Clean Energy and the Role for Regulators

Garrett Blaney Commissioner

Commission for Energy Regulation Clean Energy Regulators Initiative Webinar Programme

5 December 2013

What is the role of a regulator?

Legislation

Economic Energy

Regulator

Appeal and/or Legal

challenge

Government Policy

Consumers

Industry/ Capital

Markets

Typical Regulatory Objectives

• the lights stay on • the gas continues to flow • prices for energy are fair and reasonable • Complying with environment policy and laws • Best practice regulatory processes

The Energy Trilemma

Environment

Price

Security

The impact of clean energy

• The wholesale market

• The Transmission System

• The Distribution System

• Retail

European Renewable Electricity Targets for 2020

The Cost of Renewables

0

100

200

300

400

500

600

€/M

Wh

Hydro Wind Biomass Biogas and waste Photo-voltaic Geo-thermal

The Wholesale Market

• Interconnectors historically underused, markets segmented

• Uneconomic cross border flows undermine EU energy policy goals of sustainability, competitiveness and security of supply

• EU has addressed this by forging an internal market in electricity to form part of single European market in goods and services

European Context

Creating the Single Market

• 1st and 2nd electricity liberalisation packages (1996 and 2003):

– Some success but price correlation between regional markets remained poor and cross border capacity was inadequate or inefficiently used

• 3rd electricity liberalisation package (2009): – Establishment of ACER and ENSTO-E – harmonisation of market rules - market coupling – increase in physical cross border investment

• Target Model – end 2014 – SEM derogation to end 2016

European Context

Creating the Single Market (2)

Market Integration 2000

Nord Pool

Implicit auctions

Only explicit auctions Other methods

Market Integration 2006 Implicit auctions

Only explicit auctions Other methods

Market Integration 2010

APX

CWE

EMCC

Implicit auctions

Only explicit auctions Other methods

Market Integration 2014?

Euro Pool

Implicit auctions

Only explicit auctions Other methods

Market Coupling 2016

Euro Pool

Implicit auctions

Only explicit auctions Other methods

• Gross Pool markets are centrally dispatched with TSOs deciding centrally on generator running order

• Bilateral markets like those in Britain and continental Europe are self dispatch, where TSOs only balance the system close to real time

Different Market Designs

SEM British Market

European Target Model

Long-term allocation

Day-ahead implicit auctions

Intraday continuous trading

Cross-border balancing

Zone delineation Capacity calculation

Common cross-border arrangements

Diverse national arrangements

The interaction between the two should encourage harmonisation

How it works…

• Rules for calculating and allocating cross border capacity – Auction Rules – Allocation Platforms

• Cross Border Risk Hedging and Firmness – Physical Transmission Rights (PTRs) with UIOSI – Financial Transmission Rights (FTRs) – Other hedging tools if sufficient liquidity exists

Forward Capacity Allocation

• Centrepiece of the Target Model • Links separate day-ahead spot markets using cross-border (XB) transmission

capacity • It is an “implicit auction” – meaning cross border capacity allocation is integrated

with the energy market (‘explicit auctions’ sell capacity separately) • Common prices between spot markets when there is sufficient capacity

Day Ahead Market Coupling

Market Coupling (2)

If there are XB capacity constraints, these will limit the flows between the coupled markets and a price difference will persist

21

Wrong direction

Hourly Capacity Utilisation - Explicit

Wrong direction

CA

PAC

ITY

UTI

LISA

TIO

N

A to B

B to A

100%

0%

100%

PRICE DIFFERENCE

A = B A << B A >> B

22

Hourly Capacity Utilisation - Coupled

Optimal utilisation (same price unless congested) C

APA

CIT

Y U

TILI

SATI

ON

A to B

B to A

100%

0%

100%

PRICE DIFFERENCE

A = B A << B A >> B

Future Issues – Capacity Mechanism • Target Model is being finalised and is due to be implemented by 2014 • But, in parallel several Member States have or are considering CRMs

– Generation Adequacy– e.g. German nuclear closures and LCPD impacts – Missing money problem – Impact of RES on energy only markets

Does Clean Energy need Support?

• Limits of Energy Only market (marginal cost) • High Capex, Low Opex • Reducing cost of capital • Regulatory/Policy Certainty

Elements of Market Dysfunction

• Cheap Coal from US

• Dropping gas demand

• Good Utility/Bad Utility – security of supply?

• Nuclear Support

• Cost competitiveness for large industry

The Transmission System

• Much wind in west, demand in east

• Rolling out the grid is critical to meeting 2020 renewable target

• EirGrid has major Grid 25 plan

• Over €1 billion in grid investment allowed by CER from 2011 to ‘15

• Planning and land access are a major challenge

Grid Roll-out

DS3 Project Delivering a Secure, Sustainable, Electricity System (“DS3”) – integrating wind while maintaining secure operation of system • 75% instantaneous wind

penetration; • Greater flexibility from

conventional plant (existing & new);

• RoCoF settings • Keep curtailment to

“bankable” levels i.e. 5% • Better wind forecasting,

real time data and controllability;

• Demand Side Management;

• Cost & Benefit to consumers

System Non-Synchronous Penetration (SNSP)

50% SNSP 75% SNSP

The Distribution System

Changes to DSO

• New technologies such as embedded (e.g. micro) generation and electric vehicles

• Smart grids • Smart metering • Demand Side participation • Ancillary service provision and flexibility

DSOs Issues for Regulators

• Distribution tariffs • Promoting innovation • The scope and extent of DSOs functions • Price controls and incentives • Data handling and protection • Future unbundling/separation requirements

The Retail Market

• Green Tariffs • Changing Consumption Behaviour • Smart Meters – Static or Dynamic ToU Tariffs? • Microgeneration Issues • Consumer Confusion & impact on competition • EV integration

Conclusions

• Regulatory Change Needed to Delivery Green Targets: – Wholesale market evolution – Public Friendly Transmission Investment – New Role for DSO – New Engagement with Consumers