Grid Integration and Grid Development from a Financial and Regulatory Perspective


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7-th Southeast European Congress on Energy Efficiency and Renewable Energy

13-15 April 2011, IEC-Sofia

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Grid Integration and Grid Development from a Financial and Regulatory Perspective

  1. 1. SMART GRID REGULATION Kenneth Lefkowitz Managing Partner New Europe Corporate Advisory Ltd. 7 th International Congress and Exhibition for South-East Europe April 2011
  2. 2. Smart Grid Regulation Behavior modification
  3. 3. Smart Grid Regulation Oil prices and fuel efficiency <ul><li>Today the US economy uses about the same amount of oil as it did in the late 1970s, but the economy is 125% larger; </li></ul><ul><li>Despite the seven-fold increase in the real price of oil from 1960 to today, consumers spend about 25% less of their income on energy </li></ul>Source: Seeking Alpha
  4. 4. Smart Grid Regulation Effective communication of incentives Information overload Distributed decision-making <ul><li>Market price and consumption information must be broadly accessible </li></ul><ul><li>Incentive framework must be stable for long-term effectiveness </li></ul>VS
  5. 5. Smart Grid Regulation Benefits from energy efficiency Source: US Department of energy, Cornivus University The total reduction of 18% in the USA does not include THEFTS. In Bulgaria for example, estimated commercial losses (thefts and bad debts) are 10-11% Potential Reductions in Electricity and CO2 Emissions in 2030 Attributable to Smart Grid Technologies (assuming 100% penetration of smart grids) Reductions in Energy and CO 2 Emissions Direct Indirect Conservation Effect of Consumer Information and Feedback Systems 3% - Joint Marketing of Energy Efficiency and Demand Response Programs - 0% Deployment of Diagnostics in Residential and Small Commercial Buildings 3% - Measurement & Verification (M&V) for Energy Efficiency Programs 1% 1% Shifting Load to More Efficient Generation <0.1%   Support Additional Electric Vehicles and Plug-In Hybrid Electric Vehicles 3%   Conservation Voltage Reduction and Advanced Voltage Control 2%   Support Penetration of Renewable Wind and Solar Generation <0.1% 5% Total Reduction 12% 6%
  6. 6. Smart Grid Regulation Creating the right incentives <ul><li>Liberalized and liquid electricity market </li></ul><ul><li>Investment is rewarded </li></ul><ul><li>3) Dynamic pricing: </li></ul><ul><ul><li>Retail </li></ul></ul><ul><ul><li>Wholesale </li></ul></ul><ul><ul><li>System services </li></ul></ul>Source: GTM Research
  7. 7. Smart Grid Regulation Regulation Source :Eurelectric, Energy Agency Of The Republic Of Serbia, Energo, ERRA, NordPool Consulting, Eurostat, Herbert Smith Retail prices of electricity are for 2010, household band C Country TSO Unbundling Supplier unbundling Day ahead market Exchange or bilateral Regulatory scheme Retail price (household) Bulgaria Bilateral Cost-plus; revenue cap € 0.0675 /kWh Greece Bilateral Cost-plus € 0.0975 /kWh Romania Exchange Cost-plus € 0.0856 /kWh Serbia Bilateral Cost-plus; revenue cap € 0.0549 /kWh
  8. 8. Smart Grid Regulation From cost-based regulation to incentive regulation Source : KEMA Consulting, Webinar Training on Regulation 2009 Cost-plus regulation Revenue cap
  9. 9. Smart Grid Regulation Liberalization of cross-border trade Implied auction Candidates Preparing for implied auction Explicit auction Source :NordPool Consulting
  10. 10. Smart Grid Regulation Costs and benefits Investment Payback <ul><li>Reduced usage and lower bills; </li></ul><ul><li>Produce and sell own electricity; </li></ul><ul><li>Comprehensive energy management </li></ul><ul><li>More expensive “smart” appliances; </li></ul><ul><li>Share consumption data; </li></ul><ul><li>Interruptibility; </li></ul><ul><li>Drastic change in business model – from selling a commodity to providing a service. </li></ul><ul><li>Lower sales </li></ul><ul><li>Cost – additional investments for upgrading the traditional grid. </li></ul><ul><li>Less thefts; </li></ul><ul><li>Improved efficiency of the grid and less investments on expanding capacity; </li></ul><ul><li>Remote reading of monitors </li></ul><ul><li>Better security and outage detection; </li></ul><ul><li>Predictability of energy demand </li></ul><ul><li>Intelligence on consumer habits </li></ul><ul><li>Improved grid access for renewables; </li></ul><ul><li>Greater dispatch efficiency for base-load and mid-load plants </li></ul><ul><li>Lower overall demand; </li></ul><ul><li>Demand shifted away from peak hours when price is the highest; </li></ul>
  11. 11. Smart Grid Regulation Conclusion <ul><li>In conclusion: </li></ul><ul><li>A price shock will be instrumental to spur efficiency; </li></ul><ul><li>With a clear and stable framework, investment in smart grids will take place, bringing net benefits for the whole value chain. </li></ul><ul><li>The way forward: </li></ul><ul><li>Remove populism from price regulation; </li></ul><ul><li>Regional DAM and hourly market and regional exchanges; </li></ul><ul><li>Improved cross-border trade; </li></ul><ul><li>Dynamic retail pricing; </li></ul><ul><li>Incentive-based regulation of natural monopolies. </li></ul>
  12. 12. Kenneth Lefkowitz Managing Partner New Europe Corporate Advisory Ltd. mob: + 359 888 637-053 e-mail: [email_address] Smart Grid Regulation Thank you for your attention! Questions?
  13. 13. Smart Grid Regulation Smart grids in Europe Status Regulatory support World leader in smart meters, with 85% of homes equipped. In 2006 Enel completed the connection of +30mn users. One of the reasons for the whirlwind rollout – rampant thefts of electricity. Digital smart meters are mandatory since 2006. Government’s vision is 95% of customers of the 100 utility firms to be on smart meters by 2011. New energy strategy expected to include an action plan for smart grid development First smart grid in Eastern Europe – a pilot project in Brasov launched in Dec 2010 with Electrica Sud Distribution. 100% penetration of smart meters in transmission and 1% penetration in distribution Smart metering roll-out plan until 2013. Budget of €75mn with loans from EBRD and EIB. Regulator agreed to approve costs. No elements of smart grids available yet, apart from a demonstration of EV plug-in sockets in Sofia The distribution company has deployed only small-scale pilot projects so far, but is considering a smart grid alliance. Smart metering roll-out plan until 2013. Budget of €75mn with loans from EBRD and EIB. Regulator agreed to approve costs. Draft of the National Energy Strategy until 2020 plans revenues from carbon sales to be used for smart grid implementation