiveness. Examine the impact of the presence or absence of investment tax credits.
3-Is there a nuclear renaissance in the U.S.? Political and grass roots opposition is one problem, another is the question of financing these US$4-6 billion facilities. Develop a U.S. forecast for new construction including a detailed analysis on how these facilities will be financed. From where will the money come, who will own them, how will they be financed?
4-Gasoline has surpassed $4 a gallon in the US. Electric and plug-in cars are allegedly going be delivered in 2010. Is this true? Analyze the cost competitiveness of electric automobiles. Does this make economic sense? From where will the electric power come?
5-From an economic perspective, does nuclear waste reprocessing make sense? The U.S. Department of Energy is now leaning toward reprocessing. Is it not better to just store the nuclear reactor spent fuel waste? Who is doing the reprocessing today…who is planning to do it…and is it economically justifiable?
In choosing a topic, give thought to your current career interest and how becoming an expert in one of the above topics can advance your career interest. If you have a specific topic of interest that you would like to pursue, please advise.
Prepare a written 15-20 page paper (notes additional) to be handed to me last day of class. Be prepared to discuss your research finding in class on an informal, ad hoc basis.
Take home Final EXAM
We will have an opportunity to use DOE models to assess the commercial viability of various renewable energy projects. Modelling experieince can be crucial for getting a financial position upon graduation. I will post the exam on blackboard Dec 3rd, it will be due in the digital drop box Dec 10th.
GETTING IT DONE
Don’t be absent. Missing class will adversely affect your grade. Enough said. Please hand-in all written assignments in class and submit through the digital drop box.
I have an affinity for numbers…and I expect you to develop the same in this class. If your paper is short on numbers…something is wrong. A strong grasp of, and comfort with, the numbers is crucial in this class and your careers going forward.
It is the express policy of the class that no late assignments will be accepted under any circumstances. I expect each student to bear individual responsibility for his or her work and to uphold the ideal of academic integrity.
Regarding academic integrity…make sure not to plagiarize anyone else’s work either intentionally or unintentionally. Plagiarism is defined as using someone else's words or ideas without proper attribution. The proliferation of Web pages and electronic publications makes it easy for plagiarism, accidental or otherwise, to occur. When in doubt, make sure to include a full citation either as a footnote or as a reference at the end of the paper.
For example, the above three sentences were excerpted from the course syllabus of Masaaki Kotabe, The Washburn Chair of International Business and Marketing, Temple University, International Marketing (MKT 514).
I look forward to a wonderful semester.
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