Technology innovation: the role of regulation

Transcription

1 24 April 2018 Technology innovation: the role of regulation ERRA Chairmen Meeting Christos Kolokathis Associate The Rue de la Science 23 B-1040 Brussels Belgium ckolokathis@raponline.org raponline.org

2 About RAP The is an independent, non-partisan, non-governmental organization dedicated to accelerating the transition to a clean, reliable, and efficient energy future. Learn more about our work at raponline.org Christos Kolokathis Associate The Rue de la Science 23 B-1040 Brussels Belgium ckolokathis@raponline.org raponline.org 2

3 Source: Farrell, J. (2011). The Challenge of Reconciling a Centralized v. Decentralized Electricity System. Institute for Local Self-Reliance. 3

4 Outline for today s discussion Innovation in the power sector Performance based regulation The role of pricing to consumers 4

5 1 Innovation in the power sector

6 ADOPTION Disruptive Forces Transforming Energy Aggregation, Digitization, Ability to Shape Load Compounding Network Effects $150/kWh PMUs Solar grid parity Wind grid parity Smart meter roll-out TIME Source: Chandu Visweswariah, Utopus Insights Inc. We are here 6

7 Solar on fire 7

8 Regulatory Assistance Project (RAP) 8

9 9

10 Blockchain 10

11 2 The role of regulation in enabling innovation Performance Based Regulation

12 Innovation stages 12

13 All regulation is incentive regulation Incentives of traditional regulation Build and own to grow rate base Increase volume of sales and electricity usage to enhance profits Cut non-capital expenses (OPEX) Avoid disallowances 13

14 Old system = barrier to new technologies, policies

15 PBR provides a regulatory framework to connect goals, targets, and measures to utility performance or executive compensation.

16 Why PBR? Allow regulators and other stakeholders to focus on goals Improve utility performance in unsatisfactory areas Encourage utilities to maintain, or even improve specific areas (eg customer service/satisfaction) Provide greater regulatory guidance to address new and emerging issues, eg: grid modernization 16

17 PBR is versatile municipalities State-owned entities 17

18 Elements of PBR (1) Guiding goal (e.g. reduce peak demand) Understand status quo incentives Directional incentives (e.g. increase EE/DR by X%) Operational incentives (e.g. maintain system reliability) 18

19 Elements of PBR (2) Measurable performance criteria Metrics (e.g. MW or MWh) Outputs and outcomes (e.g. SAIDI reduction objective/improved system reliability) 19

20 Incentives set up to work Create good incentives Remove bad incentives Establish transparency at each step Align benefits and rewards Learn from experience Simple is good 20

21 3 Examples of good and bad PBR

22 California PBR for nuclear plant capacity factor Performance metric based on plant availability Diablo Canyon operated with a very high capacity factor 22

23 PBR in Denmark Benchmarking model: outages / quality of delivery & efficiency

24 Danish PBR for Reliability Source: DERA (2009) 24

25 PBR for Reliability in Denmark Efficiency benchmarking model Goal: to encourage the most inefficient Distribution System Operators (DSOs) to become as efficient as the top 10% of DSOs within a four-year period How measured? Efficiency index comparing the actual cost incurred by a DSO in operating its grid with the costs incurred by an average DSO. 25

26 ConEd s Brooklyn-Queens Demand Management Project

27 Example of bad PBR: Energy Efficiency Incentive Structure Puget Sound Power and Light, Washington Utility short of the targets in 9 out of 10 topical areas, but received huge incentive 27

28 4 Make the Price Signal Clear to Customers

29 Regulatory Assistance Project (RAP) 29

30 Providing universal service in Indonesia Triggered the development of energy efficient appliances 30

31 Tempo tariff in France 31

32 Conclusions Recent and future innovations open a multitude of possibilities for the power sector Regulators have an important role to play in the transformation of the sector Regulatory innovation is important to be successful 32

33 Resources Next-Generation Performance-Based Regulation Performance-Based Regulation: The Power of Outcomes (2-part webinar series) Smart Rate Design for a Smart Future Cleaner, Smarter, Cheaper: Network tariff design for a smart future Revenue Regulation and Decoupling: A Guide to Theory and Application Efficiency First: From Principle to Practice with Real World Examples from Across Europe 33

34 About RAP The is an independent, non-partisan, non-governmental organization dedicated to accelerating the transition to a clean, reliable, and efficient energy future. Learn more about our work at raponline.org Christos Kolokathis Associate The Rue de la Science 23 B-1040 Brussels Belgium ckolokathis@raponline.org raponline.org

35 Additional Resources

36 How not to do PBR? Basing performance incentives on inputs Rewards or penalties based on exogenous factors ex: weather, economic growth, etc. Unclear or uncertain metrics or goals Lack of clarity and measurement methodology Not understanding utility motivations 36

37 Different forms of PBR possible 37

38 Generation: just one piece of the puzzle 38 Source: IEA Energy Technology Perspectives 2014

39 Demand Response as a grid resource 39

40 Remove the Throughput Incentive

41 Revenue-Based Regulation (Decoupling) and PBR Decoupling eliminates the "throughput" incentive Utility is indifferent to variations in sales, either up or down, due to weather, EE, DG, etc. Decoupling is NOT an incentive mechanism PBR rewards (or penalizes) a utility for achievement of (failure to achieve) specified outcomes They fit together well 41

42 Decoupling and Its Intended Purposes Decoupling is designed to address the throughput incentive by breaking the link between utility sales and revenue. The Commission, in a rate case proceeding, determines the distribution revenue requirements which become the basis for determining the revenue the utility will receive in rates. 42

43 Decoupling and Its Intended Purposes At the end of an agreed-upon period, the utility s authorized revenue requirements are measured against actual revenues. Rates are then reconciled to allow the utility to recover (positive or negative) the difference between revenues authorized and revenues received. 43