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TransGrid large energy users roundtable
- 1. Large Energy UserRoundtable Held 13 November 2013 This TransGrid event brought together a range of key industry stakeholders to discuss our five year business plan and revenue proposal. Some small changes have been make to the following slide pack as details will continue to change as we take feedback from our consultation process. All details were correct at the time of publication, E&OE.
- 2. Adapting to achanging energy market Large Energy User Roundtable workshop 13 November 2013
- 3. Welcome Your input todayis what counts 3
- 4. Workshop objectives • Sharedunderstanding of the changing energy market, and how TransGrid is responding • Awareness of the revenue-setting process for network businesses, and TransGrid in particular • Open, informative and transparent discussion of TransGrid’s planned revenue application for 2014 to 2019 and pricing methodology • Feedback and input from attendees on this revenue application and pricing methodology • Feedback on TransGrid’s strategy to engage your company and the broader public on this revenue proposal, and future updates 4
- 5. Workshop agenda 10.00am 10.15am How weare changing our business - Chum Darvall, Chairman 10.25am Overview of TransGrid - Greg Garvin, GM Stakeholder Engagement 10.35am Discussion of your key issues 11.00am Morning tea 11.15am TransGrid’s draft business plan for 2014 to 2019 - Greg Garvin 11.30am Network planning and non-build options - Stephen Clark, GM Network Planning 11:40am Network Support - Mal Coble, Manager Network Support & Consultations 12:10am Invested Capital - Andrew Kingsmill, Regulatory Expenditure Manager 12.45pm Lunch 1.45pm Invested Capital continued 2.15pm Operating Expense - Andrew Kingsmill 2.45pm Pricing - Stephen Clark 3.15pm Working afternoon tea 3.25pm Pricing continued 3.45pm Event feedback session and engagement looking forward 4.00pm 5 Welcome, workshop objectives and introductions Close
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- 7. How we arechanging our business Chum Darvall, Chairman
- 8. The market haschanged Total electricity demand in NSW 1951/52 8 How we are changing our business 70,000 gigawatt hours 2012/13
- 9. Painful electricity pricerises NSW residential electricity price Index movement 400 300 CPI 200 100 9 How we are changing our business 2009 2004 1999 1994 1990 2013
- 10. TransGrid’s new approach Adaptive planning open, responsive planning and innovative non-build options eg deferral of approximately $700 million of allowed demand-driven capital expenditure value stakeholders’ input Effective eg early and broad consultation is beginning on engagement potential network needs in the Sydney CBD Smarter regulation advocate for smarter regulation eg TransGrid / Grid Australia’s proposed ‘hybrid’ reliability standard (balancing cost against customers’ willingness to pay) has been endorsed by the rulemaker 10 How we are changing our business
- 11.
- 12. TransGrid’s business structureand role in the market Large scale blackout prevention Wholesale market facilitation Mostly indirect consumer relationship 38% wholesale plus carbon 8% 12 Overview of TransGrid 35% • NSW population more than 7 million • Approx 700,000 businesses in NSW • Three large users directly connected to TransGrid 13% retail 7% green schemes Contribution to residential electricity bill
- 13. TransGrid’s network spansNSW, and plugs in to neighbouring states 94 substations 13 Overview of TransGrid 47 kms underground cables • NSW state-owned corporation • Owns, maintains and operates the NSW transmission network • 1,083 employees, more than 70% based outside Sydney 12,609 kms high voltage transmission lines 63 generator connections 362 distributor and direct customer connections
- 14. Revenue reset consumerengagement plan Description Consumer advisory panel Large energy user roundtable • 10-30 large energy users in NSW • Invite energy manager (sophisticated participant) Deliberative forums & end user survey • A qualitative workshop to educate participants on key issues • Survey of consumer awareness and priorities Broader engagement program • Online education materials and collaboration opportunities • Broader outreach and engagement methods (news stories, PR / media, channel marketing) Test and revise program 14 • Peak bodies, consumer advocates and technical experts • 6-8 hour commitment during Revenue Reset (panel or briefings) • Reconvene annually to review Annual Planning Report • Customer focus groups to test engagement methods (in process) • Survey of collaboration participants and interested public • Direct stakeholder feedback and indirect media mentions
