Hugh Rudnick Pontificia Universidad Católica de Chile / Systep. Future challenges of the electric power sector

Transcription

1 Hugh Rudnick Pontificia Universidad Católica de Chile / Systep Future challenges of the electric power sector

2 Pontificia Universidad Católica de Chile Private Catholic University with fiscal support (7%) Over 26,000 students (undergraduate, Master and PhD) Over 3,000 academic lecturers International Rankings - QS (2014/15): # Shanghai (2015): # 401 National Accreditation for 7 years (maximum) QS rankings in South America Universidade de Sao Paulo 132 Pontificia Universidad Católica de Chile 167 Universidad de Buenos Aires 198 Unicamp 206 Universidad de Chile 220 Seven careers with international accreditation - Management (AACSB, EQUIS); Architecture (RIBA); - Agronomy (MEXA); Medicine (AAMC); - Journalism (ACEJMC); Engineering (ABET) 2

3 Systep company specialized in consultancy services in energy sector Clients 3

4 Take aways Challenges for power sector arising from wide range of alternative developments Threat of destruction of traditional utility business model Global adoption of renewables solar and wind Distributed generation growing New roles for demand response and storage Traditional transmission expansion questioned Gas electricity dependence The social challenges 4

5 IEEE Power & Energy Magazine, Vol. 13, N 4, July/August 2015 World wide experiences A cleaner energy system: renewable energy and electricity market design William W. Hogan An Era of Many Options Future energy planning must take into account unprecedented numbers of options. Randell Johnson The Green Impact How Renewable Sources Are Changing EU Electricity Prices José Pablo Chaves-Ávila, Klaas Würzburg, Tomás Gómez, and Pedro Linares Halfway There Can California Achieve a 50% Renewable Grid? Arne Olson, Amber Mahone, Elaine Hart, Jeremy Hargreaves, Ryan Jones, Nicolai Schlag, Gabriel Kwok, Nancy Ryan, Ren Orans, and Rod Frowd Solar, Solar Everywhere Opportunities and Challenges for Australia s Rooftop PV Systems Bruce Mountain and Paul Szuster It s All About Grids The Importance of Transmission Pricing and Investment Coordination in Integrating Renewables Goran Strbac, Christos Vasilakos Konstantinidis, Rodrigo Moreno, Ioannis Konstantelos, and Dimitrios Papadaskalopoulos Distribution Pricing Are We Ready for the Smart Grid? Furong Li, Jose Wanderley Marangon-Lima, Hugh Rudnick, Luana Medeiros Marangon-Lima, Narayana Prasad Padhy, Gert Brunekreeft, Javier Reneses, and Chongqing Kang 5

6 Future challenges of the electric power sector many alternatives Wide range of alternatives faced, with growing innovations in supply, transport and demand Development of storage technologies Gas electricity interactions Increasing penetration of renewables Prosumer has economic choices between utility supply, self supply, or partial utility and self supply Smart grid technologies flexibilizing systems Central stations Demand response more efficient & less emissions Distributed resources New policies and regulatory approaches opportunities competing 6

7 Future challenges of the electric power sector model destruction Threat of destruction of traditional utility business models Reduced need for transportation through utility wires Renewables deflating spot prices (no fuel costs) Revenue risk of traditional central station generation New market products and prices Need for out of market financing for renewables Subsidies, tax credits, in feed tariffs Challenge to adapt utility business models and wholesale market structures 7

8 Future challenges of the electric power sector renewable generation Wide scale global adoption of renewable generation The European Union Renewables Directive mandates that at least 20% of total energy consumption (including non electric fuel uses) come from renewable energy sources by By 2030, Germany plans to generate 50% of its electricity supply with renewable resources, including large hydro. California Governor Jerry Brown set a goal of deriving 50% of electricity from renewable resources by 2030 to reduce greenhouse gas emissions 8

