Comments Off on Getting the hydrogen network we need for decarbonisation
Clean hydrogen provides a tool that can open up new opportunities for decarbonisation. But it is just one tool, and an expensive one at that. If policymakers allow, or even support, continuation of the current ‘hydrogen rush,’ we will end up with a larger hydrogen network than needed — with high costs for consumers.
Policymakers have the right tools in their toolbox — including unbundling, transparency requirements and regulatory oversight — to ensure that hydrogen supports rather than hinders decarbonisation efforts. The regulation of the fossil gas sector provides important lessons to be considered for hydrogen regulation. Megan Anderson and Andreas Jahn explain how independent, unbundled ownership can allow for the hydrogen network to be efficiently planned, developed and operated.
Comments Off on Facilitating Distributed Energy Resources Requires Policy Actions
Distributed energy resources can provide key opportunities that would empower India’s retail customers to improve system efficiency, lower costs, and reduce emissions. In the first part of our DER series, we laid out the arguments for how deploying distributed energy resources (DER) in scale provides a key opportunity to empower customers.
DERs include elements such as energy efficiency, demand response, storage resources, distributed generation closer to load (such as rooftop solar), and more. DERs help customers modify their electric usage in ways that will save them money, offer reliability products to electric wholesale system operators and discoms to increase reliability and efficiency of the system, and help reduce emissions. The promotion of DERs, however, requires affirmative action by utility regulators and policy makers.
In the second part our series, we outline policies that will facilitate the entry of DER providers.
Comments Off on The E3-India model: It’s come a long way
In 2016, the Regulatory Assistance Project approached Cambridge Econometrics about building a new macroeconomic modelling tool for India. The rationale for the model was simple: India needed to reduce its greenhouse gas emissions, but much of the policy to do so is set at the state level. A model that could identify the impacts of policies to boost state-level sustainable growth was therefore required.
Years later, the outputs of this work are presented in the book Economy-Wide Assessment of Regional Policies in India, edited by professor Kakali Mukhopadhyay. The book covers a range of topics relating to sustainable economic development in India, always with a focus on realistic (i.e., feasible) policy at the state level.
The model that was built came to be known as E3-India — “E3” for energy-environment-economy. It was developed by experts at Cambridge Econometrics, Professor Mukhopadhyay and former RAP colleagues Ranjit Bharvirkar and Surabhi Joshi. Without this collaboration, it is unlikely the model would have advanced to its present state.
The foundations of the model follow the Cambridge tradition, drawing on the demand-driven framework originally developed by Michal Kalecki and John Maynard Keynes. This approach provides several advantages over the more common equilibrium approach to modelling; it does not make assumptions about perfect information, rational behaviour or frictionless markets. In addition, it models labour markets, including involuntary unemployment — matters of particular importance to policymakers.
This demand-driven approach requires that behavioural parameters be informed by econometrics — that is, it requires, among other things, time-series historical data. With the model disaggregating India’s economy into both states and economic sectors, a substantial exercise in data collection and processing was required. Professor Mukhopadhyay led this herculean effort, yielding a tool that researchers today can download and use free of charge.
Another important feature of the model is its tight integration of energy consumption and greenhouse gas emissions within the wider economy. The model ensures consistency between physical and economic measures of energy consumption and prices — something that is critical for effectively assessing sustainability.
The power sector, which will play a crucial role in decarbonising India’s economy, is modelled in additional detail using an advanced framework developed by Jean-Francois Mercure. This allows the user to test policies such as feed-in tariffs, renewable subsidies and coal phaseouts, along with the standard energy and carbon tax policies that other models typically examine.
Each chapter of the book is dedicated to a different sector of the economy. A set of scenarios is used to explore different possible outcomes by implementing combinations of policies. The demand-driven nature of the model allows the analysis to start from a position in which the Indian economy has been set back by COVID-19; many of the scenarios look at ways to restore jobs and prosperity.
Eleven authors, experts in their respective fields, were involved in the production of the book. They put the E3 model to rigorous use, testing its capabilities and performance, and with it have revealed some important truths about the Indian economy and good news about its ability to transform itself into the sustainable, low-carbon powerhouse that it aspires to be.
The book is by no means the end of the E3-India project; in many ways, it is just the beginning. E3-India is a tool that policymakers can use for many years to come as they embark on the journey of promoting sustainable development. The model will continue to be updated. We encourage readers of the book to work with the model themselves, to challenge its conclusions and to examine other scenarios, all with the aim of developing public policies dedicated to improving the long-term welfare of Indian society and the environment. If India is to contribute to meeting global climate targets, much work remains to be done.
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.