CONCEPTS FOR NETWORK PLANNING IN QUEENSLAND

Transcription

1 CONCEPTS FOR NETWORK PLANNING IN QUEENSLAND PREPARED BY: DOCUMENT REF: Corporate Development Concepts for Network Planning in Queensland VERSION: 1 Am,ttolion l:nergy 1\_.n,ketOpe rctor Ltd AeN 94 on Oh) 327 Wv'IW.oemo.oo m.ou infofffoemo.corr.ou NEW sou- H WAI.ES QU:ENSLAND SOUTH AUSTRALIA VCTORIA.. usrrauan CAPl"-L Tl'RRITORY TAS.'1/iA 'JIA

2 Contents 1 Key Messages Introduction Current Outcomes in Queensland Planning Standards Capital expenditure and reliability Demand Forecasts Alternative approaches to delivering network services Probabilistic Planning Hybrid Planning Energy Cap Planning Comparison of alternatives Applying Probabilistic Planning in Queensland...10 Attachment 1 Explanation of Planning Approaches...12 Attachment 2 Applying the methodologies...16 Concepts for Network Planning in Queensland Page 2 of 19

3 Version Release History VERSION DATE BY CHANGES Concepts for Network Planning in Queensland Page 3 of 19

4 1 Key Messages The current planning approach of N-1 is delivering better than historic reliability but at a high price to Queensland consumers A better price-service approach, such as probabilistic planning, will meet the reliability needs of Queensland consumers as well as forecast needs of Queensland s commercial and mining sectors without imposing high costs The price-service approach can be applied to both transmission and distribution planning but should be accompanied by appropriate safeguards to ensure that profit-motivated network businesses do not place undue reliability at risk 2 Introduction Network charges have steadily been increasing over the past decade, particularly over the last five years. At National Electricity Market (NEM) commencement, they constituted less than 40 per cent per cent of electricity bills. Today, they average over 55 per cent of electricity bills and are forecast to grow. 1 AEMO is forecasting Queensland to be the highest growth state in the NEM, despite demand not meeting some forecasts over the previous five years. To meet these forecast needs there has been a significant amount of network investment. However, the effect of this has been a significant increase in network charges. The challenge for Queensland is to ensure that it is able to keep pace with the growing requirement of the state without imposing a high cost burden on consumers through costly network options. This price-service balance was the focus of the 2004 review which noted The Panel considers that developing appropriate service standards is essential to establishing a regulatory bargain which provides appropriate incentives for the distributors to focus on both financial and service quality outcomes. To date, in the Panel s view, the distributors have not had a sufficient focus on the service quality they deliver. 2 In the 2004 review one of the Panel s major concerns was that the businesses were too focused on shareholder returns. The recommendations required the businesses to focus on providing services, but with a recognition that exceptions could be made where there was not a significant amount of customers at risk 3. In practice, however, a blanket approach (applying a deterministic or redundancy planning standard) to meeting reliability has been applied by the Queensland distribution businesses with a spill-over effect on the transmission business. The consequence has been considerable network augmentations resulting in higher network charges. This review provides an opportunity to re-align the balance between prices and services to meet Queensland s ongoing needs. This paper outlines how this price-service balance can be achieved. 1 Sources AEMO analysis from AER s State of the Energy Market Report and information from the following websites Detailed Report of the Independent Panel for Electricity Distribution and Service Delivery for the 21st Century, July 2004, p8 3 Ibid p 113 Concepts for Network Planning in Queensland Page 4 of 19

