Replacement expenditure (repex): Major projects

Transcription

1 Replacement expenditure (repex): Major projects Customer Forum Week 5 Steve Owens, John Dyer, Deirdre Rose 19 July 2018

2 Overview and objective Proposed major repex projects We plan to negotiate with Customer Forum on price-reliability trade-offs Likely out of scope for the purposes of the New Reg process Option and customer impact analysis for 2 potential zone substation refurbishment projects (Thomastown and Phillip Island) To demonstrate the information available to Customer Forum to make price-reliability trade offs Options and customer impact analysis across the portfolio of repex major projects Cost and bill impacts; reliability impacts; relevant customer views/research on options Next steps Questions for the customer forum Expenditure forecasts presented in this slide pack are preliminary and will be refined 2

3 Proposed repex major projects Project Cost ($2018 m) Bairnsdale $2.2 Benalla $21.4 Bayswater $13.4 Maffra $10.3 Moe $8.9 Newmerella $1.6 Traralgon Stage 2 $8.0 Thomastown $14.8 Warragul $13.4 Watsonia $14.2 Total $ ,000 customers (20% of total customers) supplied by these projects Note: Projects and costs are subject to refinement. 3

4 Research highlights Outages Consistent with views 5 years ago, majority of customers are satisfied with reliability 7.7/10 Overall satisfaction with supply Anecdotally, heightened concern about reliability, particularly amongst business customers, small and large. 63% Residential customers considered annual blackouts were acceptable. Businesses are less tolerant of outages. We still need to do better with our proactive communications around outages. Customers want to know the reasons for outages. The main reasons customers contact AusNet Services is to get outage information or tell us about an outage. Providing a reliable, continuous electricity supply was rated as the most valued service. Lifeblood of the house. 4

5 Research highlights Affordability Current electricity costs and future price rises are a concern for all customers ~1/3 ~2/3 ~2/3 Customers thought their bills were poor or very poor in terms of affordability. Customers believe that their electricity provided poor value for money. of customers felt electricity bills have increased in the past 2 years. For many business customers (small and large) electricity prices are surpassing labour costs. Many customers felt the reason for bills increasing was (at least partly) due to profiteering by electricity retailers and distributors For vulnerable customers, we need to understand energy stress in the context of other pressures in their lives. A more holistic approach to this segment is required. Voluntary demand management programs generally seen as a positive way to reduce expensive network upgrades. Community education seen as critical to driving participation.

6 Thomastown and Phillip Island: Options analysis

7 Example 1: Thomastown Zone Substation Refurbishment Project Risks: Poor condition transformers and circuit breakers with increased failure risks 72MW outage supply risk Urban area where outages would have significant economic impacts 27,000 industrial and residential customers Mix of industrial and residential load 7

8 Thomastown: Comparison of preferred economic option and deferral Proposed option Defer to 2026 Solution Replace 66 and 22kV circuit breakers As per preferred Timing 2021 commencement 2026 commencement Capital cost Average annual bill impact $14.8m $0.47 ( ) period: no capital cost : $14.8m (escalated) period: no cost : $0.47 (escalated) Outages ( ) 4.5 expected outages, expected average duration of 40 minutes 8.0 expected outages, average duration of 40 minutes Question: Should all customers accept a 78% increase in expected outages for a saving of $0.47 per year? 8

9 Thomastown: Non-network options if project deferred to 2026 Alternative non-network options to continue supply (72MW required) in the event of a station outage Alternative nonnetwork option Approx. cost per MW Investment to continue supply in case of zone substation outage Comment Batteries $4m $288m Can only supply for 1 hour Diesel Generators $500k $36m Demand Management $240k N/A Would need a significant sized site to house the generators Once the substation outage occurs customers will be off supply and hence demand management is not relevant to addressing the condition-driven outage 9

10 Example 2: Philip Island Zone Substation Refurbishment Project Scope: Replace one transformer and 22kV circuit breaker Reason: Poor condition assets with increased failure risks; marginal project, but with potentially significant impacts at peak holiday and event periods Customers: 10,200 Population: 11,000 Peak Summer population: over 60,000 During peak events such as Moto GP: over 100,000 Sparsely populated residential and holiday destination 10

11 Load (MW) Load at risk due to loss of a transformer during peak times Station N-1 Rating after load transfer Station N-1 Rating Load transfer = move 6MW of load from Philip Island substation to Wonthaggi zone substation N-1 = station capacity after the loss of one transformer Summer Holidays Easter Holidays Queens School Birthday Holidays 1 st Jan st Dec 2017 School Holidays Moto GP Summer Holidays 11