- 15. Discussion Roundtable key issuesdiscussion Please let us know: Key electricity industry issues for your company Topics you want to cover today Key questions 15
- 16. TransGrid’s draft 2014 to2019 business plan
- 17. The revenue determination framework Naturalmonopolies such as TransGrid have economic regulation in place of market competition The Australian Energy Regulator determines TransGrid’s five-yearly revenue allowance. The National Electricity Act (SA 1996) says regulated network service providers should be provided with a reasonable opportunity to recover ‘at least the efficient costs’ of providing network services and complying with regulatory obligations 17 TransGrid’s Draft Business Plan
- 18. Revenue determination timeline Australian Energy Regulator 31Jan 2014 Framework & approach paper to guide content of the proposal 31 Mar 2014 Placeholder revenue determination for 2014-15 2014 TransGrid 31 Jan 2014 Placeholder revenue proposal for 2014-15 18 TransGrid’s Draft Business Plan 30 Nov 2015 Draft revenue determination for 2014-19 30 Apr 2015 Final revenue determination for 2014-19 2015 31 May 2014 Full revenue proposal for 2014-19 TransGrid wishes to consult with consumers every 6 months Consumers can make submissions to the Australian Energy Regulator at each stage of the process
- 19. Business plan overview Regulatory assetbase Proposed capital investment (2014-19) Annual revenue allowance Tax & depreciation Inform Proposed operating expense (2014-19) Consult Consult Return on proposed capital investment Inform Capital invested historically 19 TransGrid’s Draft Business Plan Inform Return on capital invested historically Inform
- 20. How TransGrid’s pricescompare Prescribed revenue per energy transmitted (c/kWh nominal) 3 c/kWh nominal 2 1 0 2005-06 2007-08 2009-10 ElectraNet Powerlink 20 TransGrid’s Draft Business Plan 2011-12 2013-14 2015-16 2017-18 SP AusNet Transend TransGrid
- 21. Regulatory asset base Annual revenue allowance Proposedcapital investment
- 22. Minimising our buildprogram: past success Demand-driven capital approved by the regulator for 2009 to 2014 Responding changing Responding toto changing demand forecasts demand forecasts Approx $700 million deferred Advocating smarter Advocating smarter reliability reliability standards or standards or grid innovation grid innovation Continuing to procure non-build options such as demand management 22 Capital – Non build focus Approx $1.2 billion completed or underway
- 23. Open and responsiveplanning 23 Capital – Non build focus
- 24.
- 25. Network Support Payments Rulesfor eligible network support payments by a TNSP are quite specific to : (a) Any Generator providing network support services in accordance with rule 5.4AA; or (b) Any other person providing a network support service that is an alternative a network augmentation. 25
- 26. ‘Energy Darwinism’ “the costof wind energy (levellised cost of energy of LCOE) is not just cheaper than new build fossil fuel generation in many markets, it is also competing with the existing wholesale electricity price in a number of large markets” Renew Economy, 18 October 20134 “China is clearly emerging as the world leader in utility-scale solar power capacity, after it became the first country to reach the 4GW milestone in the category in October.” Renew Economy, 7 November 2013 The California Public Utilities Commission (PUC) - “……the state's investor-owned utilities must begin buying a combined 200 MW of energy storage technology by 2014 and reach 1.3 GW (1,325 MW) by the end of 2020.” Fierce Energy, 21 October 2013 “Should Australian towns buy back their grids?” Renew Economy, 12 November 2013 26
- 27. The future grid:Electric vehicles? Sale of Electric Vehicles in the US Source: US Dept of Energy Total number of new cars sold in the US in 2012 was 14.5mill 27