5 $ millions $ millions 3 Current Outcomes in Queensland The Queensland network consists of around 13,000 kilometres of transmission lines and close to 200,000 kilometres of distribution lines. The total depreciated regulated asset base of these businesses is $19 billion. As outlined in Figure 1 capital expenditure forecasts for Powerlink, the transmission business and Ergon and Energex, the distribution businesses, is significant, with close to $13 billion over the next five years alone. Powerlink has recently submitted a proposal for $3.3 billion to the AER for the five year period from Figures1 Powerlink and Queensland DNDP Capex Forecasts Powerlink - Capex 2,500.0 QLD DSNP - Capex , , , Forecast Actual Forecast Actual Note data missing for Ergon and Energex from to There are a number of reasons for these increases in capital expenditure. These are explained below Planning Standards The increasing expenditure levels have, in part, been driven by the application of the planning standards in Queensland. These deterministic standards are expressed as an N-X approach to planning. N represents the total number of transmission assets in service and X represents the level of redundancy required. Deterministic planning requires the transmission system to continue to provide adequate and secure supplies of energy to customers after any of a range of contingencies (no probabilities of contingencies are taken into account however). Some assumptions where the largest generating unit (within the region) is assumed out of service can exaggerate the augmentation required, which thereby drives over-investment of transmission assets and therefore increases consumer costs. The trigger to invest under N-X planning is based on when the ratings on a transmission element is exceeded (e.g. due to load growth) assuming that an element is out of service, i.e. if x=1, the transmission system must continue to operate satisfactorily if any one asset is removed from service (through failure). While this approach is internationally recognised and applied and has advantages for the regulator in that it is easy to regulate resulting in quick planning solutions, it suffers from a number of shortcomings. These include; delivering higher levels of network redundancy above the needs of consumers. These needs do not consider any unique conditions within a region and therefore do not consider intra-regional area loadings or the probabilities of outage. Instead it drives an overinvestment in capital projects and increases consumer costs for a substantial period. A new requirement of RIT-T applications is to provide information on the expected magnitude and duration of load reductions which occur under the TNSP s reliability planning criteria. The effect of a strict interpretation to N-1 can be understood with a review of the first application of the RIT-T in NSW by TransGrid, the NSW transmission service provider. Undertaking a review of the information provided, AEMO has compared the results with what could be achieved under a cost-benefit approach. The N-1 criteria is breached in Using a strict deterministic N-1 approach and the same transmission augmentation option proposed by Concepts for Network Planning in Queensland Page 5 of 19

6 TransGrid results suggests that the benefits required to justify the augmentation requires consumers to value their electricity at around $9 million/mwh, which is 150 times the value used by AEMO of $60,000/MWh. In what appears to be an acknowledgment of this value TransGrid has deferred the augmentation beyond the strict application of the standard to This equates to a VCR of around $200,000/MWh. The study also highlighted that if the $60,000/MWh value is used the proposed augmentation would not be cost-beneficial until at least , a substantial cost saving for consumers Capital expenditure and reliability Each year in its State of the Energy Market Report, the AER reports on DNSPs reliability performances across the NEM and its comparison for 2010 (including the nine previous years) are set out in Figure. 4 This graph suggests that Queensland has a lower reliability of supply when compared with other jurisdictions and consistently results in inferior reliability results than the NEM average (this is a NEM-wide average weighted by customer numbers). An improvement in reliability initially accompanied the large capital expenditure allowed under the 2005 Distribution Review but has steadily tapered off in the last few years. Figure 2 - Reliability of Supply (AER 2010) 5 This demonstrates that a blanket approach to network redundancy does not deliver a proportionate improvement in reliability. While there has been a decrease in the levels of reliability in Victoria this needs to be weighed up against the network allowances in that state which are the lowest in the NEM when compared with capex per customer. This is demonstrated in Figure 3. 4 Figure 1 plots the annual System Average Interruptions Duration Index (SAIDI) outcomes for the period 2000/01 to 2008/09. A similar report on the System Average Interruptions Frequency Index (SAIFI), which measures the discrete number of outage events on the distribution systems (rather than duration), also shows that Queensland customers experience a total number of outages at the upper end of the spectrum compared to the other jurisdictions. 5 AER, State of the Energy Market 2010, 15 December 2010, p. 8. Concepts for Network Planning in Queensland Page 6 of 19

