Application of ENTSO-E CBA methodology for capital expenditures assessment
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- Randell Tyler Cain
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1 Application of ENTSO-E CBA methodology for capital expenditures assessment Robert Schroeder 1 st ERRA Educational Workshop Energy Capital Investment Programs Brussels, 4 March All rights reserved 1
2 Contents 1 Introduction and scope 2 Calculation parameters 3 Benefit and cost All rights reserved 2
3 Introduction and All rights reserved 3
4 ENTSO-E CBA Methodology Legal requirement Regulation (EU) 347/2013 Used to transparently assess and present the benefits and costs of the TYNDP and PCI All rights reserved 4
5 Role of ENTSO-E s CBA All rights reserved 5
6 Overview of All rights reserved 6
7 Calculation All rights reserved 7
8 Scenarios and time horizon ENTSO-E assesses projects against different scenarios of the future there is no leading scenario Changes since 1st CBA methodology Explicit requirement to use two mid-term time horizons Rounded years to full 5 All rights reserved 8
9 Modelling framework Project assessment Project definition and technical capacity Project costs Scenario Market simulation CBA market indicators Generation, consumption and exchange patterns Residual impact indicators Grid model Network simulation CBA network All rights reserved 9
10 Geographic All rights reserved 10
11 Baseline/reference network Project assessment requires a reference situation built up from starting grid by successively adding project should represent the assumptions made by the scenarios Changes since 1st CBA methodology: included in the guideline scenario 1 scenario 2 reference grid P3 reference grid reference grid starting grid P2 P1 reference grid starting grid P2 All rights reserved 11
12 PINT and TOOT TOOT and PINT: Changes since 1st CBA methodology: more detailed consideration of project All rights reserved 12
13 Clustering of investments Strict eligibility criteria for clustering. Investments must: be complementary (competing investments are thus ruled out by definition!) contribute to realizing the potential of another investment (investments that contribute only marginally cannot be clustered!) be in a similar or close stage of development Procedure 1. Pick a main investment 2. Determine the required supporting investment(s) and check whether clustering is allowed Changes since 1st CBA methodology: Improved clarity of rules, although maintaining the same objective: cluster when necessary, but don t allow for excessive clustering! Ongoing improvements: consideration of delayed investments investments that only marginally contribute must not be All rights reserved 13
14 Transfer capability calculation Different ways to express capacity exist: Thermal line ratings [in MVA] Grid Transfer Capacity (GTC) [physical flows in MW] Net Transfer Capacity (NTC) [market flows in MW] Goal for CBA: report how much electricity transfers can be accommodated (i.e., commercially available capacity) Image source: Elia, 2017 Changes since 1st CBA methodology: Report NTC values, instead of GTC Further thoughts for the future: - Flow-based assessment of market flows, i.e., making a direct link between physical and market All rights reserved 14
15 2nd CBA guideline Storage projects Storage is a main part of CBA Principle: no discrimination between storage and transmission Changes since CBA 1 1. Storage is moved from annex to chapter 2. Improved consistency in computation of storage/transmission 3. System flexibility indicator: tailormade computation for storage All rights reserved 15
16 Internal projects Challenges Changes since CBA 1 Benefits of internal projects with small impact on cross-border flows are underestimated, because internal congestions are not taken into account 1. included a separate section on internal projects 2. considering internal congestions using redispatch simulations using fictive market areas (for modelling purpose All rights reserved 16
17 Benefit and cost All rights reserved 17
18 B1. Socio-economic welfare Variation in variable cost of generation (generation cost savings) cheaper units are made available by transmission projects reduction of marginal cost (prices) difference decreasing overall system costs B1 (SEW) already includes: reduced generation costs due to renewables with zero marginal costs reduced generation costs due to reduced CO 2 emissions Indicator directly given as monetary All rights reserved 18
19 B2. RES integration Separately reported as one of the EU targets Monetary value partly included in B1 reduced costs due to RES integration Additional value (no double counting) RES integration benefits included in B1 additional value Improvements development of concepts for monetising the additional value given in under B1 as generation cost savings qualitative All rights reserved 19
