Post on 09-Aug-2020
transcript
Edith Bayer
Senior Associate
The Regulatory Assistance Project (RAP)®
Rue de la Science 23
B-1040 Brussels
Belgium
+32 2 789 3011
ebayer@raponline.org
raponline.org
20 July 2017
15th ERRA Summer School: Introduction to Regulation
Regulatory challenges in developed markets
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1. The challenge of delivering flexibility
2. The California ”Duck”
3. Market design: delivering reliability at least cost
4. Regional integration
Outline of presentation
1 The flexibility challenge
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“Liberalization” Market integration Environmental protection
Move towards competitive wholesale and retail markets
Wholesale market integration
Air quality regulations
“Unbundling” Linking balancing areas GHG regulations/pricing
Third party access Transmission projects of “common interest”
Land/water regulations
5
~1980s - today
Even the longest-standing
competitive markets
continue to evolve
Need to adjust to avoid
roadblocks as technologies
and policies change
Liberalization ≠ deregulation
– regulations necessary
The road to ”liberalization”
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New opportunities and challenges
Integrating variable renewables
Active customers
Electrification of transport and heat
Legacy of high-emitting, inflexible resources
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Role of regulation
How do we align markets and system operations with these
new opportunities and challenges?
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Flexibility is key
Sou
rce:
Ad
apte
d f
rom
Th
e P
ow
er o
f Tr
an
sfo
rma
tio
n (
IEA
, 20
14
)
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Flexibility ≠ balancing services
• Variable RES changes the dynamics of the power system • More rapid frequency changes require more, faster
reserves• Smaller plants may reduce need for contingency
reserves…• …But possibilities for “common mode failure” (ex. Calm
wind period over large geographic area)• Many other considerations
• Significantly increases 30-minute to multi-hour ramping reserve requirements (energy market timescales – how much depends on the size of the balancing area)
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Sources of flexibility
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2 Case Study – the California “duck”
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The California “duck”
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What is a “duck curve”?
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Teaching the Duck to Fly
Requesting Permission for Take-Off
Energy efficiency
Peak-oriented RES
Manage water pumping
Electric H2O heaters
Large air conditioners w/ storage
Tariff design
Electricity storage in key locations
Demand response
Inter-regional powerexchanges
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Ten Strategies to Align Loads ⬌ Resources
1. Targeted energy efficiency
2. Peak-oriented renewables
3. Manage water pumping
4. Grid-integrated water heating
5. Storage air-conditioning
6. Tariff design
7. Electricity storage in key locations
8. Demand response
9. Inter-regional exchanges
10. Retire inflexible older generating units
17
Not every strategy will be applicable to every utility.
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End Result
18
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3 Challenges in electricity markets
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What is the role of markets?
Can markets deliver sufficient investment to
meet established expectations for reliable
electric services?
Energy-only?
Deliver reliability at least cost
Capacity
Administrative interventions –Price caps, high
reserve margins…
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Many approaches to setting reliability
standard
- Clear, objective standard
- Assessed over largest practical
footprint
- Account for all cost-effective
resources of capacity
- Transparency and public
engagement essential (and
often lacking) 21
Reliability
Keita Kuroki, https://flic.kr/p/iufich
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Generation = 1 of many flex options
Source: IEA Energy Technology Perspectives 2014
CSP = concentrated solar powerVRE = variable renewable energy
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Is the market driving investment in the right mix of capabilities?
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• Capacity market
• Annual auctionsPJM
• No capacity market
• Administrative reserve shortage pricing mechanism
ERCOT (Texas)
• No reserve shortage pricing
• Co-optimization of energy & reservesAustralia NEM
Conclusions:• All three markets have attracted new investment• Stable markets for 10+ years• Transparent, independent market operation and price formation• Market-driven replacement of inflexible baseload generation with flexible new
dispatchable resources
Different market designs have delivered reliability
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”Reliability” never means reliability at any cost
Source: The Brattle Group, Estimating the Economically Optimal Reserve Margin in ERCOT, prepared for the Public Utility Commission of Texas2014, http://www.brattle.com/system/news/pdfs/000/000/613/original/Estimating_the_Economically_Optimal_Reserve_Margin_in_ERCOT.pdf?1391445083
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Delivering reliability at least cost
CRM = Capacity Remuneration Mechanism
Source: RAP, from published system operator data
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These are just a few of the many options
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Range of administrative “reliability” interventions
Energy only market
Reserve shortage pricing
Strategic reserve
Capacity market
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Map of where CRMs introduced in US and EU
Sou
rce:
AC
ER M
arke
t M
on
ito
rin
g R
epo
rt 2
01
5 -
KEY
INSI
GH
TS A
ND
REC
OM
MEN
DA
TIO
NS
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Capacity markets in the US
Source: FERC, https://www.ferc.gov/industries/electric/indus-act/rto.asp
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Tailoring solutions to address the problem
Common problems
"Missing money" (market prices not driving investment to support new and existing resources) – what are the underlying causes?