7 Figure 3 - NEM distribution network capex per customer 6 (Figure 3 was produced by Nuttall Consulting in a Report to the AER for the Victorian Distribution Price Review) Obviously, geographical differences account for differences in the above distribution, however, it does not account for all of it. As can be seen with some of the DNSPs higher customer density does not indicate that they are more efficient. In all network businesses the performance seen by customers is a function not only of the assets and capital expenditure but also on the efficiency and effectiveness of the maintenance and repair of the system. This is particularly true of distribution businesses where vegetation clearance and asset management are important in reducing the likelihood of outages (SAIFI) and the speed and efficiency in responding to outages when they do occur are critical to reducing the duration of those outages (SAIDI) Demand Forecasts Figure 4 presents Queensland s summer maximum demand forecasts over the past seven years and peak demands for the next 10 years. This chart shows that the % POE demand forecast of 11,289 MW is 2,392 MW (or 27%) higher than the current record peak demand for Queensland. While some of this can be explained by recent weather events in Queensland, it is unlikely to explain all of these differences. In its 2011 Electricity Statement of Opportunities (ESOO), AEMO has proposed an alternative forecast to Powerlink s, who like all transmission planning bodies supplies demand forecasts to AEMO for its ESOO. AEMO s alternative forecast suggests that that current network capability may be sufficient to meet the forecast needs of consumers and that generation is not required to invest in Queensland until at least Legend: AA Actew/AGL, AGLE Jemena (formerly AGL and Alinta), Au Aurora Energy, CE Country Energy, CP CitiPower, EA EnergyAustralia, Egx Energex, Erg Ergon Energy, ETSA ETSA Utilities, IE Integral Energy, PC Powercor, SP AP AusNet, UE United Energy Concepts for Network Planning in Queensland Page 7 of 19

8 2005/ / / / / / / / / / / / / / / /21 Figure 4 Queensland Demand Forecasts 16,000 15,000 14,000 13,000 Actual 50% POE(Medium) 10% POE(Medium) 12,000 11,000 10,000 9,000 8,000 7,000 6,000 4 Alternative approaches to delivering network services There are a number of alternative options which could be considered for Queensland. These are discussed below. 4.1 Probabilistic Planning Probabilistic standards require the transmission system to provide adequate and secure supplies of energy to customers under a wide range of contingencies each treated as a random event and taking into account the probabilities of contingencies occurring (e.g. transformer failure rates), and a range of possible operating conditions (e.g. demand levels and network topologies) with assigned probabilities. AEMO and the Victorian DNSPs apply this approach to interconnectors in Victoria and uses economic cost-benefit techniques to determine the economic viability of a proposed augmentation. It assesses the probability that events likely to cause constraints and load shedding in the transmission system will occur during the planning horizon. While there are no strict planning standards in the state reliability is met through an explicit valuation that customers place on having uninterrupted electricity supply, known as the Value of Customer Reliability (VCR). The approach enables network development with an optimal level of reliability rather than a level of redundancy and allows for low probabilities of high impact events. It achieves optimal level of system reliability, security and congestion. While it can suffer from being lengthy, given the number of inputs required, any unforeseen events can be taken into account through appropriate safeguards. 4.2 Hybrid Planning South Australia uses a probabilistic standard (using economic considerations) expressed as a deterministic standard. The VCR is used to inform the deterministic standard and is taken into account in the reliability standards for longer-term planning requirements. It requires assumptions to be made many years in advance of the likely augmentations to address an emerging constraint. Concepts for Network Planning in Queensland Page 8 of 19

