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1. (a) Imagine you are a manager for a utility company. Your company
sells two products: electricity and gas. You know from experience
and various market reports that the price elasticity of electricity
demand is -0.60 and of gas demand is -0.20. You need to increase
your revenue, but you can only increase the price of one these
products. Which product will you increase the price of and why?
Assume both products currently result in similar amounts of
revenue and both have the same price on a per unit energy basis.
Show your working with figures.
[6 marks]
(b) What is multicriteria project analysis? Why would you use it
compared to single measures such as benefit cost ratio, payback
period or internal rate of return?
[5 marks]
(c) What is an economic externality? Give an example of positive and
negative externality.
[5 marks]
(d) What are the different policy options to correct a negative
externality in the economy? Briefly describe four of these options
with examples.
[9 marks]

2. (a) What does the Kaya Identity tell us about how to tackle the
challenge of reducing energy-related carbon-dioxide emissions?
Explain your answer fully.
[8 marks]
(b) What is the “Rebound Effect”, and why can it make reducing
energy demand especially challenging?
[5 marks]
(c) The UK government has recently announced an intention to
remove fossil fuel powered cars from sale by 2035. Identify three
key challenges in meeting this deadline, and devise a feasible plan
for overcoming each of them.

3. (a) Imagine you are the strategic operations lead of an energy
exploration company, which supplies both natural gas and crude
oil. Your manager produces a financial feasibility study for a new
natural gas producing well, and a new oil producing well.
Using levelised cost methods, the manager asserts that the
company should develop the natural gas producing well. Would
you agree with this finding? Why or why not?
[3 marks]
(b) What are the four key characteristics of a perfectly competitive
market?
[4 marks]
(c) What is the equivalent annual discount rate for a 3% quarterly
discount rate, compounded quarterly?
[4 marks]
(d) You are thinking about changing the boiler in your house and
purchasing a more energy-efficient one. The new boiler costs
￡2000 and you save ￡200 worth of gas every year. The boiler has
a service life of 15 years and your discount rate is 10%.
Note: Some potentially useful formulae are provided in the data
sheet at the end of the examination paper
(i) Carry out an NPV analysis to decide whether you should buy
the boiler or not.
[6 marks]
(ii) What would be the Internal Rate of Return in this case?
[4 marks]
(iii) There is an additional maintenance cost of ￡100 at the end of
the 8th year. What is the new NPV?
[4 marks]

4. (a) When analysed on a life cycle basis, wind energy systems typically
have carbon dioxide emissions per unit of electrical output of
between 10 gCO2.(kWh)
-1 and 30 gCO2.(kWh)
-1
(i) Given that wind power is produced without the direct use of
fossil fuel, explain why the emissions are not zero.
[4 marks]
(ii) Why are there a range of values rather than a single value? [2 marks]
(b) Figure Q4 shows the main physical (i.e. mass) and energy flows
associated with a proposed biomass energy with carbon capture
and storage (BECCS) electricity generating plant. You may
assume that all flow rates with an associated symbol (e.g. ??????????,
??? ??????????) are known, and remain constant with the plant operating
continuously for 24 hours every day.
Describe fully a calculation procedure that will allow you to
determine if this BECCS plant is capable of producing negative
emissions, setting out the factors that must be taken into account,
and any additional data that is necessary.
[19 marks]
FIGURE Q4.: BECCS system for Question 4(b)

5. (a) Figure Q5 shows the growth in the contribution of selected
renewable energy sources to UK electricity generation over the
period 1990-2018. What technical, policy and economic factors
have driven the trends shown in the figure?
[15 marks]
(b) Increasing the contribution that renewables make to generation
requires changes in the way the electricity system operates, in
terms of both technical design and policy/regulation.
(i) What challenges have been faced by the UK electricity
system in facilitating the growth shown in figure Q5, and how
have they been overcome?
[6 marks]
(ii) If decarbonisation of the energy system continues, outline
any further changes that are likely to be necessary over the
next 20-30 years.
[4 marks]
FIGURE Q5. Data for Question 5.

6. (a) Governments often intervene to support new energy technologies
because of a belief that market failures are hindering their
development and/or deployment.
Carefully describe two types of market failure that might negatively
impact new energy technologies, giving a specific example of each.
[4 marks]
(b) There are different policy types that governments can use to
address these market failures, including technology support policies,
price-based instruments, command and control regulations and
information campaigns.
Explain why a government might need to use a mix of policy types to
promote a low carbon energy system.
[2 marks]
(c) Three examples of technologies that might be facing one or more
market failures are listed below. For each of these technologies,
both explain a significant market failure that the technology might be
facing and describe one example of a policy that can be used by a
government to address this market failure. Your answer should give
specific policy examples i.e. don’t just pick from the general list in
part (b) above, be more specific.
(i) New forms of photovoltaic (PV) cells are being developed that
have higher efficiencies than today’s technology, but further
research is needed to bring down their costs. However, private
companies are reluctant to invest in the required research.
[2 marks]
(ii) Biomass combined heat and power (CHP) plants are a proven
zero-carbon electricity and heat generating technology, but
their overall generation costs are higher than using natural gas
CHP plants. Consequently, industrial companies are choosing
to invest in new gas CHP, rather than biomass CHP despite
the higher carbon emissions that result.
[2 marks]
(iii) Light emitting diode (LED) lightbulbs are commercially
available, but they have a higher purchase price than compact
fluorescent lightbulbs. Sales are therefore low because
consumers do not realise that they will save money overall
because the LEDs use less electricity and last longer.
d)
QUESTION 6 CONTINUED
The country of Sunny Isle has 2 million homes and, since 2010, the
government has been promoting the installation of solar power
through a subsidy towards the installation costs of a 3 kW PV roof_x005f mounted system. As the cost of PV has declined over the years due
to learning-by-doing so the government has adjusted the amount of
subsidy on offer.
Table Q6 below presents some information about this subsidy
scheme. Using this information, answer the following questions:
(i) Describe how the cost per kW of the PV system to the
household has changed over the period 2010 to 2020, once
the government subsidy has been subtracted?
[2 marks]
(ii) Describe fully how the total capacity of PV installed annually in
Sunny Isle has changed from year to year, given that each
system is 3 kW?
[2 marks]
(iii) Over the period from 2010 to 2020 inclusive, compare the total
(cumulative) amounts that (a) households and (b) the
government have paid for the installation of the PV systems on
Sunny Isle?
[4 marks]
(iv) Has the policy been a success? Give two reasons for your
answer.
[5 marks]