- 28. Innovative ‘non-build’ network supportoptions Demand management Embedded generation Energy efficiency 28 Capital – Non build focus Peak load management through time of use tariffs, interruptible loads and load shifting etc. Local generation (biomass, solar, cogeneration) to reduce loading on network Increasing customers’ use of efficient appliances, lighting, motors etc. TransGrid’s success so far Sydney CBD 40 megawatts (2012/13) Western Sydney supply 300 megawatts (2009)
- 29. TransGrid’s network support approach Jointprojects with distributors ‘Large scale’ initiatives 29 Research projects with universities Innovation forum Targeted customer initiatives Triage database
- 30. Sydney Inner Metropolitanproject 30 TransGrid & EnergyAustralia joint planning & development in the Sydney Inner Metropolitan area. TransGrid aimed to secure network support to cover operational risk management and allow one or two years deferral Commercial decision for TransGrid. Funded from bottom line Season: Nov 2012 – Mar 2013 Program Size: 35 MW Notification Period: day ahead Availability Window: 2 pm to 5:30 pm Maximum Annual Event Hours: 21
- 31. Sydney Inner Metropolitanproject customer statistics ~ 48 MWe of network support capacity ~ 600 kWe on average for each site ~ (16 MWe from load curtailment) Broadcast media Commercial property Other light industrial Career/vocational training Communication providers Primary/secondary school Defence facility Refrigerated warehouse Chemicals Entertainment Shopping centre Club/RSL College/University 31 Food processing
- 32. Consulting on requirementsfor Powering Sydney’s Future Potential network supply constraint to Sydney metropolitan area by 2018, due to cable derating / retirement and forecast demand growth Works underway to defer / avoid the need: advocacy for changed reliability standard seeking network support energy efficiency uptake study’ electric vehicles study planning and demographics study ‘low build’ options (eg cable backfill remediation) Feasibility assessment underway for a possible network solution Reports to be made public for consultation at www.yoursaytransgrid.com.au from Jan 2014 32 Capital - Replacement
- 33. Focus areas anddiscussion Consumer Education and Research Targeted network support Collaboration ‘Large scale’ innovation initiatives What is your organisation’s perspective on issues surrounding network support? How do you think TransGrid should be promoting network support? 33
- 34. Replacement dominates proposed capitalinvestment Proposed capital investment for 2014 to 2019 Category Augmentation New or upgraded infrastructure to cater for growing demand Replacement Updating infrastructure which is wearing out Market benefits New or upgraded infrastructure to expand generator access and competition Others 34 Capital – Overview Description Non network infrastructure, including commercial property and IT systems, and security compliance
- 35. Peak demand hasslowed and is less certain 35 Capital - Augmentation
- 36. Demand driven augmentation down Comparisonof demand driven augmentation capital investment 2009-14 and 2014-19 ($ million) 2009-14 allowed new capital 2009-14 actual new capital 2014-19 forecast new capital 36 Capital - Augmentation
- 37. Proposed augmentation portfolio Proposed augmentationprojects for 2014 to 2019 Category Description Spot loads Two projects driven by mining spot loads Beryl Substation Tamworth to Gunnedah Transmission Line Distribution connections 9 distribution connections, generally switchbays Reliability standards Others 37 Capex - Augmentation One project driven by reliability standards - Wallaroo Switching Station for supply to the Australian Capital Territory Four other projects: capacitor banks, transmission line uprating
- 38. History of networkdevelopment is driving replacement needs 38 Capital - Replacement
- 39. Proposed replacement project portfolio Forecastreplacement projects for 2014 to 2019 Category Powering Sydney’s Future Potential (contingent) project to meet need for Sydney CBD Substation renewal Rebuild and updating of substations nearing the end of their useable life Secondary system renewal Replacement of old (mechanical) meters and relays with modern (smart) technologies Transmission line renewal Rebuilds, pole replacements and repainting to extend life of assets Others 39 Capital - Replacement Description e.g. transformer replacement, reactive plant replacement, oil containment
