Application of ENTSO-E CBA methodology for capital expenditures assessment

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Randell Tyler Cain
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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

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

PINT and TOOT TOOT and PINT: Changes since 1st CBA methodology: more

Clustering of investments Strict eligibility criteria for clustering. Investments must: be complementary (competing investments are thus ruled out by definition!

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

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

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

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

B5. Variation in losses New projects change the network topology and flows, resulting in a change in losses Projects may decrease or increase losses!

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

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

Scenario framework Stakeholder input helped define the framework as a

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

Sustainable Transition @ENTSO-E All rights reserved National focus on climate change, driven by ETS and

growth in the shipping and transport sectors Electrification of heating and transport sees stable

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

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

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

Electricity demand New use of electricity leads to a demand increase across all

Electricity Generation Mix Generation mix shifts

Electricity - RES Share of demand The electricity renewable

Scenario prices Global Climate Action Sustainable Transition Distributed Generation Action CBG Coal before Gas GBC Gas before Coal ST Sustainable

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

Gas Demand Gas demand decreases compared to recent history and over time,

Peak gas demand Peak demand requirement remain high, in particular to

Electricity Installed Capacity Solar and wind capacity drive

Electricity Generation Mix ST 2040 GCA 2040 The scenarios

Supply Gas Import requirements driven by demand and

Supply Gas Based on external sources, a diverse range of supply is available

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

TYNDP2016 - Investment needs, and main boundaries and barriers Ireland - Great-Britain Norway and continent- Great-Britain Nordic - mainland, West Nordic -

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

TYNDP 2016 - Building the grid requires everyone s support Support from local citizens through innovative solutions

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