Coordinating centralized planning and decentralized implementation of transmission expansion in Brazil

Transcription

1 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 28 th 2015

2 2 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

3 3 The name of the game is timing Coordination of transmission and (renewable) generation expansion in Brazil has been facing difficulties Public & private agents; market-oriented and regulated environments Ministry Plan. Agencies Regulator (Renewable) gencos Transcos Centralized, determinative T planning (Para)governmental bodies Organize T auctions Design penalties, incentives Compete in G auctions Connect to grid Energy sales Compete in T auctions Build & operate T facilities Fixed revenues 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 Planning Agencies: here, reference to Energy Research Agency (planner) and National System Operator (ISO)

4 4 The good old coordination At first, coordination based on transmission implementation being quicker than generation implementation worked well Generation auction 3 years for G implementation by genco Competitive process Decentralized expansion Location, capacity known after auction Transmission planning Centralized planning Transmission auction Competitive process Decentralized implementation 2 years for T implementation by transco COD Time

5 5 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 , it had been the consumers (buyers). But in ~2013 the amount of stranded generation was such that this was no longer viable.

6 6 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. ~85% of transcos Delays in environmental licensing are not always attributable to transcos bureaucratic process with interactions with several governmental bodies and diffuse responsibilities

7 7 Let the transcos bear the risk? Naturally, there are incentives for transcos to comply with implementation deadlines in Brazil: Chronology: 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 2012 (+): Preclusion from participation in subsequent auctions 2014 (+): More clear conditions for execution of completion bonds 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 (+): Completion bonds increase to 10% of capex

8 8 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

9 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 9

10 10 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 Source: ONS 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

11 11 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. Best info on highquality wind potential Proactive transmission expansion decisions Source: EPE Investments are sizable: hundreds of km of OHTL, hundreds of MVA of transformation capacity

12 12 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?

13 13 Questions? Thanks! R. Ferreira L. Barroso 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