Better, faster, stronger: A look into further electricity market reforms

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The European energy crisis was not caused by the electricity market. But it sure made people pay closer-than-usual attention to its design. That is not a bad thing. The electricity market becomes ever more important as large swaths of the economy further electrify. The electricity market therefore needs to be fit-for-purpose. In this briefing, RAP lays out how the electricity market can deliver better, faster and stronger for the energy transition and the people living it.

Any follow-up to the crisis should aim to speed up the replacement of fossil fuels with renewables, demand-side flexibility, storage and energy efficiency. The focus of market reform induced by this crisis should be to elevate the demand side on par with supply-side resources and improve hedging in the market to alleviate the remainder of the ongoing crisis and prepare for the next. This requires boosting a new portfolio of longer-term market features to share risks and benefit consumers.

Here, RAP discusses the following advances in market design:

  • Short-term markets see location and scarcity
  • Forward markets allocate risks
  • Contracts for Difference are carefully designed and procured
  • Infrastructure planning and operation integrates sectors
  • Windfall profit taxation as the exception
  • Capacity remuneration mechanisms fit for flexibility
  • Required demand-side flexibility
  • Empowered and protected consumers

Review of Integrated Resource Planning and Load Forecasting Techniques in India

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Accurately forecasting electricity demand in India is imperative for governments, utilities and industries when it comes to investment and planning decisions. Over the years, forecasting has becoming even more challenging as planners must take into account changes in technology, load profiles, consumer energy end-use, and economic growth. The changes are the leading cause of uncertainty when it comes to future electricity demand.

In Review of Integrated Resource Planning and Load Forecasting Techniques in India, the authors provide an overview of India’s system of load research and integrated resource planning (IRP), describe related experiences in other developing countries, and deliver recommendations that could strengthen the process in India. The goal is to enable India’s power sector to reliably, efficiently and sustainably meet the country’s demand for electricity.

Discom Business Models Require Changes to Promote Distributed Energy Resources

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In this third part of our distributed energy resources (DER) in India series, we look at changes to the current distribution company (discom) business models. These models can overcome the financial disincentives DERs often face. Instead, discoms can embrace and promote DERs to improve system efficiency, increase consumer savings, and address climate change goals.

This short paper discusses the reasons the current discom model should change and how regulators should listen to concerns many discoms have when it comes to the changes associated with promoting DERs.

The paper also discusses the steps regulators can take when it comes to transforming the current discom business model, including:

  • Require discoms to evaluate non-wires alternatives to meet system needs where practical and cost effective
  • Require discoms to create distribution system platforms
  • Require discoms to modify tariff design to send unbundled granular price signals to facilitate DERs
  • Require discoms to develop DER programs
  • Develop a process to effectuate changes to the discom business model

Read Part 1: Empowering Retail Customers: Improve Efficiency, Lower Costs and Reduce Emissions

Read Part 2: Facilitating Distributed Energy Resources Requires Policy Actions 

Price shock absorber: Temporary electricity price relief during times of gas market crisis

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European policymakers are weighing possible responses to the extraordinary surge in energy prices and the consequences for citizens and industry. The European Commission expects to issue additional guidance in May, following analysis due in April from the Agency for the Cooperation of Energy Regulators. Targeted relief to vulnerable consumers should be undertaken in any case. Whilst RAP would urge caution in considering possible broader interventions in the electricity markets, if such a course of action is under serious consideration, we offer this proposal of a ‘price shock absorber’ for reflection as a measure best fit for purpose, designed to acknowledge and address the essential aspects of the current crisis:

  • This is a gas market crisis — it is an extraordinary event that is adversely affecting all sectors of Europe’s economy. The priority for the electricity sector must be measures that allow the electricity market to ride through this shock to the system, and similar future shocks, preserving its functionality whilst avoiding undue harm to consumers.
  • The midst of a crisis is the wrong time to take decisions with long-term implications that will be difficult to walk back once the crisis has passed. Our proposal acknowledges that the fundamental design of the electricity market is sound; whilst improvements are certainly needed, they have no direct bearing on the causes of or remedies for this crisis.
  • This crisis has revealed in stark terms the true cost of dependence on a volatile fossil gas market, including the risks inherent in the prominent position Russia will continue to occupy in global supply.
  • Consumers and industry have the power to contribute to the response to these risks, by procuring the energy services they need more efficiently and flexibly.

