Comments Off on Price shock absorber: Temporary electricity price relief during times of gas market crisis
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.
Comments Off on Indian power sector has opportunities to create value for the discoms and their consumers by mainstreaming behind-the-meter resources
The electricity sector in India has experienced an evolution of sorts throughout the years. Since the early the 1990s, the sector has grown from a vertically integrated monopoly with generation, transmission, and distribution all under one roof, to the current structure in accord with the Electricity Act of 2003 where the three have been unbundled and now operate separately. The Bureau of Energy Efficiency (BEE) has made substantial progress towards promoting end-use efficiency with more than 15% savings demonstrated in the appliance-level energy use with its labelling and standards plans. The Indian power sector has created a conducive environment for renewable energy generators: as of 31 January 2022, renewables constituted 26.8% of the nation’s total installed capacity of 370 GW. The politics of subsidised or free electricity to a certain category of consumers, a legacy practice followed by the distribution companies (discoms), puts undue pressure on the entire power sector’s financial health.
The four charts below show Average Billing Rate (ABR),* Aggregated Revenue Requirement (ARR),** revenue gap (difference between the average cost of supply (ACS) and ARR, and Aggregated Technical and Commercial (AT&C) losses for discoms in major states.***
The distribution sector in India is also struggling. As of March 2021, the sector owes over INR 85,000 Crores (approx. U.S. $12 billion) to the generation companies. Discoms depend on the commercial and industrial (C&I) consumer base to subsidise the agriculture and the low-volume domestic customer classes, as seen in the difference between energy sales and revenues in the figure below.
The C&I consumers will continue to provide the lion’s share of discom revenues, even if they take advantage of “open access” (the freedom to buy power from sources other than the incumbent discoms), because they are nevertheless required to pay high cross-subsidy surcharges and wheeling charges (power distribution charges). It’s important to retain such consumers within the incumbent discoms with key objectives of promoting higher renewable energy shares in the power mix, as well as reducing the electricity use with a deeper portfolio of energy efficient end-use practices. The discoms’ heavy dependence on C&I consumers to generate sufficient revenues creates significant barriers to decarbonisation investment opportunities among these consumers.
C&I consumers have an intrinsic need to reduce their power costs. Open access is a powerful opportunity for these consumers. So too are on-site efficiency and distributed resources, but such behind-the-meter investments are not encouraged by the discoms, given the threat of reduced revenues that they pose. Along those same lines, behind-the-meter generation (rooftop photovoltaic) within the consumer base is not easy to implement without on-site storage options or net metering/renewable energy export opportunities provided by the discoms. In several states, net metering policies do not favour the consumers creating large capacities to be exported to the grid beyond their diurnal requirements. It’s also opportune to deepen the behind-the-meter renewable energy and energy efficiency portfolio, combined with the storage solutions, at the consumer categories that are heavily subsidised.
One key opportunity to be explored in creating a substantive renewable energy, efficiency and storage portfolio on both sides of the meters is the possibility of discoms doubling up to become new energy service providers as much as legally possible. We hypothesise the possibility of developing a stronger efficiency, renewables, demand-responsive, end-use consumption, with adequate thermal and battery storage solutions at the consumer-side of the meter amongst all the customer categories.
Our team is currently exploring the efficacy and benefit-costs of discoms and consumers co-investing in behind-the-meter efficiency, dispersed solar, storage and demand-responsive end-use consumption patterns. We’re also researching in detail the regulatory regime that allows such investments, the benefit-costs of making investments in the behind-the-meter efficiency and renewables assets, and existing enhanced power sales opportunities through the possibility of selling saved energy for newer uses, such as electric vehicles. Other key benefits of enhanced renewable energy assets on the customer side of meter is the possibility of exporting renewable energy sources to other regions through an aggregated sale on the exchanges. More to come.
*ABR is calculated as ABR = Revenue expected from all categories million Rs /Approved sales in MU. The data has been obtained from the latest ARR of the respective utilities.
**This is the approved ARR for the upcoming year for the respective utilities.
中陆独立系统运行商（The Midcontinental Independent System Operator，简称MISO ）是一家业务覆盖美国15个州以及加拿大马尼托巴省的RTO，据估计，2020年，区域经济调度为其成员节省了3.29～3.63亿美元，而输电可用性的改善又为他们节省了2.88～3.13亿美元。类似地，服务于13个州和哥伦比亚特区的PJM发现，区域调度每年可节省6亿美元的成本。这些估计未包含区域经济调度所带来的环境效益，例如减排量。这些效益会在未来几年到几十年随着越来越多的可再生能源并网而大幅增加。
在较大范围内的系统运行还可带来其他效益，因为不仅风能和太阳能的可变性降低了，电力需求的可变性也降低了。由于供需两侧可变性的降低，确保电力系统可靠性所需的备用容量则相应减少。2020年，涵盖14个州的西南电力池（Southwest Power Pool，简称SPP）估计，整个区域需要1514兆瓦的运行备用容量，而如果单个电力公司自己提供备用容量，则需要9068兆瓦，这样算下来就节省了5.42亿美元。MISO估计，由于地理多样性，2020年减少15吉瓦左右运行备用，成本节约在19亿到24亿美元之间。MISO认为从百分比来看，这种地理多样性使得备用容量减少了7%，从25.2%降到18%。PJM估计，由于区域市场所需备用容量的减少，可节省12～18亿美元。同样，这些估计未包含环境效益，比如减排量。
从更广泛的角度来看，美国的电网（不包括阿拉斯加和夏威夷）由三大内部电网互联组成：东部电网、西部电网和德克萨斯州电力可靠性委员会（ERCOT），后者覆盖了德克萨斯州的大部分，但不是全部。这三者之间的互联是很有限的——他们基本上独立运行，相互之间的电力传输量很小。国家可再生能源实验室（National Renewable Energy Laboratory，简称NREL）评估了在各种不同的假设下（例如，天然气价格低，天然气价格高，等等），通过一系列高压直流输电线路连接美国东部和西部电网会带来何种效益，研究发现，除了一种情景外，其余所有情景下的经济收益都远远超过成本。而且，大部分经济效益来自于更大的输电能力促进了发电运行成本的降低。
Comments Off on Responses to fossil gas price volatility
The first ten months of 2021 have seen dramatic increases in energy prices in Europe and elsewhere. Experts now agree that the surging international demand for liquified natural gas and the rise in gas prices are driving electricity prices to seldom-seen heights. The fact that fossil gas accounts for 45% of household energy for heating is real reason for concern, with winter just around the corner.
Governments around Europe are scrambling to find ways to help families struggling to pay their energy bills this winter. The European Commission has now issued a toolbox of short-term recommendations to mitigate the effects of this crisis. RAP also offers guidance on this dynamic situation, with a focus on the current circumstances. Authors Bram Claeys, Michael Hogan and Dominic Scott explore near-term relief measures for Europe’s most vulnerable consumers as well as long-term solutions to ensure this crisis does not repeat.
Analysis of the root causes of the electricity price ‘roller coaster’ shows that the best and most durable solution to alleviate the social and economic impact of volatile fossil fuel prices is tackling the demand for fossil gas. Reducing Europe’s appetite for this fuel requires prioritising energy efficiency, ensuring a massive rollout of solar and wind, electrifying end uses currently served by natural gas, and limiting the use of hydrogen to green hydrogen solutions devoted strictly to hard-to-reach applications.