20 B3. Variation in CO 2 emissions Separately reported as one of the EU targets Monetary value partly included in B1 reduced costs due to RES integration Additional value (no double counting) CO 2 variation benefits included in B1 additional value Improvements development of concepts for monetising the additional value given in under B1 as generation cost savings (due to emission-cost component in generation costs) qualitative All rights reserved 20
21 B5. Variation in losses New projects change the network topology and flows, resulting in a change in losses Projects may decrease or increase losses! Changes since CBA 1 1. Mandatory monetization of losses 2. Calculation of losses should be representative for pan-european All rights reserved 21
22 B6/B7/B8: Security of supply 2 nd CBA methodology introduces a new indicator structure for security of supply Old security of supply-related indicators: B1: security of supply B6: technical resilience B7: All rights reserved 22
23 B6. Additional adequacy margin Variation in energy not served (ENS; in [MWh / yr]) Monetisation based on VOLL Additional adequacy margin (in [MW]): P max,a P All rights reserved 23
24 B7. System flexibility Contribution of transmission capacity to enhance the ability of the system to deal with increased ramping All rights reserved 24
25 B7. System flexibility (continued) The maximum hourly ramp of residual load (maximum absolute value in MW at the 99.9 percentile in respective time series) R 0,max ; The existing GTC value in MW given as GTC old ; The remaining maximum hourly ramp of residual load (equal to maximum hourly ramp of residual load existing GTC) defined as R r,max = R 0,max GTC old GTC for the new All rights reserved 25
26 B8. System stability Element Transient Stability Voltage Stability Frequency Stability New AC line New HVDC (between sync areas) AC line series compensation AC line high temperature conductor / conductor replacement (e.g. duplex to triplex) AC line Dynamic Line Rating MSC/MSR (Mechanically Switched Capacitors/Reactors) SVC : Adverse effect: the technology/project has a negative impact on the respective indicator. 0: No change: the technology/project has no (or just marginal) impact on the respective indicator. +: Small to moderate improvement: the technology/project has only a small impact on the respective indicator. ++: Significant improvement: the technology/project has a big impact on the respective indicator. N/A: Not relevant: if a particular project is located in a region where the respective indicator is seen as not relevant, this should also be highlighted by reporting N/A. STATCOM Synchronous condenser + ++ All rights reserved 26
27 Benefit Guidelines for project NPV calculation General guidelines if NPV calculation is required Parameters as agreed with ACER: commiss Common (social) discount rate: 4% Assumed economic lifetime: 25 years Residual value: 0 For years from year of commissioning (start of benefits )to the first mid-term: extend the first midterm benefits backwards. For years between different mid-term, long term, and very long term (if any): linearly interpolate benefits between the time horizons. For years beyond the farthest time horizon: maintain benefits of this farthest time horizon All rights reserved 27
28 Thank you for your attention! All rights reserved 28
29 All rights reserved 29
30 Back-up slides 1 scenarios TYNDP TYNDP 2016 results (CBA All rights reserved 30
31 Scenario framework Stakeholder input helped define the framework as a combination of approaches, leading to the best of both All rights reserved
32 Scenario framework Following collaboration with the European Commission, value was seen to incorporate an external scenario into the framework EUCO3 0 Following the publication of the Clean Energy Package, the EUCO30 policy scenario was All rights reserved
33 Global Climate All rights reserved Global emissions trading scheme Large scale development of renewable resources. Low Carbon technologies. High economic growth & Energy Efficiency Electric and gas vehicles displace oil in the private transport sector Gas helps the decarbonisation of the shipping and heavy good transport sectors Power-to-gas commercially available. Biomethane Electric and hybrid heat pump technology help to decarbonise heating
34 Sustainable All rights reserved National focus on climate change, driven by ETS and national subsidies Steady growth of renewable resources Moderate economic growth Gas sees significant growth in the shipping and transport sectors Electrification of heating and transport sees stable development Strong development in Bio-methane but none in Power-to-gas Heat pump technology most common in new buildings
35 Distributed Generation Prosumer lead climate action, helped by strong EU Policies and an efficient ETS. Storage drives climate action Decentralised growth of renewable resources High economic growth Smart cities enabled with electricity storage and demand response Decarbonisation of transport driven by electric vehicles Hybrid heat pumps offer consumer choice and All rights reserved Page 35