12 Phillip Island: Comparison of preferred economic option and project advancement Proposed option Advance to 2021 Solution Replace one transformer and 22kV circuit breaker in 2026 As per preferred Timing 2026 commencement 2021 commencement Capital cost No cost in period $6.3M in period Average annual bill impact $0.0 ( ) $0.19 ( ) Outages ( ) 1.2 expected outages, expected average duration of 40 minutes 0.7 expected outages, average duration of 40 minutes Question: Should all customers pay $0.19 per year to achieve a 37% reduction in expected outages at Phillip Island? 12

13 Philip Island: Non-network options to mitigate supply risk Alternative non-network option Approx. Cost per MW Investment to continue supply during zone substation outage Cost to cover peak period load during transformer outage Comment Batteries $4m $56m $4m Can only supply for 1 hour Diesel Generators $500k $7m $500k Could be applied reactively (hired) Demand Management $240k N/A $240k Annual opex cost (see below note on implementation) Note: Demand Management would be difficult to implement as we would require a 5% overall load reduction during the busy holiday period. For example, we would need approximately 2,550 customers to agree to reduce their load by 25% during the peak period. 13

14 Portfolio of repex major projects: Options analysis

15 Portfolio options Bill impact and expected outages Option 1 Description Start all projects at beginning of the period Capital cost ($m 2018) Avg annual revenue per customer ($2020) PV of revenue over 50 yr asset life /cust ($2020) Supply Risk ($m 2018) Expected number of outages (number) Total expected outage duration (minutes) $87 $6.56 $131 $ Proposed timing of all projects Non-network option to mitigate supply risk for option 4 Four lowest risk REPEX projects deferred out of period 1 year deferral of all projects Defer all projects out of period $90 $3.86 $124 $ $92 $5.94 $219 $ $70 $3.37 $124 $ $84 $2.12 $120 $ $5 $0.00 $118 $ Notes: Supply risk = value customers place on the expected unserved energy PV = Present Value 15

16 Price-Reliability Trade-offs: Short term Importantly, revenue impact experienced by all customers, outages experienced by 20% of customers 16

17 Price-Reliability Trade-offs: Long term Importantly, revenue impact experienced by all customers, outages experienced by 20% of customers 17

18 Next steps

19 Next steps Customer Forum to identify what further information, if any, is needed to form a view on the reasonableness of the repex major projects Is further research and/or engagement, beyond which is planned, required to form a view on this issue? The Customer Forum may wish to prepare questions on this topic for its stakeholder engagement 19

20 Attachment: Questions for the Customer Forum

21 Questions and options for the Customer Forum to consider Questions Do the proposed projects strike the right balance between cost and reliable supply to customers? Would customers be willing to consider project deferrals that would reduce costs but reduce network reliability? Have the customer outcomes of a range of network and non-network options been sufficiently considered? Relevant customer research Customer views on satisfaction with reliability levels have been tested in 2018 customer research (including in-depth interviews, ethnographic study, customer service survey and the attitudes and perceptions survey). Q results from the customer satisfaction survey will be made available to the Forum Customer views on reliability will be explored in the Focus Groups n.a. Customer views In-depth interviews: Reliability a priority concern for SMEs Ethnographic study: The residential customers interviewed were satisfied with the current reliability of their electricity supply. Customer service survey: good management of interruptions and reliable supply rates as most important services Attitudes and perceptions survey: One outage a year acceptable to majority of residential customers (63%) but SME customers less tolerant (only 52% consider acceptable) Focus Groups: The most important service provided by AusNet Services is providing a reliable, continuous electricity supply n.a. 21

22 Questions and options for the Customer Forum to consider Questions Do you have any comments about the design of non-network options, including nonnetwork options that involve customer participation or impacts such as demand management/response or appliance control? Relevant customer research Customer views on demand response have been tested in 2018 customer research (including in-depth interviews, ethnographic study, and the attitudes and perceptions survey). Customer views on demand response of different types will be explored in the Focus Groups Customer views In-depth interviews: Nature of business drives whether SMEs can engage. Strong interest from Councils & community groups. Ethnographic study: most households supported the idea of demand response programs Attitudes and perceptions survey: Majority of households and SMEs actively try to reduce energy use Focus Groups: majority of participants indicated that they would be likely to participate in a manual response whereby they would have 24-hours notice of a peak demand event; automated response and community response less appealing. A few participants also added that even with these sorts of demand response programs in place, at some point the network will still need to be upgraded (as the infrastructure ages, the climate changes and the population grows), and that it would be better to pay a bit more to do this proactively now, rather than waiting until later and paying even more down the 22 track.