9 Future challenges of the electric power sector solar energy Wide scale global adoption of solar generation Advantages: no fuel cost and utility size or distributed generation Future costs comparable to traditional gas technologies Create significant operational challenges Dramatic reduction of per kwh investment (learning rate) Although today needing subsidies or credits DG upsets utility business models and wholesale pricing Wind power also reducing investment costs, growing reliability and market share Needing significant transmission expansion examples of UK and Brazil (extreme south and north east) 9

10 Future challenges of the electric power sector solar energy Challenges of renewable generation 1 Variability: need for balancing services 2 Uncertainty of future output 3 Time concentration (limited number of production hours) California challenges 2020 net load drops by several thousand MW during peak solar production hours Very significant upward ramp between 17:00 and 20:00: the duck chart 10

11 Future challenges of the electric power sector California solar California duck chart load curve reduced by solar generation 11

12 Future challenges of the electric power sector California solar California challenges Strategy to Minimize Downward Violations Strategy to Minimize Upward Violations Unserved Energy Limited Ramping Capability Limited Ramping Capability Renewable Curtailment Load curtailment: Economic value of lost load between $5,000 and $50,000/MWh Renewable curtailment: Must be replaced with other renewable energy to ensure target compliance. Value of curtailed renewable output ranges from $50 $250/MWh, depending on the cost of replacement resources. 12

13 Future challenges of the electric power sector California solar Solutions to California challenges 1 Enhanced Regional coordination (with neighboring States) 2 Advanced Demand Response (overgeneration) 3 Energy Storage (overgeneration) 4 Renewable portfolio diversity 13

14 Future challenges of the electric power sector California solar California impact of renewables No technical barriers to 50% renewables by 2030 Wind and solar levelized costs comparable Integration will impact costs (rate increases 9 14%) Solar rooftop systems costlier than large plant generation 14

15 Future challenges of the electric power sector Distributed generation Irruption of distributed generation Prices reducing for distributed resources Conventional central station economics being challenged Business models of the franchise area utility that have regulated supply are being questioned Prosumers opting for partial self supply arbitraging against utility rates with net metering Utilities left with vanishing market sales for regulated returns on asset investments Yet the prosumer expects the utility to maintain the obligation to serve during selfsupply shortages Regulated businesses more risky than the unregulated businesses Net metering in Brazil and Chile creating conditions for distributed generation 15

16 Future challenges of the electric power sector Distributed generation Australian cumulative solar PV installations (from 8,000 in 2007) 16

17 Future challenges of the electric power sector Distributed generation Factors for expansion of rooftop PV in Australia Rising electricity prices Declining PV system costs (installed cost of household roof PVs declined from $12/W in 2008 to less than $2/W in 2014) Capital subsidies (mandatory renewable certificate schemes, PV installers would buy certificates and sell them to retailers) Production subsidies (feed in tariffs, price paid for electricity fed back into the electricity grid) 17

18 Future challenges of the electric power sector Distributed generation Results of expansion of rooftop PV in Australia Reduction of network losses and augmenting network capacity Aggregate average demand reduction 1000 MW at peak Significant impact on wholesale prices in some markets Adequate household PV return on investments Not clear if less wires needed (residential maximum demands occur around or after sunset) Network revenue needs to be recovered with higher network prices 18

19 Future challenges of the electric power sector Distributed generation Questions arising from extensive rooftop PV in Australia Is centrally dispatched electricity model in a death spiral? Death spiral: declining demand for grid supplied electricity leading to higher prices leading to declining demand Is traditional centrally dispatched industry model facing a serious competitive threat for a large segment of the market? What regulatory policy, tariff structures, technology and market orientation will have to be followed? Regulators in Australia have so far sided with the network service providers in protecting their monopoly, but this may change in the future 19

20 Future challenges of the electric power sector Storage Increasing number of storage technologies Declining storage costs Storage technologies have raised cycle life Storage solutions for DG and utility scale applications Storage has potential for price setting in terms of energy prices, ancillary prices, and capacity prices and can provide other value streams Multiple reserve and regulation products directly competing with other providers, providing flexibility and peaking 20

