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Regulation of electricity DSOs and TSOs in a context of massive renewable energy sources

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Speech at EURELECTRIC conference "Power Market in Transition: Why do we need a new Market Design? " on 6 May, Renaissance Hotel, Brussels

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Regulation of electricity DSOs and TSOs in a context of massive renewable energy sources

  1. 1. Brussels – Eurelectric 6 May 2014 Jean-Michel Glachant Florence School of Regulation Regulation of electricity DSOs and TSOs in a context of massive renewable energy sources 1
  2. 2. • Massive integration of intermittent renewable energy sources (RES), mostly at local level. Growing variation and uncertainty of flows in T&D grids. New needs and opportunities for technologies and providers still not fully identified. • BUT regulated entities do what they are asked to do! Which regulatory frame in this new moving context? 2 CONTEXT
  3. 3. • The need to rethink DSO regulation to: - Accommodate a high share of distributed energy resources - Manage actively complex and bi-directional flows - Encourage innovation and provision of new services • The need to rethink TSO regulation to: - Handle a new control logic of a system with numerous decentralized resources - Manage variable and complex cross-border flows by building and operating cross-border infrastructures • Including the need to rethink the TSO/DSO border 3 THE CHALLENGES
  4. 4. Smart regulation must deliver: • New grid services, addressing – Cost increase (higher system operation costs) – Revenue decrease (as less energy is delivered) – Lack of incentives to do better than the minimum • Technology innovation, addressing: – Gaps between long term benefits vs. short term costs – Distributed benefits between grid users (e.g. smart meters) • Grid user participation BUT difficult to: define and measure outputs, as well as relate inputs to outputs Especially due to: time length difficulties, regional grids vs. national regulation 4 THE CHALLENGES (2) Source: Meeus, Leonardo, et al. "“Smart Regulation for Smart Grids”." (2010)
  5. 5. 5 Rethinking DSOs regulation 1. Regulated DSO remuneration 2. Distribution network tarification 3. DSOs vis-à-vis the energy and power markets 4. DSOs vis-à-vis the TSO. Generation connected to T grid TSO DSO DER and retail markets DSO as a network operator (and owner):  Get remuneration, incentives to innovate and tarification right DSO along the value chain:  Get the boundaries vis-à-vis the TSO as well as vis-à-vis the markets right • Four areas of regulation need to be reviewed: Source: THINK topic 12/ From distribution networks to smart distribution systems: Rethinking the regulation of European electricity DSOs
  6. 6. #1: Regulated DSO remuneration • Reducing costs is not necessarily efficient anymore as new services can be provided by DSOs • Similarly, “black box” benchmarking approaches are not possible and must take different services provision into account • Regulation must take into account the changing CAPEX and OPEX structure and allow DSOs to deal efficiently with potential tradeoffs #2 Distribution network tarification • Need to reflect the true connection costs of each load/generator • In particular, if the value of the grid moves from delivering kWh to providing more services, this must be reflected: - e.g. volumetric charges (in kWh) combined with net metering are hidden subsidies for distributed energy resources 6 Rethinking DSOs regulation Source: THINK topic 12/ From distribution networks to smart distribution systems: Rethinking the regulation of European electricity DSOs
  7. 7. #3: DSOs vis-à-vis the energy and power markets • Need to define the roles, boundaries and responsibilities of DSOs: • Need for stricter unbundling rules as more responsibilities are given to the DSOs: what about storage? Demand-side management? Rethinking DSOs regulation Ownership/management of metering equipment Data handling EV charging infrastructure Different models – regulated as well as liberalized – have been proposed: UK vs. DE vs. IT DSO vs. Central Data Hub vs. Data Access- Point Manager Smart Grid Task Force EG3 (2013) DSO vs. Charging Infrastructure Operator vs. Independent e-Mobility Provider Eurelectric (2010) Source: THINK topic 12/ From distribution networks to smart distribution systems: Rethinking the regulation of European electricity DSOs
