Coordinating centralized planning and decentralized implementation of transmission expansion in Brazil
Lessons learned from auctioning transmission for the integration of renewables
Rafael Ferreira‡
Luiz Barroso
‡
PES GM 2015
Panel: Planning Transmission for Co-optimization with
Resource Expansion – Part II
July 28th 2015
Outline
• The name of the game is timing • The good old coordination and its failure • Let the transcos bear the risk? • Let the generators bear the risk? • Stronger involvement of the planning function • It isn’t over yet…
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• Coordination of transmission and (renewable) generation expansion in Brazil has been facing difficulties – Public & private agents; market-oriented and regulated environments
– Coordination, design of incentives, allocation of risks anything but simple
• Lately, timing has been one of the main issues: – Transmission delays large amounts of stranded renewable generation
The name of the game is timing 3
Centralized, determinative
T planning (Para)govern-mental bodies
Ministry Plan. Agencies‡
Organize T auctions
Design penalties, incentives
Regulator
‡ Planning Agencies: here, reference to Energy Research Agency (planner) and National System Operator (ISO)
Compete in G auctions
Connect to grid Energy sales
(Renewable) gencos
Compete in T auctions
Build & operate T facilities
Fixed revenues
Transcos
The good old coordination… • At first, coordination based on transmission implementation
being quicker than generation implementation worked well
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Time
Generation auction
COD
3 years for G implementation by genco
Decentralized expansion Location, capacity
known after auction
Transmission planning
Centralized planning
Transmission auction
Decentralized imple-
mentation
Competitive process
2 years for T implementation by transco
Competitive process
… and its failure • Generation auctions began to be held 2.5 or 2 years ahead of COD • Actual implementation times for transmission increased notably
– Delays largely (but not solely) related to environmental licensing process
• Stranded (ready to operate, but disconnected from grid) generation
– Trading cannot happen. Who pays? Who bears the risk? – Since 2008-2009, it had been the consumers (buyers). But in ~2013 the
amount of stranded generation was such that this was no longer viable.
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Let the transcos bear the risk? • Competition in auctions for
transmission concessions has several advantages… but also limitations: – The multiplicity of agents and the
scale of transcos does not allow them to bear the risks of stranded generation
– Ex.: monetary amount of purchases of mere 100 MW in the spot market in one year (implementation delays ≫ 1 year are common) are more than 100% of the annual revenues of 85% of the transcos.
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~85% of transcos
• Delays in environmental licensing are not always attributable to transcos bureaucratic process with interactions with several governmental bodies and diffuse responsibilities
• Naturally, there are incentives for transcos to comply with implementation deadlines in Brazil: – Chronology:
• But these do not suffice to cover the exposure of the contractual counterparties when generation gets stranded. – And these incentives alone do not seem to have been sufficient to
mitigate the problem of delays.
2012 (+): Preclusion from participation in subsequent auctions
Let the transcos bear the risk? 7
Early incentives (that persist nowadays): Execution of completion bonds (5% of estimated capex of facilities) Regulated revenues received only after actual commencement of commercial operation Discounts and penalties due to delays
2014 (+): More clear conditions for execution of completion bonds
2015 (+): Completion bonds increase to 10% of capex
Let the generator bear the risk? • Another option would be to simply let the generator
bear the risk (and introduce no other improvements): – Implemented in some generation auctions. – But the risks of foregoing revenues (transmission delays
exceeding 1 year are not uncommon) in the beginning of the project lifetime hurt cash flows significantly
• Some entrepreneurs find risks too high drop out of auctions
– Though gencos can theoretically seek to choose the most “safe” connection points for their projects, they have no way of influencing the implementation of transmission
• And in Brazil there are no instruments such as FTRs that allow them to hedge against the risks of insufficient transmission capacity
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Stronger involvement of planning function • The current solution was obtained with a stronger commitment
of the planning function to the process: – Generators still bear the risks of transmission delays. Plus… – “Transmission allowances”:
• Before auction: ISO determines the maximum generation capacity that can be contracted at each substation (and “electrical areas”)
• During auction: candidate projects at each substation compete, with basis on prices, for transmission capacity
– Centralized agency with responsibility for determinative transmission expansion planning does proactive planning of bulk transmission system
• Attempts to involve central planner in environmental licensing: – Currently: licenses obtained by T auction winners only after T auction – Ongoing discussions about making central planner responsible for
obtaining T environmental licenses before transmission auctions
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Some challenges under this approach • Determination of “transmission
allowances” is complex: – Exact contractible capacity:
depends on amounts contracted in other substations, grid interactions determination before auction not technically unequivocal
• An iterative determination of “allowances” within auction process could solve this… – … but make process too
complex and opaque for investors.
• Current auction process: 1. Sealed-bid stage, projects
with lowest bids until “allowance” is met continue in following stages
2. Descending clock stage 3. Final sealed-bid stage
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Source: ONS
Some challenges under this approach • Proactive bulk transmission planning:
– Central planning of transmission with as much antecedence as possible with respect to generation auctions transmission auctioned and construction begins before generation auctions winners are known
– Best efforts of central planner, best information available • Information asymmetry? • How to avoid “picking winners”? • Risks of underutilization of transmission facilities borne basically by consumers.
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Investments are sizable: hundreds of km of OHTL, hundreds of MVA of transformation capacity
Proactive transmission expansion decisions
Best info on high-quality wind potential
Source: EPE
Conclusions (it isn’t over yet) • The “transmission allowances” were not used in all auctions:
– When not used, generators perceive higher risks of being stranded. – When used, theoretically higher risks of:
• Sub-optimal auction results (ex ante calculation); strategic behavior (segregation of demand). • Up to now, no complaints by agents or governmental bodies regarding the topics above.
• Experiences with proactive planning still incipient, but: – First transmission facilities auctioned: annual revenues of ~145 BRL million – Large number of renewables connecting to these facilities won auctions
these specific facilities allowed access to very high-quality wind resources – Will concerns with “picking winners” appear later?
• Attempts to make central planner responsible for obtaining environmental licenses for transmission before auctions: – Would reduce risks of transcos. But would speed up whole expansion process?
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Questions? Thanks!
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Coordinating centralized planning and decentralized implementation of transmission expansion in Brazil:
Lessons learned from auctioning transmission for the integration of renewables
IEEE PES GM 2015, July 2015
R. Ferreira‡
L. Barroso
