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Regulatory challenges for
the European power grid
industry
Jean-Michel Glachant
Future Power Grid Managers Programme
3rd O...
www.florence-school.eu
Context
Fundamental changes in the power system
• Today’s generation mix split into two opposite se...
www.florence-school.eu
4 (+1) Dimensions of regulatory intervention
i.e. areas where regulatory change is expected
3
Infra...
www.florence-school.eu
Infrastructure planning
(1/2)
Addressing the cross-border effect of the national and interconnectio...
www.florence-school.eu
Infrastructure planning
(2/2)
2. How to allocate cost among beneficiaries, Member States, …?
– Cros...
www.florence-school.eu
Infrastructure financing
(1/2)
• Significant investments needed for transmission network:
– TYNDP 2...
www.florence-school.eu
Infrastructure financing
(2/2)
• Not only a problem of volume
 High up-front capital expenditures ...
www.florence-school.eu
Revenue regulation and tariff design
(1/2)
• How to account for new set of services, massive invest...
www.florence-school.eu
Revenue regulation and tariff design
(2/2)
• Current patchwork of national regulatory approaches
– ...
www.florence-school.eu
Grid operation
(1/2)
Flows never stop at borders, neither does flexibility!
• How to provide effici...
www.florence-school.eu
Grid operation
(2/2)
Flows never stop at borders, neither does flexibility!
• How to provide effici...
www.florence-school.eu 12
Thank you for your attention
Email contact: jean-michel.glachant@eui.eu
Follow me on Twitter: @J...
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Regulatory Challenges for the European Power Grid Industry

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Jean-Michel Glachant launches the Future Power Grid Managers Programme. Opening Seminar: setting the scene & projects launching, 3 October 2013, Florence

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Regulatory Challenges for the European Power Grid Industry

  1. 1. Regulatory challenges for the European power grid industry Jean-Michel Glachant Future Power Grid Managers Programme 3rd October 2013, Florence
  2. 2. www.florence-school.eu Context Fundamental changes in the power system • Today’s generation mix split into two opposite sets of generators: • Technological innovation allows for decentralization of the production- consumption loop - Distributed generation… + active demand response and local energy storage - “Smartening” of the grid and grid users • Diverse national systems aiming to become an interconnected market 2 Conventional generators … bearing significantly increased uncertainty, and a foreseeable depressed future Intermittent RES generators … bearing no significant risk for capacity, volume or price  Need for a wave of investments as well as technological and operational innovation
  3. 3. www.florence-school.eu 4 (+1) Dimensions of regulatory intervention i.e. areas where regulatory change is expected 3 Infrastructure planning Grid operation Infrastructure financing Revenue regulation & tariff design  Existing regulatory frame has not been conceived to steer the wave of investments and innovation National approaches… … or rationales for European solutions?
  4. 4. www.florence-school.eu Infrastructure planning (1/2) Addressing the cross-border effect of the national and interconnection infrastructure projects 4 • Single Cost Benefit Analysis (CBA) method will be used for selecting priority projects • Proposal published by ENTSO-E end of 2012 • But still certain freedom for regional groups to decide which effects to monetize and how to monetize 1. How to select “projects of common interest”?
  5. 5. www.florence-school.eu Infrastructure planning (2/2) 2. How to allocate cost among beneficiaries, Member States, …? – Cross-Border Cost Allocation (CBCA) method to be concerted at European level  recommendations currently developed by ACER 5 • Ex-ante • Ex-post When? • 50-50 • Proportional • Compensating losers To which extent? • Project • Group of projects To what? 3. Should grid operators also be responsible for the planning of and investments into new types of infrastructure? – E.g. advanced meters, electric vehicle charging infrastructure, etc.
  6. 6. www.florence-school.eu Infrastructure financing (1/2) • Significant investments needed for transmission network: – TYNDP 2012: €104 billion over next 10 years for new projects (80% for RES integration) – IEA: > 40% of existing network to be refurbished by 2035  Pace and volume of investments to increase significantly (investments over 5 years roughly equal to asset size in 2011) • Large-scale investments in a context of low demand growth will impact tariffs  How to distribute the impact (and make it acceptable!) among: – Conventional generators / intermittent RES / consumers / tax-payers – Member States – Different generations of network users 6
  7. 7. www.florence-school.eu Infrastructure financing (2/2) • Not only a problem of volume  High up-front capital expenditures must be financed today by borrowing money and/or selling ownership • TSOs already highly geared (60-70% debt)  Emitting debt will lead to a downgrade of TSOs credit profiles • Three financing alternatives: – Current owners injecting equity BUT difficult in a context of cash-strapped states and publicly-owned TSOs – New investors injecting equity BUT requires opening ownership of infrastructures – Financing growth by retaining dividends BUT facing reluctance of investors  How to design an attractive framework (keep risk low + adequate return) to attract investors?  How to design an unrestrictive framework open to new business-models? 7
  8. 8. www.florence-school.eu Revenue regulation and tariff design (1/2) • How to account for new set of services, massive investments and innovation? – Performance-based regulation? – New set of KPIs? – Longer regulatory periods to reduce risks? • How to adequately incentivize grid users? – Can a large share of grid users (e.g. RES-E) remain isolated from economic signals? – Abandon “shallow” connection costs? – Introduce locational and/or time signals? – Substitute typical “light Generation charge / heavy Load charge” with “heavy G / light L”? 8
  9. 9. www.florence-school.eu Revenue regulation and tariff design (2/2) • Current patchwork of national regulatory approaches – Further convergence of regulatory practice? – Some harmonization in grid tariff design? – Can we deal with several thousand (sub-national) DSOs throughout Europe? • Existing exemptions from grid tariffs for selected consumers 9 Illegal state aid (Lower energy bills for some companies give them a cost advantage over competitors in other EU countries) Investigation launched by the EC GERMAN CASE: - Exemptions (or reductions) from grid fees, “EEG contribution”, electricity tax - … for selected consumer groups (e.g. steelmaking, chemicals or cement industries) Requirement to enable those energy- intensive companies to compete internationally German Government’s reasoning
  10. 10. www.florence-school.eu Grid operation (1/2) Flows never stop at borders, neither does flexibility! • How to provide efficient regulatory incentives to use the right range of flexibility instruments to operate the grid? – Generation, storage, demand response, flow-control technology, etc. – National or foreign 10 Case of Orkney Islands (near Scottish mainland) - Challenge: integrating more RES constrained by congestion on submarine cable - Option 1: new submarine cable - Option 2: active network management + procurement of congestion management services from third party energy storage providers
  11. 11. www.florence-school.eu Grid operation (2/2) Flows never stop at borders, neither does flexibility! • How to provide efficient regulatory incentives to achieve the right scale of operational cooperation? – Local imbalances or congestion calling for local solutions (e.g. smart grids/smart cities) – Cross-border flows calling for regional cooperation to operate the grids (e.g. European Network Codes) – Local, national and regional levels are interdependent 11 Case of CORESO (service provider for TSOs - e.g. Elia, 50Hertz, Terna, RTE, National Grid…) - Challenge: unpredictable flows transcend national TSO grids - Solution: CORESO provides grid-security analyses (and other services) on regional scale with input of national TSOs
  12. 12. www.florence-school.eu 12 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 & Environmental Policy” My web site: http://www.florence-school.eu

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