9 Load connection points are allocated into one of six reliability categories which are designed to capture the idea that as demand at a connection point increases over time, so does the economic cost of losing the connection point s supply. The probabilistic approach is used to compare the cost of increasing reliability standards of a connection point to the next deterministic reliability level with the value of the increased reliability delivered to the connection point. This approach delivers better outcomes than those of a strict N-X approach because it identifies different levels of reliability according to demand for each connection point and considers a VCR when determining the level of reliability required at a particular connection point. It also allows an independent body to establish and audit the arrangements. It is difficult to apply in regions with a large number of connection points or a more meshed network where there is additional complexity to determine the base levels of security. Further, although the VCR is used for level of reliability of a connection point it is not used when considering augmentation options. The result is that the price-service balance is not optimal. 4.3 Energy Cap Planning An energy cap approach is applied in Tasmania. The approach limits or caps the size of customer load, expressed as energy or peak demand that can be lost. The planning criteria requires: a credible contingency event will not interrupt more than 25 MW of load, a single asset failure (e.g. a double circuit transmission line or substation busbar) will not interrupt more than 850 MW or cause a system black-out the unserved energy to loads interrupted as a result of a credible contingency event must not exceed 300 MWh the unserved energy to loads interrupted as a result of a single asset failure or the failure of equipment to perform as intended following a credible contingency event, must not exceed 3000 MWh. Similar to the hybrid approach, this approach delivers better outcomes than a strict N-X approach by implicitly recognising that it may not be economic to augment at the time that the N-X standard is breached. However the analysis the analysis still fails to recognise that the cost of some of the solutions may be inappropriate given the level of energy at risk Comparison of alternatives A comparison between the three planning approaches is set out in Table 1. It highlights that the probabilistic planning approach delivers system security and performance obligations of a network in the most economical manner. Table 1 Comparison of Planning Approaches Factors N-X Probabilistic Hybrid Energy Cap Consideration of the benefits of the augmentation? Consideration of optimal timing of the augmentation (i.e. until benefits outweighs costs)? Consideration of the likelihood of an event/contingency occurring? Consideration of the value customers place on uninterrupted supply (VCR)? X X x X X x X x X Partially x Concepts for Network Planning in Queensland Page 9 of 19

10 Percentage of Maximum Demand Level of redundancy (driving overinvestment of assets) Level of complexity of model (consideration of the amount of input assumptions required) High Low Medium Medium Low High High Medium Reliability provided High High High High Explanations of these planning methodologies used in the NEM are contained in Attachment 1 and examples of how they are implemented are provided in Attachment 2. 5 Applying Probabilistic Planning in Queensland It can be argued that probabilistic planning is more suitable to the needs of Queensland which has a flatter load duration curve than in states such as Victoria and South Australia which have shorter peaks. Figure 5 shows the peakier nature of the Victorian demand compared to Queensland. Given the flatter profile of Queensland s demand and that probabilistic planning considers a broader range of demand scenarios, investments proposed from probabilistic planning would cater for a larger percentage of Queensland s high demand conditions than investments proposed from deterministic planning, which are based on the peak demand period only. This suggests that Queensland can justify augmentations under a probabilistic approach to meet the forecast commercial and mining sectors. This would include justifying augmentations which expand beyond the current network boundaries. Figure 5 Normalised Load Duration Curve FY (top 10% of the time) VIC QLD Percentage of Time The revenue cap framework provides an incentive for profit motivated network businesses to delay constructing an augmentation beyond the optimal construction time. Safeguards should therefore be introduced to prevent network businesses unduly delaying investments and placing reliability at risk. This could be similar in nature to the South Australian arrangements where the standards are set and the outcomes are verified by an independent body. This can be accommodated under a probabilistic planning process by setting caps on the value of energy at risk. These caps could differ at different points in the network depending on the type of customers supplied and the value they place on unserved energy. Concepts for Network Planning in Queensland Page 10 of 19

11 The cap would need to be determined and expressed as a $/MWh value. The caps would need to be accompanied with penalties for non-compliance and could be monitored by the AER. This exante approach could work in concert with existing ex-post reliability assessments such as SAIDI and SAIFI. This approach is outlined in Figure 6 below. Typically when augmenting to meet reliability requirements the benefits associated with any augmentations are initially low. Over time as peak demand and energy at risk increases the benefits will increase, as depicted by the curved line. The optimal time to construct the augmentation will occur when the benefits to customers exceed the annualised cost of the augmentation, as depicted by the horizontal line. Delaying the investment beyond this point would be attractive for the network business who would have received revenue based on its forecast of the optimal timing. Therefore, to ensure that the business does not place considerable reliability at risk, the cap on the value of energy at risk will determine the latest construction timeframe. Figure 6 Capping energy at risk $/MW Cap on value of energy at risk Benefits Annualised Cost of service Optimal service provision time Latest Construction Time Time 6 Conclusion Network investment has the largest factor driving up electricity prices over the past five years. Some of these increases have been driven by the application of strict redundancy standards coupled with optimistic demand forecasts. The application of the redundancy standards have occurred without adhering to the underlying needs of consumers. This principle of understanding the needs of consumers was explicitly recognised in the 2004 review, but not applied in practice. This paper presents an alternative framework, one that recognises the needs of consumers. It encourages network businesses to focus on meeting these needs through a more efficient provision of services, rather than focusing on constructing assets. In this way, it ensures that it provides the right price-service balance. Concepts for Network Planning in Queensland Page 11 of 19