21 Future challenges of the electric power sector Storage Storage technologies in US 2013 Rated power of US grid storage projects 1. Energy storage should be a broadly deployable asset for enhancing renewable penetration 2. Energy storage should be available to industry and regulators as an effective option to resolve issues of grid resiliency and reliability 3. Energy storage should be a wellaccepted contributor to realization of smart grid benefits specifically enabling confident deployment of electric transportation and optimal utilization of demand side assets US Department of Energy 21

22 Future challenges of the electric power sector Storage Storage technologies in Brazil and Chile Existing hydro reservoirs provide sufficient storage capability for renewable integration (although only run of river plants are being projected for the future) 300 MW pumped storage project in northern Chile Valhalla Need for grid storage to give more flexibility to system operation and achieving system resiliency and reliability Distributed storage can reduce line congestion and line loss by moving electricity at offpeak times, reducing the need for overall generation during peak times 22

23 Future challenges of the electric power sector Demand response Demand response Increased adoption of demand response tools Benefits customers, market, reliability Can challenge transmission expansion process Demand response is price sensitive Demand response impacts spot prices Brazil 2014 supply crisis aggravated and extended by low demand response Brazil and Chile need for time price signals for consumer users: price based response (real time pricing, critical peak pricing and time of use tariffs) and incentive based response Need for sophisticated communication technologies on telemetry and remote control (smart meters) 23

24 Future challenges of the electric power sector Demand response Demand response in Chile Current Supply Contracts do not include reduction of the demand for RTP These programs mean high costs for the mining companies Mining companies can reduce their demand to participate in these programs Source: U. S. Department of Energy RTP- real time pricing 24

25 Future challenges of the electric power sector Demand response 18 mining companies in SING revenues due to Demand Response MM US$ 3,5 3,0 2,5 Mining companies would receive revenues from the Spot Market Annual Average Revenues: 10 MMUS$ 2,0 1,5 1,0 0,5 0, Capacity Day Ahead Market Mining companies offer to reduce consumption if paid 70 US$/MWh 25

26 Future challenges of the electric power sector Transmission Transmission challenges Renewable development forcing new transmission corridors (UK, Brazil) Beneficiary of transmission expansion the generator or the consumer? Demand response, energy efficiency, distributed generation, energy storage and others can compete with transmission Use transmission and distribute energy electrically or use combination of pipelines and distributed generation? 26

27 Future challenges of the electric power sector Transmission Transmission challenges in Brazil Main renewable energy power plants are far from the larger consumption centers, requiring huge investments in transmission capacities. Most of the potential for hydroelectric, wind and solar generation is located in the north and north east. 10 GW wind by GW Wind potential 23 GW 27

28 Future challenges of the electric power sector Transmission Transmission challenges in UK Set of existing and candidate transmission corridors to collect wind generation in the North Seas Existing Onshore Onshore corridor Candidate Cross Border Interconnector Candidate Offshore Onshore corridor Candidate Offshore Offshore corridor 28

29 Future challenges of the electric power sector Transmission Transmission challenges created by renewables in the UK Investments projected between 20bn and 50bn across onshore (main transmission system), offshore (connecting mainly offshore wind farms) and cross border interconnection transmission projects in next decade Need for efficient and timely transmission investments Need for adequate economic signals to participants Mechanisms used to allocate short and long term transmission network costs could affect generators locational decisions Efficient network charges that recover the costs of infrastructure, congestion/ constraints and losses convey pricing signals to investors Transmission pricing inefficiencies can increase consumers bills 29

30 Future challenges of the electric power sector Transmission Transmission proposal in UK Maintain long term locational signals for transmission payments Generation transmission tariffs /kw/yr 30

31 Future challenges of the electric power sector Transmission Transmission challenges in Chile Locational signal has lost relevance. Charges don t impact decision on location Transmission charges are complex and imply risks for investors Uncertainties & risks transferred to consumers pay more Existing generators oppose transmission expansion Beneficiaries of transmission expansion are final consumers, that obtain lower prices, more reliability and less environmental impacts Postage stamp approach for transmission payment allocation to consumers is proposed in changes to electricity law. 31

