Security of supply in hydro-thermal systems. A Nordic perspective

Transcription

1 Security of supply in hydro-thermal systems A Nordic perspective

2 Deregulation and planning Before deregulation:! Investments in generation and network was planned together (IRP) Deregulation success criterion:! Deliver the lowest possible sustainable prices to all customers, for a supply that is reliable in both the short and the long run Customer prices:! Cost of generation! Cost of distribution/transmission! Consumer taxes Competition Monopoly 2

3 Overview Hydro-thermal systems Investments generation Investments network Choosing between alternative investments Conclusions 3

4 Inflow and prices in the Nordic system Total consumption in Nordic countries ~ 400 TWh/year Inflow (TWh/year) Systemprice (EUR/MWh)

5 Prices in hydro-thermal systems Hydro-dominated systems! Flat price structure! Variations between years Thermal systems! Large diurnal variations! Little variations between years Investors want financial instruments to hedge against risks 5

6 Investments in deregulated systems Power crisis's around the world:! California! South America! New Zealand! Nordic System All have been systems where the hydroproduction was hit by a drought year Will weather derivatives be enough?! Time scope! Climatic change high costs 6

7 Investments in generation Depending on market prices and risks Important with:! Locational signals! Well-functioning spot market! Financial market with derivatives 7

8 Textbook economic theory Price Build trigger Equilibrium reached Long run marginal cost of new capacity Historical Low prices due to competition & surplus capacity Assumed trend towards long run marginal cost Technology improvements & competition reduce cost of new capacity Source: ECON Time 8

9 Problems that may prevent this Lumpy investments Long lead-times (long approval process) Environmental constraints Physical constraints! Clear or collapse! No storage possible 9

10 Real world cyclic prices??? Price Competition & surplus capacity triggers price fall New capacity added, reserve margin restored High prices & change in business cycle reduce demand Build trigger Surplus capacity prices fall Long run marginal cost of new capacity Low prices stimulate demand Source: ECON Turn of business/ commodity cycle Surplus capacity eroded, prices increase Technology improvements & competition reduce cost of new capacity Time 10

11 Investments in networks Natural monopoly Subject to regulation! Hard to find the proper relationship between incentives for cost reductions and investments A result may be a cyclic regulation behavior 11

12 Investments in networks Reduced investments Regulation with focus on cost efficiency Reduction in quality of supply Political demand for lower prices Political demand for better quality Increased consumer prices Regulation with focus on investment incentives Increased investments 12

13 Substituting alternatives 50 MW 100 MW 50 MW Generation Network DSM 50 MW MW 13

14 Which investments are optimal? Complex decision problem! Generation competition laws, market design, subsides! Network monopoly regulation! Other alternatives: DSM, district heating, natural gas pipelines, A cyclical behavior of the generation investments and network regulation may make it even harder 14

15 Will lumpy investments favor networks? Price difference D C 1 C 2 P 1 A C N Costs - network C A B Costs - alternative P 2 Capacity The market may not always give the right signals 15

16 What will happen? TSO s may invest too early in networks Investments in generation capacity will happen eventually! Baseload units! Peak units! Reserve units for dry years Investors in larger units will be the huge vertical integrated companies Smaller investors may invest in distributed generation 16

17 Recommendations The market needs:! Efficient spot market with locational signals! Efficient financial market for hedging! Competition and no barriers for new market entrants! Reduced political uncertainty! Shorter lead-times Network regulation needs:! Ensure openness on network investment plans! Refinements to give incentives to investments! Allow investments in generation and DSM as alternatives to network investments, e.g. through a tendering process 17

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19 ECON Analysis AS Contact information Oslo, Headquarter: P.O.Box 5. Biskop Gunnerus gate 14A N-0051 OSLO Norway Phone: Fax: Stavanger: P.O.Box 327 Sentrum Alex Kiellandsgt. 2 N-4002 STAVANGER Norway Phone: Fax: stavanger@econ.no Stockholm: Klarabergsviadukten 90D, 1 tr. S STOCKHOLM Sweden Phone: Fax: stockholm@econ.no Copenhagen: c/o Kreab Vester Søgade 10, 2 DK-1601 Copenhagen V Denmark Phone.: Fax: copenhagen@econ.no Paris: 18, rue de la Perle F PARIS France Phone: Fax: paris@econ.no Johannesburg: c/o Sad-elec P.O.Box 1049 Rivonia 2128 South Africa Phone: Fax: johannesburg@econ.no 19