  8. 8. #4: DSOs vis-à-vis the TSOs • General responsibilities of network operators with respect to grid management do not change … but the set of tools available to perform the tasks is enriched by DER • Some of the services DER can provide are relevant for either the TSO or the DSO … whereas others might be of interest for both types of network operators Regulation needs to guide DSO-TSO interactions, in particular in: - TSO-DSO coordination Hierarchy of decisions for system balancing Protocol of DER committed for which operations, to whom, for which time-frame - TSO-DSO differentiation Via a careful product definition (Time of delivery, geographic scope, technical features)  Integrated T&D SOs or closely interacting TSO+DSOs? Rethinking DSOs regulation Source: THINK topic 12/ From distribution networks to smart distribution systems: Rethinking the regulation of European electricity DSOs
  9. 9. • In a rugged landscape, diversity of approaches matters. E.g. Interaction between consumer preferences and demand response contracts: consumers can be engaged to participate actively in demand response if they have enough options that reflect their diversity. 9 Need to keep the door open! Contract Preferences Price Risk Volume risk Complexity Autonomy/ Privacy loss Financial compensation TOU Low None Low None Limited Dynamic pricing High None High None High potential Fixed capping contract None Low High Limited Limited Dynamic capping contract None High High Limited High potential Direct load control None None None High High potential Source: THINK topic 11/ Shift, Not Drift: Towards Active Demand Response and Beyond
  10. 10. Massive wave of investment unprecedented since.. a while! Implies: • Coordination of massive investments: How to coordinate (cross-border) invest in complement/substitute TRSM & G assets? @ EU level? Region? North Sea Off-Shore • Economic efficiency of our regulatory frame: conceived to reduce costs … not to handle a wave of investment and innovation. Can we replace “invest less for same set of services” with “pay less for any invest. volume”? 10 Rethinking TSOs regulation
  11. 11. Massive wave of investment also implies : • Financial feasibility of an investment wave: – Could TSOs borrow more? Have they already reached their debt limits? Probably no more debt with current tariffs.. – Will grid users swallow (significant!) tariffs increase? Tariffs will have to double by 2030 to achieve the TYNDP… – Alternative financing models (shift to growth model, equity injection) can lower the impact on tariffs, but not that much.. • Handling of (massive?) redistributive effects: – National load, foreign load, national generation, foreign generation… – Is there such thing as a European welfare ?! Will CBA/CBCA be sufficient ? 11 Rethinking TSOs regulation Source: Henriot (2013) Financing investment in the European electricity transmission network
  12. 12. • Need an early move of the TSOs to handle next decade intermittent resources. • But it is then difficult to avoid stranded assets: which ENTSO-E vision will come true? 12 Rethinking TSOs regulation
  13. 13. 13 Rethinking TSOs regulation • The value of cross-border exchanges increases as the availability of intermittent resources is not perfectly correlated across Europe. • BUT: – Which regulatory frame(s) for cross-border assets? Specific risk requiring specific remuneration? Single European scheme or ad-hoc schemes? – No such thing as European generation adequacy. National generation adequacy outlooks are established: Without common methodology to estimate reliability With different methodologies for interconnection availability (including considering isolated systems!) Without consistency with ENTSO-E top-down scenarios.
  14. 14. • Massive development of distributed variable energy resources requires: - A redefinition of the role of TSOs vis-à-vis DSOs - A redefinition of the role of T&D system operators vis-à- vis other stakeholders in the energy market • The regulatory frame should allow efficient management of trade-offs between: different technologies, national resources vs. cross-border resources, CAPEX vs. OPEX, long term vs. short term… • Important to value the services provided by system operators (not kWh anymore..) • We do not know what will be the winning resource: important not to kill innovation! 14 To sum up…
  15. 15. 15 Thank you for your attention Email contact: jean-michel.glachant@eui.eu Follow me on Twitter: @JMGlachant Read the Journal I am chief-editor of: EEEP “Economics of Energy and Environmental Policy” My web site: http://www.florence-school.eu

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