Alternative regulation and DSO business DG-GRID workshop, The Hague, 15 Nov 2006 Jaap C. Jansen models

Transcription

1 Alternative regulation and DSO business models DG-GRID workshop, The Hague, 15 Nov 2006 Jaap C. Jansen

2 Presentation outline Introduction to current DSO business model Key features of current DSO network regulation Hurdles facing DSO to integrate DG in optimal way Broad directions for alternative regulation Possible alternative DSO business model Conclusions 2 November 2006

3 Current DSO Business model Consumer/ DG Operator Consumer/ (DG Operator) 3 November 2006 Revenues Connection charges UoS UoS charges DSO DSO (Distribution System Operator) Money flow Capital expenditures Extensions/ reinforcementments Operational expenditures UoS UoS charges (cascade) Ancillary services Energy Energy losses losses O&M O&M Costs Costs Equipment supplier TSO TSO Large power producer

4 Current regulation Traditional cost-plus Incentive-based - Price cap - Revenue cap 4 November 2006

5 Major design aspects of incentive-based regulation Length of regulatory period Balance between cost efficiency and quality of customer service: TAR t = TAR t-1 (1 + CPI X ± Q) TOTEX Building Blocks (CAPEX, OPEX) 5 November 2006

6 Quality regulation Building blocks approach - Makes it easier for DSOs to focus on quality - Yet may stimulate squeezing OPEX disproportionately - Hence may provide disincentive to ANM Quality considerations to be integrated Indices used usually system-wide e.g. SAIFI, SAIDI 6 November 2006

7 Regulation in selected member states Austria Finland Netherlands Spain United Kingdom Type of regulation Incentive: price cap Rate of return regulation Incentive: price cap Incentive: revenue cap Incentive: price cap Length of regulatory period 4 yrs 3 yrs 3 yrs 4 yrs 5 yrs Cost-basis Totex Building blocks Totex Unknown Building blocks DG connection charges Deep No standard Shallow Deep Shallowish Innovation incentive scheme No No No No Yes, IFI & RPZ RAB drivers kwh and kw kwh and kw kwh and kw kwh kw 7 November 2006

8 Problems for DSO when accommodating DG Operational costs may increase due to bidirectional power flows and network constraints Capital expenditure may have to increase to cope with network constraints Active network management would need investment in ICT and operational innovation Tariff regulation with benchmarking does not enable (adequate) DG cost pass through 8 November 2006

9 Potential benefits for DSO (under active DSO network management) DG may reduce network losses DG may lead to deferral of network investments DG may provide certain ancillary services cost-effectively Yet sofar TSO is put in the driver s seat to arrange for ancillary services DSO only plays a role in arrangement of localised AS (e.g. voltage support) Typically TSO relies on centralised plants for delivery of most non-localised AS such as importantly balancing services Yet DSO, DG, controllable demand providers may well be able to provide e.g. balancing services at lower costs 9 November 2006

10 Current regulation tends to favour centralised generation Regulation predicated on centralised electricity generation and passive network management Centralised generators tend to face shallow connection and negligible GUoS charges Distributed generators may face deep connection charges Building blocks approach favours network upgrading as against active network management (Potential) DG benefits are not acknowledged,e.g. loads served by local DG are charged cascading UoS charges 10 November 2006

11 Broad directions for alternative distribution network tariff regulation 1. When building block approach: allow for DG in regulated asset base 2. Allow for DG adjustment factor: TAR t = TAR t-1 (1 + CPI X ± Q ± Z DG ) 3. Allow for DG in benchmark determination 4. Allow for DG as direct cost driver (price cap) or revenue driver (revenue cap) 11 November 2006

12 Possible alternative DSO business model Capital expenditures Energy supplier / DG Operator Revenues System information Extensions / reinforcements Equipment supplier TSO / Energy supplier Energy supplier / DG Operator / Consumer Local balancing Storage DSO (Distribution System Operator) Operational expenditures UoS charges Ancillary services TSO TSO / DG Operator Consumer / DG Operator Consumer / DG Operator Connection charges UoS charges Energy losses O&M costs DG Operator / Large power producer Money flow 12 November 2006

13 Conclusions Incentive-based network tariff regulation prevailing Focus on cost efficiency and customer service performance Regulation predicated on centralised generation No allowance for (actual/ potential) system benefits from DG network integration Broad directions presented for regulatory change 13 November 2006

14 Further policy considerations Allow for DSO loss reduction performance relative to set target - To the extent possible, time-differentiated DG support mechanisms to allow for grid impact? Incentivise smart metering penetration? 14 November 2006