Need for more resource capabilities – what’s needed, more MW or something more?
Lack of trust that the market will deliver – too much admin intervention can undermine the market
Need for grid reinforcements – may want to combine with non-network alternatives (energy efficiency/demand response)
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Real causes of insufficient price signals for
investment:
• Price caps well below the value of lost load
• High reserve margins, leading to surpluses
• Failure to reflect marginal costs of all actions in
scarcity events (ex. balancing market prices
based on average prices)
• Surplus capacity (that may not be delivering
needed operational capabilities)31
“Missing money”
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Resource capabilities
• Mid-merit & peak generators
• DSR
• Interconnection
• Market integration
Increased vRES
• Poland as an example
• Increase DSR programs
• Solar PV in load centers
• Network solutions
Increased summer peak
demand
• France as an example
• Time-of-use tariffs+
• Electric hot water heatersBaseload - night
valleys
Baselo
ad is seld
om
the b
est so
lutio
n to
the p
rob
lem an
d it’s
often
the
wo
rst solu
tion
.
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LOLE = “loss of load expectation” expressed in hours/year
LOLE =Levelized cost of
marginal resource
33
Reserve margins – ex LOLE
VOLL (value of lost load)
LOLE
Reserve margin
Source: Idenification of Appropriate Generation and System Adequacy Standards for the Internal Electricity Market, European Commission. DataFrom National Grid, UK.
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“Value of lost load”
34
VOLL
Estimation in cost/MWh of the maximum electricity
price that customers are willing to pay to avoid
being curtailed due to inadequate available
generation:
• Varies by customer class
• Varies by methodology applied
• Generally, very high price – much higher than
typical price caps
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VOLL estimatesworldwide (USD/MWh)
• 9K - 92K $/MWhSystem-
wide
• 0.1K - 18K $/MWhResidential
• 8K - 77K $/MWhLarge C&I
• 3K - 42K $/MWhSmall C&I
Source: European Commmission, Identification of Appropriate Generation andSystem Adequacy Standards for the Internal Electricity Market, 2016. https://ec.europa.eu/energy/sites/ener/files/documents/Generation%20adequacy%20Final%20Report_for%20publication.pdf
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Capacity surplus in Europe
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• Capacity markets distorting prices &
competition – raising prices for consumers
• Resource adequacy methodologies based on
MS assessments; lack of regional/EU wide
assessment
• EU has over-capacity
• Market distortions limiting signals needed to
stimulate investment in flex & DSR
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Concerns expressed in the Winter package
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Motivation – challenge of integrating vRES
38
Some proposals to strengthen market design in Europe
• Rules on aggregators
• Right to a smart meter & dynamic tariff
• "Prosumer" rules
• EU-wide resource adequacy assessment
• Limit CRMs to need
• Incentive regulation for DSOs
• Focus on "innovative"
• solutions
• Markets to reflect real value of energy
• Prices capped only at VOLL
• Develop short-term markets Markets that
deliver flexibility
Regulation of network
companies
Enabling demand-side
resources
Recognizing capacity
surplus in much of Europe
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4 Challenges of integration
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Sources of flexibility
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Total Reserve Requirement Duration for EIM
Regulation Requirement Duration for EIM
Benefits of regional governance arrangementsEIM = Energy Imbalance Market (Western US)
Source: U.S. National Renewable Energy Laboratory, “Flexibility Reserve Reductions from an Energy Imbalance Market with High Levels of Wind Energy in the Western Interconnection” (http://www.nrel.gov/docs/fy12osti/52330.pdf)
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”Bigger” + “faster” markets
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Europe – range of annual cost savings in integration scenarios relative to baseline, RES market scenario, 2030
Booz&Co, Benefits of an Integrated European Energy Market, https://ec.europa.eu/energy/sites/ener/files/documents/20130902_energy_integration_benefits.pdf
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1 hr-5 min
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Regional markets and operationsYears/months Day ahead 0:00
Forward market with day-ahead
Intra-day
BalancingMar
ket
tim
efra
me
sT
cap
acit
y al
loca
tio
n
Network codeForward Capacity Allocation (FA)
Codes/guidelinesCapacity Allocation and Congestion Manag.Electricity transmission System Operation
Balancing Guideline
Time
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System/market operations
What should the role be of:
• State/country entities (TSO’s, regulators, state/national governments, markets)
