MEDREG TRAINING. Setting of tariffs. Agenda September 2018 Milan (Italy) Hotel UNA Century

Transcription

1 MEDREG TRAINING Setting of tariffs Agenda September 2018 Milan (Italy) Hotel UNA Century

2 Context A transparent, fair and affordable tariff structure is essential both to promote optimal shortterm system usage and to guide efficient long-term demand-response. Sound gas and electricity tariffs convey clear information on responsibility in the incurred supply costs to the actors involved. The design of gas and electricity rates is then of major importance both for traditionally regulated and liberalized systems. Tariffs can be defined as regulated and in some cases non-regulated charges applied under both a traditional and a competitive regulatory situation. In the case of electricity, under traditional regulation, the regulatory authority oversees the system overall costs of production, networks and commercialization and determines the corresponding charges for the end consumers, which are included in the comprehensive integral tariff. In the case of gas, the industry has often been developed in competition with other energy sources, mostly oil derivatives, but also coal and electricity. Knowledge of pricing practices under such conditions is useful, particularly for regulators of countries where the gas industry is not fully mature, also in order to understand the point of view and better evaluate the requests of companies as well as consumers. Under a competitive regulatory framework, consumers, in general, freely choose their suppliers and pay the agreed price for the services provided. In this case, all consumers - and also the suppliers in entry points of the gas network or generators in the connection points to the electricity grid - additionally pay the common access tariff related to the network usage. Sometimes in competitive markets consumers can avoid selecting a supplier and instead opt for a regulated integral tariff called default tariff. This tailor-made 3-day MEDREG training defines the theoretical objectives that regulation should pursue in designing gas and electricity tariffs and will introduce participants to several issues surrounding ratemaking both under liberalized and traditional markets. We will explore the fundamentals of gas and electricity tariff design and its relation with the overall functioning of the energy markets. Then, we will discuss the different costs that are reflected in access and integral tariffs for electricity and gas as well as the various structure and design for each type of tariff. Finally, the hot topics of subsidies to consumers and their impact on tariffs will be analyzed. The course is designed to encourage the active involvement of all trainees in the training. Each session will combine presentations with discussions on the practical issues and challenges faced by participants in their daily work. In addition to the use of lectures and discussions, participants will receive from each speaker a set of notes summarizing the main take-away points of the session and will be engaged in a problem-solving exercise to enhance their understanding of the topics presented in the course. 2

3 LIST OF SPEAKERS* Haris Boko Jurica Brajkovic Hafez El-Salmawy Nedim Korkutata Benoît Esnault Alessandro Rubino Matti Supponen Pedro Verdelho Chief Adviser at the Energy Institute of Croatia Regulatory Expert at the Energy Institute of Croatia Professor of Heat Engines at Zagazig University, Egypt, and former Managing Director of the Egyptian electricity regulator EgyptERA Head of Tariff Department of Energy Market Regulatory Authority of Turkey EMRA Head the Interconnections and European Affairs Department (Networks Directorate) at the French Energy Regulator CRE and Chair of the MEDREG Working Group (ELE WG) Senior Manager at PricewaterhouseCoopers (PwC) Italy Senior Expert in Wholesale Markets at the DG ENER, European Commission Director of Tariffs and Prices at the Portuguese Energy Regulator, ERSE and Co-Chair of the MEDREG Gas Working Group (GAS WG) *Speakers are to be confirmed 3

4 PROGRAMME Tuesday, 18 September :30-17: Welcome addresses Introduction to MEDREG and the training Hasan Ozkoc MEDREG Secretariat Veronica Lenzi MEDREG Secretariat Matteo Lambicchi MEDREG Secretariat Module 1a ( discussion) Economic regulation: The relation between revenues and tariffs and the role they play in the regulation of energy markets Access tariffs to networks is the core activity of regulators. This lecture aims at highlighting the various aspects of tariffs, which include cost coverage for network activities and investments as well as incentives for promoting operators efficiency. At the same time tariffs influence the way suppliers and service providers use the infrastructures, thus impacting the design of the market. Non-discrimination must be ensured, but this requirement can take various forms. Benoît Esnault CRE Coffee break Module 1b ( discussion) Different characteristics of tariff design in the gas and electricity sectors If the background principles are similar for gas and electricity, technical specificities lead to different approaches on several aspects of tariff setting. Among the issues are the questions of distance, entry and exit charging, the influence of the location of production and the role of interconnections. Benoît Esnault Module 2a ( discussion) Lunch Tariff design fundamentals: regulatory principles, structure design and cost drivers Tariff design identifies the relationships among the individual prices the operator charges. Economic theory on efficient pricing of natural monopoly services can be used as a basis for designing optimal transmission and distribution tariffs. The main criterion for economic efficiency is that the tariffs for use of the network should ensure that the existing grid is utilized to the maximum, subject to demand and the short-run marginal costs of transmission and distribution. Alessandro Rubino PWC 4

