Power Connections
Measuring Economics of Security of Supply Changes in the regulation of the electric power industry
worldwide have resulted in the modification of traditional approaches to security of supply. In the vertically integrated utility, security of supply was achieved by centralised utility planning and operation, at all levels – generation, transmission and distribution. In a market environment, investments in generation are no longer centrally decided, so the new regulation must ensure that the appropriate economic incentives exist for each segment to maintain service reliability at acceptable levels.
Climate Change & The Economics of Transmission The focus on climate change
Most of the transmission expansion aims to connect new
In liberalised electricity markets it may be more beneficial to invest
has increased significantly. It has impacted the economics of the transmission business, primarily due to the need to connect increasing volumes of renewable energy. This issue has a strong impact in developed countries given their commitments to reduce greenhouse gas emissions. Before the policies aimed at the mitigation of climate
change were introduced, a significant part of the generation expansion in developed economies was based on thermal generation located relatively near the demand, which imposed less stress on the transmission system. At present, with policies supporting a significant penetration of renewable generation, new challenges have arisen: ■ Most of the generation based on renewable resources should be located at the site where the resource is available. These sites are often located far from load centres, and it becomes necessary to expand the transmission network to connect the renewable generation to the grid.
■ To a large extent, renewable-based generation is intermittent, particularly wind. An appropriate cross border transmission system will help ensure import of electricity when, for example, wind is scarce and export during periods of maximum generation.
Congestion Congestion is an appropriate measure of excess or deficit of
renewable generation. When a region has a temporary excess of renewable generation, prices go down and export increases but the possible increase may be limited by the available transmission capacity. When renewable generation is low (or zero) prices and import increase, and this can also be limited by transmission capacity.
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more in cross-border expansion than in a centrally planned system
generation plants with loads. In the case of integrated utilities, where generation and transmission are simultaneously planned, coordination is given. But in countries or regions with electricity markets and multiple participants, new generation expansion is based on independent (and normally non- binding) decisions of multiple investors. Thus transmission planners face structural difficulties in identifying transmission needs when they only have certainty on a few generation projects. Transmission planning in electricity markets has only certainty in short-term generation expansion, but transmission facilities have a long life cycle and the efficiency and effectiveness of transmission investments can only be assessed with certainty during a short part of its life cycle.
Cross Border Facilities Financing Up to now, financing new transmission lines in developed economies has not been a problem due the existence of regulatory frameworks which establish the rules for financing from the tariffs (or the congestion rents). However, although the availability of sufficient financial
resources does not appear to be a major issue, the current regulatory framework is not entirely clear on financing international links. Some of the regulatory issues that need to be solved are: ■ Capacity allocation principles are needed to provide guidelines for sharing the investment cost among the TSOs involved.
■ Remuneration methodologies for intra-country transmission investment that increase interconnection capacity should be established.
■ Solutions which address investments by a third country required to upgrade interconnection capacity between two other countries.
■ Arrangements which permit merchant developments and allow the developers to retain congestion rents as the reward for taking the investment risk.
The incentives for private parties to invest in interconnections
may clearly deviate from common public interests, which may lead to lock-in effects and long-term inefficiencies. Nevertheless, in the developing economies, the merchant line model could help generators construct power plants that otherwise would not materialise.
worldPower 2010
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