When responding to the crisis, policymakers should preserve and even intensify the electricity market’s role in mobilising and empowering consumers rather than concealing the true cost of ‘business as usual.’ The value of the only durable response — an accelerated transition away from fossil fuels — must remain visible to consumers in an equitable fashion.

The authors outline this price shock absorber mechanism as an additional market feature to bring consumers some measure of relief whilst preserving the market’s essential functions. These include valuing energy efficiency, rewarding beneficial demand and resource flexibility and ensuring a ‘normal’ level of expected inframarginal rent to incentivise and compensate investors in the energy transition for the value of their investments. If a decision is taken to intervene broadly in the electricity market, we suggest this approach offers a significant measure of relief whilst doing the least harm.


Time-of-use network tariffs

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The European Agency for the Cooperation of Energy Regulators asked Andreas Jahn to speak at an invitation-only webinar on time-of-use network tariffs for electricity on 16 November 2021. Mr. Jahn explained how time-of-use tariffs for electricity networks can effectively ease congestion on the grid, reduce peak demand and increase system efficiency.

Utility Business Models and Performance-Based Regulation

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​In a presentation for the U.S. Climate Alliance, Mark LeBel explored the promise of performance-based regulation as an alternative to traditional cost-of-service regulation for utilities.

History and Theory of Wholesale Electricity Markets

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​In a webinar for the National Governors Association, Mark LeBel reviewed the history and structures of electricity markets as well as the implications for state clean energy policies.

Zukünftige Anforderungen an eine energiewendegerechte Netzkostenallokation

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Mit fortschreitender Energiewende werden fluktuierende Erneuerbare Energien immer zentraler bei der Energieversorgung. Für ein kosteneffizientes Energiesystem müssen die bestehenden industriellen und größeren kommerziellen Verbraucher sowie deren anstehende Elektrifizierung der Wärme- und Produktionsprozesse (Sektorenkopplung) darauf reagieren. Strompreise signalisieren dabei die Knappheiten und Überschüsse der Erzeugung. Auch das Netz ist schon heute sehr unterschiedlich ausgelastet. Trotzdem gilt, dass auch Knappheiten, die nur über kurze Zeiten auftreten, maßgeblich über einen kostenintensiven Netzausbau beseitigt werden. Kosteneffizient wäre es, auch die neuen und bestehenden Verbrauchseinrichtungen im industriellen Bereich und zur Schnellladung von Elektromobilen (Verbraucher mit registrierender Leistungsmessung) für eine Netzoptimierung einzusetzen.

Hier gewinnt die Frage nach Anreizwirkungen, einschließlich möglicher Hemmnisse und Fehlanreize, die von Netzentgelten (neben anderen Umlagen und Abgaben) ausgehen, stark an Relevanz: Es geht nicht mehr allein um eine „gerechte“ Kostenallokation, sondern um die Frage, ob energiewenderelevante Entwicklungen durch ineffiziente Bemessung und Strukturen der Netzentgelte unangemessen behindert werden.

Dieses Projekt betrachtet, wie die heutigen Regelungen zu problematischen Wirkungen bei der Netzkostenallokation führen können. Geeignete Weiterentwicklungen können sich dabei jedoch nicht auf kleine, kurzfristig umsetzbare Anpassungen und Ausnahmen beschränken. Deshalb werden hier grundlegendere Optionen andisktutiert. Das Ergebnis der Ausarbeitung soll dabei einen Impuls geben und keine konkret und detailliert ausgearbeiteten Vorschläge unterbreiten. Es soll vielmehr einen grundsätzlichen Diskussionsprozess anstoßen, der in die konkrete Ausarbeitung von Details und Implementierungen in der nächsten Legislaturperiode münden soll.

DER Aggregation: Lessons Learned from Other States

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​In a Missouri Public Service Commission workshop, John Shenot explored lessons learned from states that have allowed third-party aggregation of distributed energy resources.