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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.

Comment on NEA’s latest draft policy “Electricity Spot Market Basic Rules”

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As part of the ongoing effort to establish a unified national electricity spot market, in December, China’s National Energy Administration (NEA) issued two draft policy documents, “Electricity Spot Market Basic Rules” and “Measures for the Supervision of the Electricity Spot Markets”. These policies propose standardized national spot market rules and market monitoring procedures.  This standardization has the potential to provide common ground upon which provinces implement their version of spot market rules. More broadly, the spot market effort has the potential to help support integration of renewable energy.

Sharing the ongoing development of electricity markets challenges and opportunities worldwide, authors Max Dupuy and Chi Gao provided comments to NEA on the two documents, suggesting four practical improvements:

  • Further specifying the detailed implementation of market monitoring and cost survey procedures to prevent market abuse.
  • Canceling price ceiling and floor in spot markets to allow better price signals to support system flexibility.
  • Cautioning against capacity payments, which could exacerbate overbuilding of coal-fired generation capacity.
  • Dissolving interprovincial barriers to renewable integration and encouraging the establishment of truly unified multi-province dispatch regions.

The paper is Chinese only.

Tapping the Mother Lode: Employing Price-Responsive Demand to Reduce the Investment Challenge

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The rapid and parallel growth in both variable electricity production from wind and solar, and in large inherently flexible loads (such as electric vehicles and heat pumps) presents an opportunity to ensure that each transition is both reliable and affordable. In a future that will be increasingly capital-intensive, demand flexibility can significantly reduce the amount of infrastructure that must be financed. But much remains to be done to access that potential, most of which is beyond the reach of traditional approaches to demand response.

The primary focus must shift from strategies that require flexible demand to mimic centrally dispatched generation, to strategies that empower consumers to save money by linking their consumption more dynamically to daily fluctuations in variable supply. At a retail level, this includes adopting a series of innovations that widen consumers’ access to the untapped potential for flexible loads to reduce costs and lower electricity bills. At the wholesale level, it means attacking institutional practices that discriminate against flexible demand reliant on energy market pricing, and that artificially depress energy prices by pre-emptively committing consumers to pay for uneconomic investments through forward capacity mechanisms. Overall, it means progressively assessing and integrating responsive demand into forward resource planning and procurement processes.

This paper is one of a series of eight produced by ESIG’s Aligning Retail Pricing with Grid Needs Task Force, led by RAP’s Carl Linvill. The task force examined ways that retail pricing may be used more widely and more efficiently to allow flexible demand to respond to grid needs.

国际视野:对电力现货市场基本规则的建议

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国家能源局近日发布的《电力现货市场基本规则(征求意见稿)》和《电力现货市场监管办法(征求意见稿)》,为达成全国统一市场迈出了重要的一步。这两份文件在许多关键问题上提出了有建设意义的规定——在新能源转型的大背景下,这些市场设计问题在很多国家也已引发了激烈的讨论。

如何设计出运行良好的电力市场,也是睿博能源智库长期以来研究的议题之一。我们非常高兴地看到能源局对此公开征求意见,并在很短时间内,基于我们对中国电力市场的观察和理解,梳理总结出欧洲、美国和其他国家的相关经验,希望可以借此机会提出一些具备实操性的建议,以供参考。

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 

Electricity market reform, beyond the gas crisis

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In the past, power market reform happened to increase efficiency, to reduce greenhouse gas emissions, or to improve reliability and security of supply. Today in Europe, the desire to further change the market stems from the ongoing energy crisis. As the European Union introduces a new round of electricity market reforms, RAP explores where new market regulation would usefully tackle the root causes of the ongoing energy crisis, meet consumer needs and help Europe move away from fossil fuels.

The current energy crisis is a gas crisis. It is a nightmarish scenario stemming from the Russian invasion of Ukraine and the resulting supply disruption of cheap pipeline gas, converging with decommissioning of nuclear capacity and low hydro output. Hedging strategies by energy suppliers and consumers fell short and unprecedented wholesale market prices for fossil gas made consumer gas and electricity bills explode.

Strategies must therefore improve hedging in the market if Europe is to mitigate the energy crisis – and prepare for the next. To this end, RAP recommends replacing the role of fossil gas with renewables, demand-side flexibility and energy efficiency. More precisely, this requires:

  • Recognising and promoting demand-side resources as a vital system resource.
  • Building out more solar and wind, and doing so better and faster.
  • Protecting basic consumer needs better than in the past.

For policymakers weighing whether to implement these actions, the authors explain the various considerations.

Power Outage Rapid Response Toolkit

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Interruptions in electricity supply – ‘the lights going out’ – make for arresting headlines and capture public attention. Yet it is strikingly rare for any kind of electricity generation shortfall to trigger blackouts: major reliability events are nearly always the result of grid failure incidents such as wires frying or being damaged by trees.

Furthermore, none of the recent events that have occurred in markets with high shares of renewables have been caused by over-reliance on renewables to provide sufficient electricity supplies. In spite of this, the fossil energy industry has a track record of seizing on any opportunity to promote the narrative that more fossil generation is needed and that the growing shift to renewables is undermining and driving up the cost of secure supplies.

To dispel many of the myths surrounding the causes of recent significant power outages, the toolkit looks at four case studies: Texas 2021, California 2020, Great Britain 2019 and South Australia 2016.

These case studies prove it is important that advocates for a clean energy transition can set the record straight quickly, credibly and substantively. This package equips advocates with information and tools to respond quickly to the misinformation that spreads rapidly in the wake of power grid reliability events, and in particular:

  • introduces the advocate to reliability events, and their causes and consequences; 
  • provides a checklist for advocates to understand and analyse emerging reliability events (a separate, interactive checklist can be downloaded here: Power Grid Rapid Response Checklist);
  • provides holding lines for advocates during the information vacuum that normally proceeds a reliability event;
  • explains why large-scale reliability events are almost always caused by network failures and not renewable electricity generation.

加强电力可靠性:欧盟及美国探索新流程完善季度电力分析

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在全世界范围内,政策制定者都面临着在电网减碳的大前提下维持电力系统可靠性的难题。当下,随着新技术的诞生和学界及业界对低碳系统的理解加深,电网减碳从电力系统的负担转化为其不可多得的机遇,然而,如何抓住这些机遇来实现电力系统转型仍有一些挑战。各国的政策制定者应继续深化电力系统改革来优化电力市场运行和电力资源规划流程。这一改革可以确保在向经济、清洁的新能源系统转型的同时,整个电力系统的可靠性也得以保障。

欧盟和美国的决策者和专家都就此问题展开了热烈的政策讨论,尝试寻找新通路优化电力可靠性展望机制。尽管这些讨论的结果尚未完全成型,且电力可靠性的一些问题仍然存在,各国决策者仍可从这些讨论中汲取一些经验。本文就这些政策讨论中的新想法和做法作以简短总结,以供参考。