Electricity Sector Reform Revisited: Liberalization vs. re-regulation?

Transcription

1 Electricity Sector Reform Revisited: Liberalization vs. re-regulation? Energy Studies Institute National University of Singapore 22 February 2013 Perry Sioshansi Menlo Energy Economics San Francisco CA

2 Pleased to be here! It is a pleasure to be at NUS Thank you to ESI for the invitation

3 Background Electricity market reform, implemented in a number of markets around the world starting in late 1980s, has evolved over time in response to new realities, new challenges and new priorities in different countries In a number of cases, policy makers are intervening in the market to impose specific requirements to encourage specific outcomes or address specific issues: Renewable portfolio standards => Low carbon energy mix Carbon tax or carbon price floor => Ditto Capacity payment mechanisms => Resource adequacy The impact of these interventions are being felt in many markets Perhaps including SG?

4 New issues, old issues The underlying drivers/motivations for market reform have changed New issues not previously considered important are now critical Renewable integration Energy efficiency & demand side participation Falling demand growth/rise of consumer self-generation Issues previously considered important are now considered less so Customer switching rates Vertical disaggregation of generation from retail

5 Competitive retail markets Typical American piecemeal approach

6 Moreover New challenges facing policymakers in a number of markets/countries Germany Nuclear phase out France What to do with dominant monopoly Japan Future w or w/o nuclear So. Korea Should we or should we not Texas Capacity or energy only? BRICs Brazil Moving away from hydro over-reliance Russia Unfulfilled agenda India Mission impossible China Local expert can fill in

7 Objective Provides an overview of the evolution of global electricity markets Recent developments in a few key cases where government intervention is having significant impact on Wholesale prices Fuel mix Dispatch order Other market fundamentals including investment incentives/risks Main objective? Briefly examine the implications of these developments Speculate on how global electricity markets may evolve

8 Outline Historical perspective Why we ended up where we did & why market reform? ESI liberalization/restructuring Initial intentions/expectations Not a panacea plus setbacks CA market crisis, Enron & other disappointments New challenges/paradigms/approaches Efficient markets necessary but not sufficient

9 Historical perspective Massive economies of scale/scope Declining cost industry; rapid demand growth Oxymoron: regulated monopolies Rate-of-return regulation Inverted block rates; too cheap to meter mindset Supply-side focus pervasive Disillusionment with ROR monopolies

10 Electricity growth rate Post WWII pattern common to all mature economies United States Source: US Energy Information Administration

11 End of electricity golden age Residential tariffs in NSW & QLD, in nominal Aus$/MWh (left scale) and inflation-adjusted (right scale) Source: ESAA, Comparing Australian and international electricity prices, at based on study by NUS Consulting Group

12 ESI restructuring/liberalization New theories emerged in 1980s First wave of ESI restructuring/liberalizations Chile England & Wales Number of states in US Australia/NZ EU directives Others with little or limited success So. Korea, Japan, So. Africa, China, India, Russia, SG

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14 Not a panacea Not as expected/intended? CA electricity crisis, Ontario & Alberta in Canada England & Wales went thru at least 3 major overhauls EU still struggling to achieve a pan-european market Disappointments, reversals, limited progress Japan So. Korea BRICs Reform of the reforms

15 Sequel book

16 New challenges/paradigms/approaches Markets are necessary but not sufficient Low carbon electricity mix High-enough carbon taxes not politically feasible Resource adequacy Markets do not seem to value long-term reliability Renewable energy Sub-set of low carbon electricity mix Energy efficiency why the energy efficiency gap? Demand side participation largely absent from markets Q: Can we have our cake & eat it too?

17 Forthcoming June 2013

18 Which market design? Surprisingly, fundamental questions remain unresolved Debate continues UK is debating more government intervention Concerns: Low carbon mix & resource adequacy Texas is debating a capacity mechanism TX almost did not make it thru 2011 summer heat wave Next few years could be worse Private investors are not investing in peaking units Raise the cap from $3,000 to $9,000/MWhr Pay for capacity, i.e., encourage more megawatts Pay for negawatts, i.e., encourage more DR

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20 UK Goal: A low carbon future, relatively soon EU s ETS prices too low/too volatile Govt. must intervene Set carbon price floor Capacity mechanism Renewable mandates Energy efficiency push Fuel poverty Can market/mandates co-exist?

21 ERCOT Electric Reliability Council of Texas Most successful US wholesale/retail mkt. Functional competitive retail sector Insufficient investment in peaking units Many reasons for lack of sufficient investment Possible solutions? Raise wholesale offer cap to $9,000/kWh Consider capacity payment mechanism Implement additional demand response Peak demand consumption is underpriced

22 Reserve prognosis not good ERCOT capacity reserve margin project to be low Source: ERCOT study, The Brattle Group, June 2012

23 Capacity additions & retirements Environmental regulations, low natural gas prices & wind subsidies to blame? Source: ERCOT study, The Brattle Group, June 2012

24 Flat to a fault ERCOT s supply curve exceptionally flat Source: ERCOT study, The Brattle Group, June 2012

25 Build on experience Estimate of DR potential at ERCOT

26 Managing peak difficult Source: ERCOT investment incentives & resource adequacy, The Brattle Group, 1 June 2011

27 Germany Politics of energy at work! Hasty nuclear phase out by 2022 Mostly replaced by renewables As much as 80% by 2050 Rising retail prices on top of existing high tariffs Energy efficiency & DG become more cost-effective What happens to wholesale prices? Low or negative prices during heavy wind generation Who would invest in peaking/backup plants?