- 40. Renewal or replacementof 11 substations built 45-60 years ago Age of TransGrid substations 14 Planned renewal in 2015-19 Rebuilt TransGrid has New undertaken 12 10 targeted replacement for many years 4 8 2 2 6 10 4 2 1 4 8 10 8 1 9 7 6 6 6 6 10 5 <5 3 1 0 60 55 50 40 Capital - Replacement 45 40 35 30 25 20 15
- 41. Secondary system renewalto facilitate automation Number of secondary systems by year of installation 3000 2500 Microprocessor – uses software to analyse and control system voltages Solid state – incoming voltages are monitored by analog circuits, not recorded or digitised Electromechanical – converts voltages and currents to magnetic forces that press against spring tensions in the relay 2000 1500 1367 1000 890 485 806 313 500 1929 586 552 593 1960-69 1970-79 1980-89 757 416 370 2000-09 2010-19 0 41 Capital - Replacement 1990-99
- 42. Transmission line renewaland ‘low span’ remediation Transmission tower life extensions in coastal areas Rebuild of ageing wood poles Raising ‘low spans’ to meet clearance requirements 42 Capital - Replacement
- 43. ‘Market benefits’ projectsto dispatch cheapest generation 43 Capital – Market benefits Queensland to New South Wales interconnector upgrade Snowy to Yass / Canberra upgrade
- 44. Discussion Do you thinkTransGrid’s approach is reasonable? Are there any issues you see with the direction TransGrid is heading? Are there alternatives you think TransGrid should consider? 44
- 45.
- 46. TransGrid performs wellagainst international peers 46 Operating expense – Overview
- 47. Historical and forecastoperating expenditure 200.0 200.0 190.0 Historical operating expenditure ($ million 2013/14) 190.0 180.0 180.0 $m (2013/14) 170.0 $170m $m (2013/14) 170.0 160.0 160.0 150.0 $150m 150.0 140.0 140.0 130.0 130.0 $120m 120.0 120.0 2009-10 2010-11 2009/10 2012/13 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 20162011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-1 Historical Actual/Outturn - Provisions Basis Forecast - Cash B Historical Actual/Outturn - Provisions Basis for Employee Entitlements Forecast - Cash Basis Historical Actual/Outturn – Provisions Basis Historical Actual/Outturn - Cash Basis Historical Actual/Outturn – Cash Basis Historical Actual/Outturn - Cash Basis for Employee Entitlements 47 Operating expense – Overview
- 48. Breakdown of draft operatingexpense proposal Proposed annual operating expense for 2014 to 2019 Category Description Plan and manage assets Planning the development of the transmission network and capital portfolio management Maintenance Inspections, preventative, conditionbased and corrective maintenance Operate the network 24 hour control room operations, outage planning and technical studies Supporting the business IT, health and safety, property and insurance 48 Operating expense – Overview
- 49. Increased planning coststo adapt to changing environment Planning cost trend 12 10 Increase in planning costs in recent years Portfolio management office making better and more responsive capex decisions ($700 million deferral) Increased transparency in investment decision making 8 6 4 2 - 49 Operating expense – Planning
- 50. Automation allows moreefficient network maintenance 50 Operating expense – Maintenance Secondary systems are now self-checking > reduction in preventative maintenance Video of transformer failure Online condition monitoring > reduced risk of failure Selection of lowmaintenance assets where available
- 51. Innovation in operatingpractices has driven costs down Reduction in costs over the last decade due to innovation: Virtual control room Automation of outage planning (B2B link to Australian Energy Market Operator’s systems) Mobile switching instruction table 51 Operating expense – Network operation
- 52. Continued efforts toreduce the cost of supporting the business Efficiencies IT sourcing review Fleet review Payroll efficiencies Videoconferencing to reduce travel Accommodation Insurance sourcing Proposed step-changes Consumer engagement 52 Operating expense – Support the business
- 53. Discussion To what extentshould TransGrid incur operating expense to pursue further ‘non-build’ options? Are there any different approaches to operating expense you would expect TransGrid to explore? 53 Do you think TransGrid’s recent increase in planning costs is justified? Why or why not? In light of changing electricity consumer behaviour in homes and businesses, to what extent do you expect TransGrid to engage with end-users?
- 54.
