Concept note: Energy regulators contribution to fight climate change

Transcription

1 Concept note: Energy regulators contribution to fight climate change Side Event in Marrakech, Morocco Dr. Konstantin Petrov 1 SAFER, SMARTER, GREENER

2 Content Sector Trends, Policy Implications, Regulatory RES Issues and Capacity Development Appendix 1: Role and Scope of Regulation / Regulatory Tasks Appendix 2: Principles of Good Regulatory Practice Appendix 3: RES Development Policy 2

3 Sector Trends, Policy Implications, Regulatory RES Issues and Capacity Development 3

4 Major Sector Developments In the last years electricity industry has been characterised by several developments in the technical and commercial area. Technical Commercial Development of RES technologies Smart metering / smart grids Network technology (HVDC, power electronics, off-shore grids) Energy storage Electric vehicles Energy use (energy conversion, appliances) Shale gas developments Ageing assets and replacement needs Increasing shares of RES and changing load flow patterns Market prices and missing money problems Financial burden of RES support schemes Mergers / take-overs Demand growth Increasing regional trade 4

5 Policy Implications The industry developments require effective policy response to ensure functional markets, adequate regulation and institutional coordination. Functional Markets Adequate Regulation Institutional Coordination Further drive market integration process (cross border trade and balancing) Encourage construction of economically efficient interconnections between different countries / regions Review the overall market design Ensure further market integration of RES Setting proper regulatory incentives to encourage efficient investments and operation of electricity networks Encourage maintenance of adequate quality of supply Address explicit technology and commercial innovations Provide balanced incentives to support network integration of RES Strengthening regional coordination Promote harmonisation of market and regulatory arrangements Apply effective process for constructive stakeholder engagement on supranational level 5

6 Scope of Regulation Regulators have been typically focusing on several areas seeking to establish effective regulation and strengthen the competitive market conduct. Regulatory Controls Price Control Quality of Supply Market Functioning Other Revenue / tariff setting Efficiency incentives Investment sufficiency Commercial quality Continuity of supply (reliability) Technical quality Market design / market rules System / network rules Market monitoring Market integration Unbundling Security of supply Innovation RES Incentive Schemes Social issues (energy poverty, subsidies) 6

7 Regulatory Policy and RES Integration The applied incentives schemes are characterised by different degrees of power and complexity, and reflect the specific context and conditions. Market Integration Network Integration System Integration Primary incentive schemes Increasing exposure to market prices Harmonisation of RES incentive schemes Allocation of balancing responsibility Close to real-time markets for provision of ancillary services Regulatory incentives to encourage investments Coordinated extension of interconnections Innovation incentives / smart grid technologies Network tariff design Improvement of network monitoring and control Adjustment of network planning standards Provision of reserves from RES producers Provision of reactive power from RES producers Regional sharing of reserves Use of storage and demand response 7

8 Major Steps to Establish a Functional Regulator Legal Amendments A clear and unambiguous legislation is essential to enable the establishment of the regulator Physical Establishment Appointment of the Management Set-up of organisation Preparation of internal structures and strategy International relations Human resource/ capacity development Operational Responsibilities Prepare and publish information, specify data requirements from the regulated companies Development of tariff systems Approve commercial / general contract rules Approve technical rules Prepare methodology for licensing and licences for the different types of regulated activities Issue licences Introduce compliance and monitoring systems Introduce quality regulation

9 Capacity Development and Human Resources Human Resources Management Personal development plan Performance evaluation Identification of training needs Development of a training plan including the training areas and training activities Training areas: depends on the priorities and training needs Training activities Standard external training Tailored external training Internal training On-the job-training Twinning projects / partnership Memberships Implicit training (natural learning process)

10 Concluding Remarks Policy makers should recognize the on-going changes in electricity industry and provide adequate response Regulatory framework should encourage the market, system and network integration of RES Regulatory framework should encourage the coordinated development of network infrastructure and provide consistent set of investment incentives Innovation should be explicitly addressed in the regulatory frameworks Capacity development is essential to establish the necessary skills 10

11 Appendix 1: Role and Scope of Regulation / Regulatory Tasks 11

12 Objectives of Regulation Definition & Objectives Regulation is needed in areas where competition does not work (e.g. natural monopoly such as electricity networks) or legally excluded (exclusive rights given by the law) Regulation is state intervention applied to various company specific (e.g. prices, revenues, quality of supply) or integral sector aspects (e.g. market entry/ market design) The major regulatory objectives are to: protect consumer interests and eliminate monopoly inefficiency (cost reduction, network losses) ensure financial viability of industry participants (efficient cost coverage) ensure equal conditions and non-discrimination of all sector participants improve conditions for competition where it is possible