5 Introductions by course participants Module 2b ( discussion) Tariff design fundamentals: theoretical approaches and difference between access and integral tariffs This module will present two basic types of tariffs, the network access tariffs (for qualified consumers) and integral tariffs (for captive (non-qualified) consumers or those who may prefer to stay with a regulated tariff. Alessandro Rubino Coffee break Module 3a ( discussion) Gas Gas regulatory framework in the Eastern Mediterranean This module will discuss the implications of new gas discoveries in the Eastern Mediterranean on existing and planned LNG terminals in Southern Europe; the role of South-North interconnections rather than (or supplementary to) East-West; the pricing implications of Iraqi gas exports via Mediterranean ports and it will present the example of Nord Stream 2. Haris Boko Energy Institute of Croatia Evaluations/feedback Networking Cocktail Wednesday, 19 September :40-17: Keynote speech Establishing cost-reflective and efficient network tariffs: the EU experience Traditionally, tariff models based on cost-plus and rate-of-return regulation were the most used by regulator both in electricity and gas. This speech will discuss how EU countries designed these models, including theoretical references to the aim of the models and a description of the challenges related to implementation. The speech will also present the reasons for the more recent transitioning towards incentive-based regulatory approaches in the EU, including price controls with penalty and reward tools linked to attempts to improve network performance. Matti Supponen ǀ DG ENER, European Commission Module 3b ( discussion) Gas Designing gas tariff models in the context of EU regulation: experience of Eastern European countries The EU experience has shown that non-harmonized tariff design hampers development of gas markets. To this end, at the EU level, there has been a push toward the development of harmonized tariff structures. This section will introduce the main requirements of tariff design in the EU. In particular, the main provisions of the network code on rules regarding harmonized 5

6 transmission tariff structures for gas (TAR NC) will be described to outline the main principles of tariff development. In addition, the module will showcase the recent experience in tariff design in a selected number of Eastern European countries. In particular, tariff design process as well as main obstacles will be highlighted. Furthermore, when discussing tariff design, reference will be made to markets that require significant investments and how regulators in Eastern Europe have approached this issue. Jurica Brajkovic Energy Institute of Croatia Coffee break Module 4a ( discussion) Regulated integral tariff: methodologies to allocate generation costs In this module we will In this presentation a background is provided on the principles of calculating generation costs in a regulated market environment. The presentation provides a background on different approaches for defining the Regulatory Asset Base (RAB). It reviews the cost recovery methodology, which include cost allocation for both variable and fix costs as well as the Capital Asset Pricing Model CAPM. The presentation overviews techniques for performance evaluation and benchmarking. It discusses techniques to apply Incentive Based Regulations (IBR), including price cap, revenue cap or a hybrid scheme. Hafez El-Salmawy Zagazig University Teamwork assignment: participants will be grouped and asked to work on an exercise Lunch Activity led by Alessandro Rubino Module 4b ( discussion) Regulated integral tariff: methodologies to allocate consumer management costs This presentation is about tariff design for consumer s management under regulated market environment. The presentation covers the topics of regulatory criteria for efficient tariffs. Also it covers impact of consumer consumption pattern on system cost as well as Zero Intercept Model (ZIM) and minimum system cost. It explores the impact of tariffs on consumer demand elasticity. Furthermore, it covers, different tariff designs and their impact on consumer response including; two parts tariff, block and inverted block tariff design, time of use, interruptible tariff and dynamic pricing tariff. Hafez El-Salmawy Coffee break Module 5a ( discussion) Allocation of network costs The calculation of revenue requirements and revenue caps are the main job in tariff setting, but the allocation of revenue requirements and the determination of network tariffs for each consumer group are a more complex issue. In this module, different methodologies will be presented, especially concerning cost-based allocation and cross subsidization approaches. In 6