28 80% by 2050! German target post Fukushima 100% Renewable targets German renewable targets as % of total electricity generation 80% 60% 40% 20% 0% Source: German Govt. proposals

29 Negative prices TX, CA or Germany? The same phenomenon Source: ERCOT study, The Brattle Group, June 2012

30 Renewable growth Installed global wind & PV capacity, GW (right) Renewables as % of generation (left) Source: IEA (left); GTM Research & Bloomberg New Energy Finance (right), reproduced from Technology Review

31 RPS

32 US RPS mandates in West Source: Black & Veatch

33 Variable generation As opposed to variable demand

34 Source: Balancing in real time Based on simulated CA data for 25 July 2012, MW

35 End of demand growth Demand at/approaching saturation levels US, UK, Germany, Australia, NZ, Japan evidence startling Higher prices, efficiency gains, socio-demographics Consumers becoming prosumers ZNE-mandates, distributed generation, Net El Metering (NEM) Traditional utility business model untenable Fixed flat tariffs; falling volumetric consumption Different business model California is confronting the challenge

36 Energy Efficiency: Towards the end of demand growth

37 Distributed generation California Gov. envisions 12 GW of DG by 2025

38 Zero Net Energy Applies to new Resid. Bldgs. in 2020, Comm. in 2030 zero net energy on-side electricity demand distributed renewable generation

39 US Per Capita Elect. Consumption , kwh/pp Source: Smart Grid Watch, How fast is U.S. electricity consumption growing? April

40 End of demand growth? US electricity demand growth can be reversed Source: IEE white paper, May 2011

41 End of demand growth? Has Australia s electricity consumption peaked?

42 California sets example Annual per capita kwh electricity consumption Source: A. Faruqui, Brattle Group, Aug 2010

43 Cheapest kwhr the one you do NOT use * Includes current federal & state level incentives, natural gas price is assumed at $4.50/MMBTU Source: US Renewable Energy Quarterly Report, ACORE, Oct 2010

44 Residential efficiency opportunities Cumulative reductions in Resid. En. Cons. Rel. to 2011 tech, Quads

45 Commercial efficiency opportunities Cumulative reductions in Comm. En. Cons. Rel. to 2011 tech, Quads

46 Customer DSP Why should supply adjust to variable demand? Why not demand adjust to variable supply? Intermittent renewables No longer far-fetched Market for off-peak storage: EVs, DR, CSPs? Cheaper to adjust demand? FERC s chairman is convinced Order 745 mandates DR on wholesale organized mkts Guaranteed market & pre-ordained prices (LMP)

47 Demand Typical CA demand pattern

48 Smart Grid Forthcoming Nov 2011

49 Demand response As much as 20% of US peak load may be managed by DR

50 Markets/mandates Debate on future role/function of markets Can we have our cake & eat it too? How much tinkering can markets handle? What is the proper role of policy/regulations? Case studies: UK Germany ERCOT CA

51 California going low-carbon Don t count on nuclear, CCS, cap-&-trade, or market signals Source: Black & Veatch

52 Few observations Electricity markets heavily politicized Ideally leave it to markets In reality, politicians intervene Possible ways forward? CA offers a model not necessarily good Heavy handed regulations w marginal market solutions Cap-and-trade, RPS, DG, ZNE, NEM What implications for SG?

53 Most likely not used Back up slides

54 Higher estimates for EEI

55 NERC regions Source: The Future of the Electric Grid, MIT, Dec 2011

56 Organized NA markets Many have had to confront shortages/emergencies Source: The Future of the Electric Grid, MIT, Dec 2011

57 What is the fix? Large fixed fees SDG&E proposed network access charge It went nowhere Limit on the cap/incentives It went no where New definition of service, new pricing regime My favorite analogy is golf club membership You pay a membership fee.just so you can pay more when you want to play It is about access to network & equivalent of bandwidth

58 Vicious cycle Solar customers have been getting a free ride on the backs of regular ratepayers. They use the grid essentially as a big battery without covering the cost to maintain it, Steven E. Malnight, VP at PG&E As more customers, often big consumers users, become prosumers, utility revenues vanish Since costs, especially network costs, are mostly fixed utilities must raise rates on remaining customers to recover their fixed costs from a shrinking customer base Not a pretty picture

59 Not convinced? Take the case of a school district in CA with 51 sites PV panels max out in July/Aug when school is out Zero consumption, max output Out-flow overloads local distribution network Credit due to peak summer demand Meet 95% of electricity needs If you can t net meter in the summer months, it definitely doesn t pencil out

60 Vanishing bill For ZNE/DG customers consumption drops but costs remain Source: Net energy metering, RMI, Mar 2012