13 Objectives of Regulation Balance of Interests Regulation must balance interests of customers and regulated companies and also the costs and benefits of the regulatory system itself. Customer and Company Interests Costs and Benefit of Regulatory System Price reductions Protection against monopoly abuse Fair return Profit opportunities Distortions to industry structure Costs of operating regulation Prevention of monopoly abuse Efficiency savings and lower costs

14 Choice of Regulation The choice of regulatory arrangements should focus on four major questions: areas of regulation, scope of regulation, type of regulation and regulatory institutions. Areas of Regulation Where should be regulated? Choice of Regulatory Regime Scope of Regulation Type of Regulation What should be regulated? How should be regulated? Regulatory Institutions Who regulates?

15 Areas of Regulation Generation and supply are competitive areas. Although retail supply activities are classified as competitive it is only valid for systems with full retail access. The retail supply activities for captive consumers (consumers that are not allowed to choose their suppliers) should be subject to regulatory control. Network activities (transmission / system dispatch and distribution) are natural monopolies and should be regulated. Some elements of connection and metering services may be exposed to competition. Also ancillary services can be provided in a competitive manner (tenders). Power Generation Power Transmission System Dispatch Power Distribution Retail Supply Services subject to regulatory control Competitive services Potentially competitive services Ancillary Services Wholesale Supply Connection and Metering

16 Scope of Regulation The regulators have been focusing on several areas seeking to establish effective regulation and strengthen the competitive market conduct. Regulatory Controls Price Control Quality of Supply Market Functioning Other Revenue setting Tariff setting Efficiency incentives Investment sufficiency Commercial quality Continuity of supply (reliability) Technical quality Market design / market rules System / network rules Market monitoring Market integration Unbundling Security of supply Innovation RES Integration Social issues (energy poverty, subsidies)

17 Types of Regulation There are different methods for regulation. They are set incorporated in rules, standards, codes, etc, and enforced by the specific national legislation. Regulatory Control Price Control Quality of Supply Market Functioning Rate of Return Price and Revenue Cap Yardstick Competitio n Sliding Scale Minimum Performance Standards Indirect Quality Controls Incentive Schemes Ex-ante Endorsement of Rules Monitoring of Market Performance and Corrective Actions

18 Institutional Environment Regulators operate in a complex environment of various stakeholders with different functions and interests. The regulatory functions are usually established as independent regulatory body. Sometimes they may be embedded in the anti-monopoly authority or policy maker. State Courts Regulated entities Competing entities Аssociations Consumers Government / Ministry of Energy Courts Generators Generators Electricity industry Household Parliament Transmission operator Suppliers RES producers Commercial Regulatory Authority Distribution operators Traders Traders Industrial Anti-monopoly authority Suppliers Industrial consumers Market Operator Protection of small consumers

19 Major Establishment Steps Legal Amendments A clear and unambiguous legislation is essential to enable the establishment of the regulator Physical Establishment Appointment of the Board (Commission) Set-up of organisation Preparation of internal structures and strategy International relations Human resource development Operational Responsibilities Prepare and publish information, specify data requirements from the regulated companies Development of tariff systems Approve commercial / general contract rules Approve technical rules Prepare methodology for licensing and licences for the different types of regulated activities Issue licences Introduce compliance and monitoring systems Introduce quality regulation

20 Appendix 2: Principles of Good Regulatory Practice 20

21 Principles of Good Regulatory Practice Sustainability: The regulatory framework that is agreed upon at the beginning of the regulatory period should be kept and maintained, as otherwise the motivation of the companies to seek efficiency improvement would weaken or may completely disappear. The regulator should bring high commitment and avoid reopening during the regulatory period. Predictability: The principle of predictability of regulation is an essential requirement for regulated companies to be able to confidently plan for the future and be assured that their investments will not be threatened by unexpected changes in the regulatory environment. This principle is particularly important in the regulated electricity sector, which is characterised by capital intensive projects with long asset life and significant construction time. Practicability: The regulatory regime should be designed in such a way that it is practical to implement. This also goes hand in hand with the administrative burden and should avoid overly complex procedures. This involves preparation beforehand and consideration of country and/or company specific characteristics, which need to be taken account in the design of the regulatory regime.