7 addition to that, the selection of cost drivers which are the factors used in the allocation and the development of time-use tariff structure will be discussed. Nedim Korkutata EMRA Teamwork assignment - continued Evaluations/feedback Thursday, 20 September :00-17: Module 5b ( discussion) Coffee break Connection tariffs Consumers generally face two types of tariffs to get services from a network company: connection tariffs paid to get physical connection to the network and system use tariffs paid after connection. Ideally, connection tariffs should be cost reflective, but generally it is hard to determine a tariff mechanism that is 100% cost reflective. In that sense, there are some issues to be discussed such as the definition of connection, separation of assets and costs between connection line and network, complexity of tariff mechanism, the level of cross subsidization between consumers. All issues related with the determination and cost allocation in connection tariffs will be discussed in this module. Nedim Korkutata Module 6a ( discussion) Gas Structure and design of LNG-regasification and storage tariffs In the presentation the tariff design of LNG regasification facilities will be deeply analyzed in terms of the total allowed revenues computation and also regarding the access tariffs and prices applied to the several services offered to the users. Taken into account the utilization profiles of the several services, the marginal costs to provide each service and the total allowed revenues, efficient tariffs will be proposed. The module will also analyze the challenges for market development associated with the use of LNG terminals. In this context, the design of the tariffs and prices of the various services will be discussed in order to ensure efficient use of the other natural gas system infrastructures and also to reduce entry market barriers by smaller suppliers. The interactions of underground storage with the LNG terminals will be presented, discussing how to develop efficient access tariffs. Pedro Verdelho ERSE Teamwork assignment - continued Lunch Module 6b ( discussion) Gas Design of transmission and distribution tariffs The design of transmission access tariffs will be presented. The basic regulatory formulas will be 7

8 Coffee break discussed in terms of their merits and associated regulatory failures. The virtues for market development of the adoption of a fully decoupled entry-exit tariff system from contractual flows will be explained in the context of the European Gas Target Model. By characterizing the flows associated with the use of transmission networks, the cost-reflective price variables to be adopted in the transmission access tariffs will be determined. The prices of the entry-exit transmission tariffs will be in turn calculated in order to ensure the allowed revenues recovery by applying three methodologies: Capacity Weighted Distance, Matrix Model and a Modified Matrix model. The results of the three models for the Portuguese transmission network will then be discussed. Also, in this module distribution networks tariffs will be analyzed. The tariff structures will be discussed taking into account the delivery pressure and also the dimension of the customer. Pedro Verdelho Module 7 ( discussion) Scaling down subsidies: social and economic approaches Renewable energy subsidies are paid for via energy bills through a number of schemes including the Feed-in Tariff scheme and Renewable Obligation scheme. Technology innovation has driven down the cost of renewable energy significantly. As costs continue to fall energy systems move towards sustainable electricity investment, whereby it becomes easier for parts of the renewables industry to survive without large subsidies. Alessandro Rubino Teamwork assignment: Presentation of the assignments by participants Evaluations/feedback Dinner Friday, 21 September :00-14:00 Visit to the SNAM Dispatching Center in Milan The dispatching center is a strategic infrastructure to manage gas flows on the Italian domestic transmission network. The main gas pipelines and compressor stations that make up the Italian gas system are monitored or remote controlled 24 hours a day, 365 days a year from the operation room. The activity is carried out through a complex technological architecture run by the telemetry network, remote data transmission systems and centralized acquisition, supervision and control systems. The heart of the process data control system is SCADA (Supervisory Control and Data Acquisition), a sophisticated software that can manage the variations of more than 130,000 parameters for about 3,000 remote controlled and remotely monitored plants in real time. The control room of the dispatching center, which operates 24 hours a day, constantly monitors the system operation parameters and the availability of gas from supply sources and processes demand predictions. 8