32 Future challenges of the electric power sector Transmission New concept introduced: poles of development 32

33 Future challenges of the electric power sector Gas and electricity Gas availability increasing dependence of the power sector North American shale gas and oil changing US energy matrix Significant shale gas reserves in South America, particularly Argentina 33

34 Future challenges of the electric power sector Gas and electricity Gas reserves 45% of the world's gas reserves are "unconventional but only 14% of the world supply comes from unconventional sources today

35 Future challenges of the electric power sector Gas and electricity Gas availability increasing dependence of the power sector North American shale gas and oil changing US energy matrix Significant shale gas reserves in South America, particularly Argentina Larger dependence on natural gas and switching from coal to natural gas Better environmental compliance Need for close coordination between gas markets and electricity markets Challenging conditions for natural gas usage in hydrothermal markets (Brazil and Chile) 35

36 Future challenges of the electric power sector Gas and electricity Gas contracts in hydrothermal systems Chilean case* Dispatch model only considers audited variable costs (costs of existing fuel contracts are mainly fixed) Incompatible with efficient use of contracted gas, particularly with take or pay (ToP) contracts What cost to declare? A ToP contract is not very flexible and does not present variable components in cost, but fixed ones Important contract information is not used. Gas availability is important for the system operator to use it efficiently This is worse when there are hydrological uncertainties, use of a constant variable cost does not allow efficient use of gas coupled to those uncertainties * Moreno R. et al, Análisis económico del despacho eléctrico de generadores con contratos de suministro de combustible 36 GNL Take or Pay, December 2014, Centro de Energía, Universidad de Chile

37 Future challenges of the electric power sector Gas and electricity Gas contracts in hydrothermal systems Chilean case Use of gas dual generation infrastructure Not used Diesel Gas 37

38 Future challenges of the electric power sector Gas and electricity Proposals being assessed by regulator Chilean case Inclusion of gas economics in the operation of the electrical system: gas supply cost functions, volumes available, storage constraints and gas market ones (eg ToP). Virtual storage as in Brazil (but considering long term ToP contracts) Complementary compensation mechanism of gas payments to reconcile private interests with the interests of the system, especially in wet hydrologies. Need to develop secondary gas market, with financial instruments (insurance and contracts) with other industrial sectors and with neighboring countries Larger volumes: 26% more gas imported Better usage of gas, with a reduction of expected costs of 16% 38

39 Future challenges of the electric power sector Gas and electricity Proposals being assessed by regulator Chilean case* * Moreno R. et al, Análisis económico del despacho eléctrico de generadores con contratos de suministro de combustible 39 GNL Take or Pay, December 2014, Centro de Energía, Universidad de Chile

40 Future challenges of the electric power sector Social issues Social and environmental issues No to Ralco (reservoir, 690 MW) Chile No to Belo Monte (reservoir, 11,000 MW) 2013 No to Hidroaysén (reservoirs, 2,750 MW) June

41 Future challenges of the electric power sector Social issues Social and environmental principles in energy development Reconcile national and regional interests in energy development Respect the public good Economically, socially and environmentally sustainable Participative guaranty formal process of citizen participation (early, informed, symmetric and relevant) in energy policies and plans Equitable: able to facilitate that energy development favors local development defined by the communities (indigenous and non indigenous), creating institutional mechanisms to facilitate an equitable distribution of costs and benefits associated with energy development throughout the country 41

42 Take aways Many challenges await for us Opportunities of growth and new technologies Threats of destruction of the world we know Our countries must prepare in technical, economical and regulatory dimensions The social dimension will be fundamental Main goal: achieve a sustainable, economic and reliable energy supply 42

43 Hugh Rudnick Pontificia Universidad Católica de Chile / Systep Future challenges of the electric power sector