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Handbook of Energy and Environment Policy

Edited By Celil Aydin and Burak Darici

The book deals with the broad perspectives on the energy and environment topics and questions the traditional view on energy and environment policy and issues. Nowadays, energy and environmental issues can be accepted as the related subjects by the whole world. The link between energy and environment is backed to the time when only nature's primary resources were used. Primitive societies’ energy demand was small compared to the forces of the environment. With the emergence of industrial nations, the importance of energy and environment relation appeared again.

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2 Volatility Spillover and Hedging Effectiveness

Extract

M. Kenan Terzioğlu

2   Volatility Spillover and Hedging Effectiveness

Introduction

Energy is one of the important factors in the development policies of countries in global competition as the industrial sector has a major share in energy consumption, since the largest share of primary energy supply is based on fossil sources, fossil resources are used as input in many sectors and fluctuations in prices affects the financial markets. Renewable energy sources can be used directly without any additional tools. Although renewable energy sources have energy supply security, as well as their social benefits and costs are ignored, the use of renewable energy sources remains below its potential due to the factors of geographical position and climate effect. While a large portion of electricity generation from renewable energy sources is done by OECD-30 countries, their share shrinks as BRICS countries grow faster economically. OECD member countries successfully plan flexibility sources, which refer to supply, storage and intense communication among close markets and the management of the demand side. Although the increase in energy demand due to the rapid growth in certain regions reduces the share of renewable energy, the demand for clean environment with increasing prosperity creates an increase in the share of renewable energy resources which are more expensive to meet energy demand. Levelized energy costs for renewable energy sources are higher due to the low capacity factor. Even though the costs of renewable energy sources are high, governments intervene in the market with...

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