regulatory challenges for the european power grid industry
DESCRIPTION
Jean-Michel Glachant launches the Future Power Grid Managers Programme. Opening Seminar: setting the scene & projects launching, 3 October 2013, FlorenceTRANSCRIPT
Regulatory challenges for
the European power grid
industry
Jean-Michel Glachant Future Power Grid Managers Programme
3rd October 2013, Florence
www.florence-school.eu
Context Fundamental changes in the power system
• Today’s generation mix split into two opposite sets of generators:
• Technological innovation allows for decentralization of the production-consumption loop
- Distributed generation… + active demand response and local energy storage
- “Smartening” of the grid and grid users
• Diverse national systems aiming to become an interconnected market
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Conventional generators
… bearing significantly increased uncertainty, and a foreseeable depressed future
Intermittent RES generators
… bearing no significant risk for capacity, volume or price
Need for a wave of investments as well as technological and operational innovation
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4 (+1) Dimensions of regulatory intervention i.e. areas where regulatory change is expected
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Infrastructure planning
Grid operation
Infrastructure financing
Revenue regulation & tariff design
Existing regulatory frame has not been conceived to steer the wave of investments and innovation
National approaches… … or rationales for European solutions?
www.florence-school.eu
Infrastructure planning (1/2)
Addressing the cross-border effect of the national and interconnection infrastructure projects
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• Single Cost Benefit Analysis (CBA) method
will be used for selecting priority projects
• Proposal published by ENTSO-E end of 2012
• But still certain freedom for regional groups
to decide which effects to monetize and
how to monetize
1. How to select “projects of common interest”?
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Infrastructure planning (2/2)
2. How to allocate cost among beneficiaries, Member States, …?
– Cross-Border Cost Allocation (CBCA) method to be concerted at European level recommendations currently developed by ACER
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• Ex-ante
• Ex-post
When?
• 50-50
• Proportional • Compensating
losers
To which extent?
• Project • Group of
projects
To what?
3. Should grid operators also be responsible for the planning of and investments into new types of infrastructure?
– E.g. advanced meters, electric vehicle charging infrastructure, etc.
www.florence-school.eu
Infrastructure financing (1/2)
• Significant investments needed for transmission network:
– TYNDP 2012: €104 billion over next 10 years for new projects (80% for RES integration)
– IEA: > 40% of existing network to be refurbished by 2035
Pace and volume of investments to increase significantly (investments over 5 years roughly equal to asset size in 2011)
• Large-scale investments in a context of low demand growth will impact tariffs
How to distribute the impact (and make it acceptable!) among:
– Conventional generators / intermittent RES / consumers / tax-payers
– Member States
– Different generations of network users
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www.florence-school.eu
Infrastructure financing (2/2)
• Not only a problem of volume
High up-front capital expenditures must be financed today by borrowing money and/or selling ownership
• TSOs already highly geared (60-70% debt)
Emitting debt will lead to a downgrade of TSOs credit profiles
• Three financing alternatives:
– Current owners injecting equity BUT difficult in a context of cash-strapped states and publicly-owned TSOs
– New investors injecting equity BUT requires opening ownership of infrastructures
– Financing growth by retaining dividends BUT facing reluctance of investors
How to design an attractive framework (keep risk low + adequate return) to attract investors?
How to design an unrestrictive framework open to new business-models?
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www.florence-school.eu
Revenue regulation and tariff design (1/2)
• How to account for new set of services, massive investments and innovation?
– Performance-based regulation?
– New set of KPIs?
– Longer regulatory periods to reduce risks?
• How to adequately incentivize grid users?
– Can a large share of grid users (e.g. RES-E) remain isolated from economic signals?
– Abandon “shallow” connection costs?
– Introduce locational and/or time signals?
– Substitute typical “light Generation charge / heavy Load charge” with “heavy G / light L”?
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www.florence-school.eu
Revenue regulation and tariff design (2/2)
• Current patchwork of national regulatory approaches
– Further convergence of regulatory practice?
– Some harmonization in grid tariff design?
– Can we deal with several thousand (sub-national) DSOs throughout Europe?
• Existing exemptions from grid tariffs for selected consumers
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Illegal state aid
(Lower energy bills for some companies give them a cost advantage over competitors in other EU countries)
Investigation launched by the EC
GERMAN CASE:
- Exemptions (or reductions) from grid fees, “EEG contribution”, electricity tax
- … for selected consumer groups (e.g. steelmaking, chemicals or cement industries)
Requirement to enable those energy-intensive companies to compete internationally
German Government’s reasoning
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Grid operation (1/2)
Flows never stop at borders, neither does flexibility!
• How to provide efficient regulatory incentives to use the right range of flexibility instruments to operate the grid?
– Generation, storage, demand response, flow-control technology, etc.
– National or foreign
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Case of Orkney Islands (near Scottish mainland)
- Challenge: integrating more RES constrained by congestion on submarine cable
- Option 1: new submarine cable
- Option 2: active network management + procurement of congestion management services from third party energy storage providers
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Grid operation (2/2)
Flows never stop at borders, neither does flexibility!
• How to provide efficient regulatory incentives to achieve the right scale of operational cooperation?
– Local imbalances or congestion calling for local solutions (e.g. smart grids/smart cities)
– Cross-border flows calling for regional cooperation to operate the grids (e.g.
European Network Codes)
– Local, national and regional levels are interdependent
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Case of CORESO (service provider for TSOs - e.g. Elia, 50Hertz, Terna, RTE, National Grid…)
- Challenge: unpredictable flows transcend national TSO grids
- Solution: CORESO provides grid-security analyses (and other services) on regional scale with input of national TSOs
www.florence-school.eu 12
Thank you for your attention Email contact: [email protected] Follow me on Twitter: @JMGlachant
Read the Journal I am chief-editor of: EEEP “Economics of Energy & Environmental Policy”
My web site: http://www.florence-school.eu