Regulatory challenges in developed markets

Transcription

1 20 July 2017 Regulatory challenges in developed markets 15 th ERRA Summer School: Introduction to Regulation Edith Bayer Senior Associate The Regulatory Assistance Project (RAP) Rue de la Science 23 B-1040 Brussels Belgium ebayer@raponline.org raponline.org

2 Outline of presentation 1. The challenge of delivering flexibility 2. The California Duck 3. Market design: delivering reliability at least cost 4. Regional integration Regulatory Assistance Project (RAP) 2

3 1 The flexibility challenge

4 Regulatory Assistance Project (RAP) 4

5 ~1980s - today 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 Regulatory Assistance Project (RAP) 5

6 The road to liberalization Even the longest-standing competitive markets continue to evolve Need to adjust to avoid roadblocks as technologies and policies change Liberalization deregulation regulations necessary

7 New opportunities and challenges Integrating variable renewables Active customers Electrification of transport and heat Legacy of high-emitting, inflexible resources Regulatory Assistance Project (RAP) 7

8 Role of regulation How do we align markets and system operations with these new opportunities and challenges? Regulatory Assistance Project (RAP) 8

9 Source: Adapted from The Power of Transformation (IEA, 2014) Flexibility is key Regulatory Assistance Project (RAP) 9

10 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) Regulatory Assistance Project (RAP) 10

11 Sources of flexibility Regulatory Assistance Project (RAP) 11

12 2 Case Study the California duck Regulatory Assistance Project (RAP)

13 The California duck Regulatory Assistance Project (RAP) 13

14 What is a duck curve? Regulatory Assistance Project (RAP) 14

15 Regulatory Assistance Project (RAP) 15

16 Teaching the Duck to Fly Energy efficiency Peak-oriented RES Manage water pumping Electric H 2 O heaters Large air conditioners w/ storage Tariff design Electricity storage in key locations Demand response Inter-regional power exchanges Requesting Permission for Take-Off

17 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 Not every strategy will be applicable to every utility. Regulatory Assistance Project (RAP) 17

18 End Result Regulatory Assistance Project (RAP) 18

19 3 Challenges in electricity markets Regulatory Assistance Project (RAP)

20 What is the role of markets? Deliver reliability at least cost Can markets deliver sufficient investment to meet established expectations for reliable electric services? Administrative interventions Price caps, high reserve margins Capacity Energy -only? Regulatory Assistance Project (RAP) 20

21 Reliability 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) Regulatory Assistance Project (RAP) Keita Kuroki, 21

22 Generation = 1 of many flex options CSP = concentrated solar power Regulatory Assistance Project (RAP) 22 VRE = variable renewable energy Source: IEA Energy Technology Perspectives 2014

23 Is the market driving investment in the right mix of capabilities? Regulatory Assistance Project (RAP)

24 Different market designs have delivered reliability PJM Capacity market Annual auctions ERCOT (Texas) No capacity market Administrative reserve shortage pricing mechanism Australia NEM No reserve shortage pricing Co-optimization of energy & reserves 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 Regulatory Assistance Project (RAP)

25 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 Texas 2014, Regulatory Assistance Project (RAP) 45083

26 Delivering reliability at least cost Source: RAP, from published system operator data Regulatory Assistance Project (RAP) 26 CRM = Capacity Remuneration Mechanism

27 Range of administrative reliability interventions These are just a few of the many options Energy only market Reserve shortage pricing Strategic reserve Capacity market Regulatory Assistance Project (RAP) 27

28 Source: ACER Market Monitoring Report KEY INSIGHTS AND RECOMMENDATIONS Map of where CRMs introduced in US and EU Regulatory Assistance Project (RAP) 28

29 Capacity markets in the US Regulatory Assistance Project (RAP) 29 Source: FERC,

30 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) Regulatory Assistance Project (RAP) 30

31 Missing money 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) Regulatory Assistance Project (RAP) 31

32 Resource capabilities Increased vres Increased summer peak demand Baseload - night valleys Mid-merit & peak generators DSR Interconnection Market integration Poland as an example Increase DSR programs Solar PV in load centers Network solutions France as an example Time-of-use tariffs+ Electric hot water heaters Baseload is seldom the best solution to the problem and it s often the worst solution. Regulatory Assistance Project (RAP) 32

33 Reserve margins ex LOLE LOLE = loss of load expectation expressed in hours/year VOLL (value of lost load) LOLE = Levelized cost of marginal resource LOLE Source: Idenification of Appropriate Generation and System Adequacy Regulatory Assistance Project (RAP) Standards for the Internal Electricity Market, European Commission. Data From National Grid, UK. Reserve margin 33