• Regional entities (regional/EU regulators, regional system operators, regional markets)
Market operations
System operations
Transmission planning/
investment
Resource adequacy
assessment
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EU – evolving governance structure
Member-States
National governments
National regulators
TSOs*
Power Exchanges
Regional
Regional cooperation frameworks
Regional Security Coordinators
Markets/NEMOs
Pan-EU
EU Commission, Parliament,
Council
ACER, Agency for Cooperation of
Regulators
ENTSO-E (TSOs)
NEMO – Nominated Electricity Market Operator; TSO – Transmission System Operator* Other alternatives for transmission unbundling include Independent Transmission Operators and Independent System Operators
Introduced or further developed under 3rd Energy
Package
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Status of market integration
Day-ahead market
Intraday market
Balancing market
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Integration of system operations
TSO coordination
(RSCs)
TSO coordination + some centralized functions (Regional Operational Centers, ROCs)
Power pools –greater coordination of markets + system operations
Regional Independent System Operators
European-wide Independent System Operator
Current EU proposalROCs
Less integrated
More integrated
ROC – Regional Operational Center; RSC – Regional Security Center; TSO – Transmission System Operator
NordPool (Europe)Northwest Power Pool (US)EIM (emerging) (Western US)
PJM, ISO NE, MISO, SPP (US)
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EU – evolving governance structure
Member-States
National governments
National regulators
TSOs*
Power Exchanges
Regional
Regional cooperation frameworks
Regional Operational
Centers (ROCs)
Markets/NEMOs
Pan-EU
EU Commission, Parliament,
Council
ACER, Agency for Cooperation of
Regulators
ENTSO-E (TSOs)
NEMO – Nominated Electricity Market Operator; TSO – Transmission System Operator* Other alternatives for transmission unbundling include Independent Transmission Operators and Independent System Operators
Introduced or further developed under 3rd Energy
Package
Proposed –“Clean Energy for All”
package
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Regionalization
RSCs
•TSO cooperation
•Operational planning security analysis
•Coordinated capacity calculation
•Outage planning coordination
•Short/medium adequacy forecasts
• Individual & common grid model delivery
ROCs
•Decisionmaking capability
•Regional entity
•Regional sizing of reserve and balance requirements
•System adequacy forecasts (near-term)
•Calculate maximum entry capacity for external generation
ROC – Regional Operational Center; RSC – Regional Security Coordinator
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Unscheduled flows:€1 B annual welfare losses
ACER Market Monitoring Report, 2015http://www.acer.europa.eu/official_documents/acts_of_the_agency/publication/acer_market_monitoring_report_2015.pdf
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Approach to resource adequacy
Mid/long-term (10 years – 1
year)
Seasonal (6 months)
Short-term (1 week to day-
ahead)
• ENTSO-E
• ENTSO-E
• ROCs
ROCs - Regional Operational Centers, proposed
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Pandora’s Box
of
Resource
Adequacy 28 Member State Resource Adequacy Assessments
Different methodologies
- DSR - Interconnectors
EU RA Assessments in practice
VOLL – Value of Lost Load; EENS – Expected Energy Not Served; LOLE – Loss of Load Expectation; LOLP – Loss of Load ProbabilityDSR – Demand-side resources
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Adequacy assessments today
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1. Market design and regional integration are central to ensuring low-cost reliable electricity systems with increasing penetration of renewables.
2. The California ”Duck” demonstrates the value of demand side management in particular to cost-effective integration of vRES.
3. Markets must send price signals that reflect the value of different resource capabilities. Different designs can work. But for any market, removing distortions, enabling participation of demand-side resources, and opening to cross-border trade are key.
4. Reliability is essential, but reliability at the lowest reasonable cost is a matter of capabilities, not capacity.
5. Regional integration poses significant governance challenges, but the benefits are clear. 56
Summary
Regulatory Assistance Project (RAP)®
RAP, Electricity Regulation in the US: A Guide
RAP, Teaching the “Duck” to Fly, Second Edition
RAP, Hitting the Mark on Missing Money: How to Ensure
Reliability at Least Cost to Consumers
IEA, The Power of Transformation – Wind, Sun and the
Economics of Flexible Power Systems
57
Further reading
Edith Bayer
Senior Associate
The Regulatory Assistance Project (RAP)®
+32 2 789 3011
ebayer@raponline.org
raponline.org
Rue de la Science 23
B-1040 Brussels
Belgium
About RAPThe Regulatory Assistance Project (RAP)® is an
independent, non-partisan, non-governmental
organization dedicated to accelerating the transition
to a clean, reliable, and efficient energy future.
Learn more about our work at raponline.org