36 European Commission EUCO 30 EUCO30 is a core policy scenario produced by the European Commission The scenario models the achievement of the 2030 climate and energy targets as agreed by the European Council in 2014, but including an energy efficiency target of 30% The ENTSOs both welcome this new collaboration with the European Commission and further All rights reserved
37 Key indicators Transport Heating Power Renewable All rights reserved
38 Electricity demand New use of electricity leads to a demand increase across all scenarios, mitigated by energy efficiency All rights reserved
39 Comparison with External Scenario Electricity Demand Gas Demand All scenarios sit in the range of the World Energy Outlook All rights reserved
40 Electricity Generation Mix Generation mix shifts towards low carbon All rights reserved
41 Electricity - RES Share of demand The electricity renewable share could exceed 75% by All rights reserved
42 Combined Electricity and Gas sectors: CO2 Emissions and All rights reserved
43 Scenario Building Data Collection Validation Optimisation Electricity Market Studies All rights reserved
44 Scenario development top All rights reserved 44
45 Scenario All rights reserved 45
46 Scenario prices Global Climate Action Sustainable Transition Distributed Generation Action CBG Coal before Gas GBC Gas before Coal ST Sustainable Transition DG - Distributed Generation GCA - Global Climate /net GJ /ton CO2 price provide the largest variance between All rights reserved
47 Electric Vehicles & Heat Pumps Decarbonisation of heating and transport see a significant uptake of new All rights reserved
48 Gas Demand Gas demand decreases compared to recent history and over time, with decarbonisation influencing sectors All rights reserved
49 Gas Demand ST 2040 GCA 2040 Evolution of demand varies between countries over time and is influenced by sectoral All rights reserved
50 Peak gas demand Peak demand requirement remain high, in particular to address the variability of renewable All rights reserved
51 Electricity Installed Capacity Solar and wind capacity drive the increase in renewable All rights reserved
52 Electricity Generation Mix ST 2040 GCA 2040 The scenarios create contrasted country level All rights reserved
53 Supply Gas Import requirements driven by demand and renewable gas All rights reserved
54 Supply Gas Based on external sources, a diverse range of supply is available with the maximum potential increasing over All rights reserved
55 Gas - RES Share of demand The gas renewable share shows significant increase over time, while potential production may well exceed these All rights reserved
56 TYNDP All rights reserved 56
57 Benefits of TYNDP 2016 investments for European market integration Without TYNDP 2016 investments With TYNDP investments Average price spread at each border in Vision 3
58 TYNDP Investment needs, and main boundaries and barriers Ireland - Great-Britain Norway and continent- Great-Britain Nordic - mainland, West Nordic - mainland, East Baltic states integration Central East integration Iberian peninsula integration Italian peninsula integration South-East integration Eastern Balkan border
59 V1 V targets for interconnection capacities (TYNDP2016) V3 V4
60 2030 Transmission adequacy (TYNDP 2016)
61 TYNDP A resilient portfolio of tailor-made investment solutions
62 TYNDP A resilient portfolio of tailor-made investment solutions
63 TYNDP 2016 portfolio: overview of main elements Type of element Number of elements (total) Number of elements (new) Overhead Line Phase Shift Transformer 7 5 Subsea Cable Substation (incl. converters) Underground Cable 15 15
64 TYNDP Fostering citizens buy-in: making information accessible Environmentally protected areas Length breakdown of projects in sensitive areas Dense urban areas Negligible or less than 15km 15-25km 25-50km More than 50km
65 TYNDP Building the grid requires everyone s support Support from local citizens through innovative solutions Political support on all levels A stable regulatory framework, with improved PCIs reviews Evolution of the TYNDP 2014 portfolio
66 TYNDP Additional grid transfer capacity in the TYNDP: current status
67 Additional grid transfer capacity: progress between TYNDPs 2014 and 2016
68 Socio-economic welfare gains through added capacity in each scenario TYNDP 2016 boundaries: GB Continental Europe and Nordics
69 Socio-economic welfare gains through added capacity in each scenario TYNDP 2016 boundaries: Continental Europe West - Nordics
70 Socio-economic welfare gains through added capacity in each scenario (Baltics- continent) TYNDP 2016 boundaries: Nordics/Baltics - Continental Europe East
71 Socio-economic welfare gains through added capacity in each scenario TYNDP 2016 boundaries: Central East integration
72 Socio-economic welfare gains through added capacity in each scenario TYNDP Iberian Peninsula integration
73 Socio-economic welfare gains through added capacity in each scenario TYNDP 2016 boundaries: Italian peninsula integration
74 Socio-economic welfare gains through added capacity in each scenario TYNDP 2016 boundaries: South East integration
75 Socio-economic welfare gains through added capacity in each scenario TYNDP 2016 boundaries: Eastern Balkans