34 VOLL Value of lost load 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 Regulatory Assistance Project (RAP) 34

35 VOLL estimates worldwide (USD/MWh) Systemwide Residential 9K - 92K $/MWh 0.1K - 18K $/MWh Large C&I 8K - 77K $/MWh Small C&I 3K - 42K $/MWh Source: European Commmission, Identification of Appropriate Generation and System Regulatory Adequacy Standards Assistance for Project the Internal (RAP) Electricity Market, y%20final%20report_for%20publication.pdf

36 Capacity surplus in Europe Regulatory Assistance Project (RAP) 36

37 Concerns expressed in the Winter package 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 Regulatory Assistance Project (RAP) 37

38 Some proposals to strengthen market design in Europe Motivation challenge of integrating vres Markets to reflect real value of energy Prices capped only at VOLL Develop shortterm markets Markets that deliver flexibility Regulation of network companies Incentive regulation for DSOs Focus on "innovative" solutions EU-wide resource adequacy assessment Limit CRMs to need Regulatory Assistance Project (RAP) Recognizing capacity surplus in much of Europe Enabling demand-side resources Rules on aggregators Right to a smart meter & dynamic tariff "Prosumer" rules 38

39 4 Challenges of integration Regulatory Assistance Project (RAP)

40 Sources of flexibility Regulatory Assistance Project (RAP) 40

41 Benefits of regional governance arrangements EIM = Energy Imbalance Market (Western US) Total Reserve Requirement Duration for EIM Regulation Requirement Duration for EIM Regulatory Assistance Project (RAP) 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 (

42 Bigger + faster markets Regulatory Assistance Project (RAP)

43 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, Regulatory Assistance Project (RAP) 43

44 T capacity allocation Market timeframes Regional markets and operations 1 hr- 5 min Years/months Day ahead 0:00 Forward market with day-ahead Intra-day Time Balancing Network code Forward Capacity Allocation (FA) Codes/guidelines Capacity Allocation and Congestion Manag. Electricity transmission System Operation Balancing Guideline Regulatory Assistance Project (RAP) 44

45 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 Resource adequacy assessment Transmission planning/ investment Regulatory Assistance Project (RAP) 45

46 EU evolving governance structure Introduced or further developed under 3 rd Energy Package Member- States National governments National regulators TSOs* Regional Regional cooperation frameworks Regional Security Coordinators Pan-EU EU Commission, Parliament, Council ACER, Agency for Cooperation of Regulators Power Exchanges Markets/NEMOs 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 Regulatory Assistance Project (RAP) 46

47 Status of market integration Day-ahead market Intraday market Balancing market Regulatory Assistance Project (RAP)

48 Regulatory Assistance Project (RAP) 48

49 Integration of system operations PJM, ISO NE, MISO, SPP (US) More integrated Current EU proposal ROCs Less integrated TSO coordinat ion (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 NordPool (Europe) Northwest Power Pool (US) EIM (emerging) (Western US) ROC Regional Operational Center; RSC Regional Security Center; TSO Transmission System Operator Regulatory Assistance Project (RAP) 49

50 EU evolving governance structure Member- States Regional Pan-EU Introduced or further developed under 3 rd Energy Package Proposed Clean Energy for All package National governments National regulators TSOs* Power Exchanges Regional cooperation frameworks Regional Operational Centers (ROCs) Markets/NEMOs 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 Regulatory Assistance Project (RAP) 50

51 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 Regulatory Assistance Project (RAP) 51

52 Unscheduled flows: 1 B annual welfare losses ACER Market Monitoring Report, 2015 Regulatory Assistance Project (RAP) 52 cer_market_monitoring_report_2015.pdf

53 Approach to resource adequacy Mid/long-term (10 years 1 year) Seasonal (6 months) Short-term (1 week to dayahead) ENTSO-E ENTSO-E ROCs ROCs - Regional Operational Centers, proposed Regulatory Assistance Project (RAP) 53

54 EU RA Assessments in practice - DSR - Interconnectors Different methodologies Pandora s Box of Resource Adequacy 28 Member State Resource Adequacy Assessments VOLL Value of Lost Load; EENS Expected Energy Not Served; LOLE Loss of Load Expectation; LOLP Loss of Load Probability DSR Demand-side resources Regulatory Assistance Project (RAP) 54

55 Adequacy assessments today Regulatory Assistance Project (RAP) 55

56 Summary 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 Regulatory challenges, Assistance Project (RAP) but the benefits are clear. 56

57 Further reading 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 Regulatory Assistance Project (RAP) 57

58 About RAP The 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 Edith Bayer Senior Associate The Regulatory Assistance Project (RAP) Rue de la Science 23 B-1040 Brussels Belgium ebayer@raponline.org raponline.org