22 Principles of Good Regulatory Practice Transparency and Clarity: The regulatory framework should be understandable and transparent to the regulated companies. Excessively sophisticated approaches may set very precise incentives, but may appear as a black box to companies and users of regulated services. Under such circumstances, they may not be able to respond adequately to the corresponding signals provided by the regulatory framework. Accountability: Accountability concerns the obligation to explain processes and reasons for decisions, fulfilled functions and utilised resources and to specify appeals procedures. In that way it can be also presented as a tool to improve transparency. There are many entities where regulators can be made accountable: the parliament or a ministry, the industries they regulate, the judges, the consumers and the society in general. Most regulators report to parliament or to a ministry that may is usually the lie ministry but may be also a different one. They are also subject to audits and other controls, generally in line with the procedures applied to other public organisations. Administrative Burden and Proportionality: Regulation should not create an excessive administrative burden for the regulatory authority and the regulated companies. This can be understood in terms of data collection, data submission and the complexity of the data analysis involved.

23 Appendix 3: RES Development Policy 23

24 RES Development/ Climate Change View of the European public (Eurobarometer 2011) Climate change remains a key concern for the European public Just over half (51%) of respondents consider climate change one of the world's most serious problems (and 20% feel it is the single most serious problem). Overall it is seen as the second most serious issue facing the world, after poverty, hunger and lack of drinking water, and a more serious problem than the economic situation. Altogether 89% see climate change as a serious problem, with 68% considering it a very serious problem. There is also a positive view of the economic benefits of tackling climate change almost eight in ten (78%) respondents agree that it can boost the economy and create jobs, a big increase since 2009 (when 63% agreed). At least two-thirds of respondents in each Member State share this view. 24

25 RES Development / EU Renewable Energy Policy EU summit 2007 (2020 goals) Reduction of Greenhouse gases by 20% Increase of share of renewable energy in total energy use to 20% Increase of energy efficiency by 20% Increase of share of biofuels in total transport fuels to 10% EU summit 2014 (2030 goals) Reduction of Greenhouse gases by 40% Increase of share of renewable energy in total energy use to 27% Increase of energy efficiency by 27%

26 RES Development / EU Renewable Energy Policy Development of EU legislation on renewable energy Directive 2001/77/EC Directive on share of RES in electricity generation Sets indicative targets for the Member States Establishes monitoring process by EU Commission Renewable Energy Road Map Shows impact assessment calculation that demonstrate that a RES target of 20% is feasible Proposes an action plan Proposes national targets for the MS Guidelines for state aid for environ. protection & energy Binding regulation, aiming at cost-effectiveness and nondiscrimination in energy aid Specifies that RES-E must move to a market based system Mandates a gradual phase-out Directive 2003/30/EC Directive on biofuels Sets indicative targets for share of biofuels in total fuel consumption: 2% in 2005, 5.75% in 2010 Establishment of Monitoring Process by the European Commission Directive 2009/28/EC Repealing Directives 2001/77/EC and 2003/30/EC Sets mandatory RES targets for each Member State Sets a framework for cooperation mechanisms Establishes reporting system by MS Sets framework for administrative and regulatory procedures 26

27 RES Support Schemes The majority of EU countries have been applying price-based models for RES. Several countries have been reviewing or considering to review their RES arrangements. Price-based Feed-in Tariff Feed-in- Premium Issues with price-based models Limited efficiency Oversized incentives for RES construction Issues with quantity-based models Higher risk exposure Setting quotas (technology neutral Re-design / technology properties specific) Certificates / Quotas Quantity-based Prices will depend the design of the tender Tenders Choice of technology and location Regional compatibility Market fragmentation (RES and non-res market) versus / one integrated market Degree of administrative interventions Overall congruence with the objective of competitive markets 27

28 RES Development / Support Schemes Until recently, many EU countries supported renewable energy with feed-in tariffs Fixed, technology-specific tariffs, with a digression over time Priority feed-in of renewable energy, no balancing responsibility Currently, market integration by premium or tender support is phased in RES-E has to be marketed and sold in the power market Generators have full balancing responsibility RES-E support in the decentralized market 28

29 RES Development / Support Schemes In the last years RES support schemes have been focusing on market exposure of RES generators. Large diversity regarding support schemes in the EU-28. In some countries different types of support schemes operating in parallel resp. in combination (for example for different types of renewable technology) 29