12 Attachment 1 Explanation of Planning Approaches Planning Methodologies Explained The following as explanations of the deterministic (redundancy), probabilistic and hybrid planning standards applied in the NEM. Simple examples of their application can be found in Attachment 2. Deterministic A deterministic standard is a standard that will automatically trigger a network augmentation on the occurrence of a particular event for example, exceeding the capability of a network asset according to an established redundancy standard Jurisdictions that apply a deterministic planning standard will usually apply a standard based on a redundancy of n-1 for most of the transmission network and usually n-2 and above for CBD or other critical load. The example is based on n-1 redundancy. The steps are: Stage 1: Establish Base Case The TNSP: a) applies limits to all its network elements and establishes system normal state b) varies network model for credible contingency events: outage of load, generator, interconnector (S5.1) certain system stability (safe operating state) requirements (S5.1a) c) applies forecast demand scenarios typically: 10% (1-in-10 year) POE demand conditions medium and high economic growth scenarios Stage 2: Determine constraints and hot spots The TNSP identifies the network s weak spots by determining when and where system is unable to return to the safe operating state defined in the rules within the times specified Stage 3 Determine options If the limits breach the mandated minimum redundancy standards set by jurisdiction, the augmentation must be built to avoid operational action such as generation re-dispatch and load shedding Things to note: TNSP still must justify the investment under a RIT-T but: the forecast time of breach of the jurisdictional redundancy standard determines timing of the augmentation rather than its economics and therefore a project might have a negative NPV at the time that it is built the investment must be the least cost option but rules exempt TNSP from choosing between options that meet the reliability requirement on market benefits differential in any case, TNSPs revenue for the relevant control period does not depend on satisfying RIT-T project does not have to proceed for the TNSP to receive its revenue in current control period. Concepts for Network Planning in Queensland Page 12 of 19

13 Probabilistic/Economic Probabilistic (or economic) planning attempts to forecast the future benefits of a proposed augmentation and scale the investment to the size of those benefits The steps are: Stage 1: Network Analysis a) Apply limits to all network elements and establish system normal state b) Undertake credible contingency analysis outage of load, generator, interconnector (S5.1) certain system stability (safe operating state) requirements (S5.1a) Stage 2: Identify options Identify all network and non-network options Stage 3: Market analysis for all options Market simulation Run hourly load, generation, transfer levels profile so as to determine: o hourly constraints o generation re-dispatch & unserved energy Market simulation covers economic growth scenario 10%, 50% and 90% POE forecasts hour-by-hour forecast demand trace hour-by-hour generation dispatch based on SRMC planned and forced generation outages Stage 4 - Value of Constraint Analysis (apply probabilities) Market benefits are calculated on the basis of fuel cost and other market savings or benefits. For example: augmentation to relieve constraint to enable more efficient gas generator under carbon price scenario scale efficiencies location choice can lower losses and generate greater benefits or lower overall market costs competition benefits Some generation types adjusted for increased ancillary services requirements: wind solar Concepts for Network Planning in Queensland Page 13 of 19

14 Step 5 What is overall best investment? a) Compare NPV of all credible options, including: load shedding interruptible load local generation distribution only configuration change/works transmission work at alternative location b) Option with the highest NPV is the successful project c) The year in which highest overall NPV becomes positive triggers the year to build the augmentation Concepts for Network Planning in Queensland Page 14 of 19