- 55. The pricing methodologyallocates transmission revenue to consumers The pricing methodology must be submitted to the regulator at the time of the revenue application TransGrid is currently consulting publicly on its pricing methodology for 2014 to 2019 55 Pricing
- 56. Current pricing methodology: fromallowed revenue to charges Prescribed revenue requirement Entry and exit services Transmission use of system services 50% 50% Locational Annual charge ($/day) 56 Pricing Common services Non-locational Contract or peak demand charge ($/MW) Historical energy or contract based maximum demand ($/MWh or $/MW)
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- 60. Transmission use ofsystem services (locational) 60
- 61. Transmission use ofsystem services (non-locational) and common services Non-locational 0.6611c/kWh (energy rate), or $2.4069/kW/month (CAMD* rate). Common Service 0.3836c/kWh (energy rate), or $1.3964/kW/month (CAMD* rate). Same rate applies, regardless of location. *Contract Agreed Maximum Demand (CAMD) customers have a contract with TransGrid, where penalties apply for exceeding the CAMD. 61
- 62. Purpose of transmissionpricing Transmission prices must: provide efficient signals for use of and investment, in the transmission network provide a mechanism for transmission businesses to recover their efficient total costs The Standing Council on Energy and Resources, on distribution pricing in October 2013, said: ‘Over the longer term, more efficient pricing of networks should have significant flow-on impacts to overall electricity expenditure faced by consumers due to better utilisation of the network and deferral of peak demand driven network investment.’ 62 Pricing
- 63. The theory: economically efficientpricing Marginal costs Sunk costs Two-part tariffs Equity and efficiency considerations 63
- 64. Discussion – costreflective network pricing The cost reflective network pricing methodology allocates a portion of shared network costs to individual connection points, using: An electrical model of the network A cost model of the network A set of load and generation patterns 64 Should the existing arrangements for determining locational based transmission use of system charges be amended and, if so, how? Should TransGrid continue to apply the cost reflective network pricing methodology (CRNP) or should it move to modified CRNP, or some other method?
- 65. Discussion – operatingconditions and network support costs TransGrid currently uses peak loading conditions from 365 days of half hourly data to set operating conditions for cost allocation. What operating conditions should be used for modelling purposes, and how should the pricing outcomes from these different conditions be taken into account in determining the applicable transmission prices? The Rules do not provide guidance on the treatment of network support costs Should TransGrid continue to recover network support costs on a locational basis by converting the cost to an equivalent asset value, or should these costs be treated as an operating cost and recovered through the common service charge? 65
- 66. Discussion – structureand application of prices Are TransGrid’s existing pricing structures appropriate? What changes, if any, should be adopted in TransGrid’s forthcoming Pricing Methodology proposal? What changes, if any, should be made to the existing Rules to provide better pricing outcomes for customers? Under Rule clause 6A.23.4(f) locational transmission charges must not change by more than 2 per cent per annum compared to the regional average (a ‘side constraint’). Should the current side constraint on locational TUOS prices be retained, or altered in some way, and if so, how? 66
- 67. Discussion – prudentdiscounts, transparency, and compliance Under the Rules, a transmission business may agree to a ‘prudent discount’ for particular customers, where ‘bypassing’ of the network by the customer would ultimately leave other customers ‘worse off’. What, if any, changes should be made to the existing prudent discount provisions in the Rules? What additional information should TransGrid provide to improve the transparency of transmission prices and to better enable customers to respond to the pricing signals? What, if any, additional information should be provided to customers to demonstrate TransGrid’s compliance with the approved Pricing Methodology? 67
- 68. TransGrid is currentlyconsulting on its pricing methodology TransGrid is consulting publicly on its pricing methodology for 2014 to 2019 The paper is available at yoursaytransgrid.com.au/proj ects/pricing-consultation Submissions close 5pm 13 December 2013 68 Pricing
- 69. Discussion 69 Are there timeswhen network users value the reliability of the transmission network more than other times? If so, when and why?
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- 71. For further informationon TransGrid or this presentation please contact TransGrid’s External Communication Manager on 02 9284 3016. Alternatively visit our consultation website – yoursaytransgrid.com.au