15 Hybrid Planning Methodology The jurisdiction develops a number of deterministic connection point reliability categories based on an economic evaluation (using probabilistic methodology) of the benefits the reliability level would deliver Overview: Connection points are placed in these categories on the basis of the value of the demand TNSP plans each connection point to the deterministic standards Connection points cannot be reclassified down into a lower category, they can only go up This method deals with connection point reliability only Augmentation of the shared network to achieve the stated connection point reliability standard is undefined and typically a deterministic standard is applied to guarantee connection point reliability Augmentations that are required under the standards must be least cost All connection points are assessed for their demand levels (2-3 years ahead of next revenue control period application) The planning steps are: Step 1 Each connection point has probabilities of equipment failure applied to determine USE and VCR is applied to the derive the value of USE Step 2 Each connection point is placed within existing reliability categories according to their value of USE Step 3 The TNSP plans to the deterministic equivalent standards and includes the resulting projects in its revenue cap application. Augmentation must be least cost solution Trigger to augment is when the forecast demand exceeds the redundancy standard at the connection point Each connection point is reviewed so that they can be moved between the categories as value of USE increases, the connection point is promoted to a higher reliability category however, a connection point cannot be demoted to a lower reliability category regardless of the value of USE The reliability categories are contained in a jurisdictional regulatory document (see table below) Concepts for Network Planning in Queensland Page 15 of 19

16 Attachment 2 Applying the methodologies Simple examples of planning methodologies Deterministic Time = t Assume transmission lines are rated to 50MVA each All credible contingency events have been assessed All credible contingency outages have been put back in service Initial load is 50MW Time = t+1 Forecast load expected to increase to 51MW To maintain N-1 standard and meet load, TNSP needs to build a new asset Asset rating 101MVA < 151MVA Option 1 (preferred) Option 2 NPV m N-1 deadline - 75 m Least cost option is the preferred option (Option 1) Concepts for Network Planning in Queensland Page 16 of 19

17 Probabilistic/Economic Planning Methodology Time = t Assume transmission lines are rated to 50MVA each All credible contingency events have been assessed All credible contingency outages have been put back in service Initial load is 50MW Time = t+1 Forecast load expected to increase to 51MW Value of USE = USE x Pr (loss of a 50MVA circuit) x VCR x forecast duration = 1MW x 0.25 x $62,500 x 1hr = $15,625 (per annum) = $468,750 (30 years) If cost of new asset or other network/nonnetwork option $468,750 build can proceed Otherwise, accept that load shedding is a possible, credible alternative if the alternative network/non-network option is uneconomic Trigger to build Option 1 NPV -3.2 m -2.2 m -1.5 m 2.1 m 5.6 m m Option 2 NPV -5.9 m -3.8 m -1.7 m -0.3 m 1.6 m 9.4 m Under economic/probabilistic planning, Option 1 would be built in 2014 Option 2 would not be built N-1 scenario triggered in 2013 Additional Comments Economic/probabilistic planning is the only method used to justify upgrades between regions Allows consideration of competitive benefits and reserve sharing Most reliability benefits associated with these augmentations have already been met through mandated standards Concepts for Network Planning in Queensland Page 17 of 19

18 Hybrid Planning Methodology Time = t Assume transmission lines are rated to 50MVA each All credible contingency events have been assessed All credible contingency outages have been put back in service Initial load is 50MW Time = t+1 Forecast load expected to increase to 51MW Value of USE = USE x Pr (loss of a 50MVA circuit) x VCR x forecast duration = 1MW x 0.25 x $62,500 x 1hr = $15,625 (per annum) = $468,750 (30 years) Value of USE is used to determine which reliability category the connection point is placed or promoted TNSP meets the redundancy standards in the categories o even if negative net benefit o must be least cost option Concepts for Network Planning in Queensland Page 18 of 19

19 Current table of Categories, Reliability Standards and Restoration Times Concepts for Network Planning in Queensland Page 19 of 19