This session explains how clean energy has impacted on the economic regulation of the energy sector. The discussion starts with how the role of the regulator is defined, the differences in legal mandates for regulators in different jurisdictions, and the trade-offs regulators need to make in balancing the various, often competing, objectives set out in statute. This will then be followed by a discussion on how clean energy policy has resulted in major changes to the energy sector, and how regulators are responding. The regulatory responses include market design issues, addressing network investment, system operation issues and stimulating innovation to facilitate cost effective clean energy.”

1. Clean Energy and the Role for
Regulators
Garrett Blaney
Commissioner
Commission for Energy Regulation
Clean Energy Regulators Initiative Webinar Programme
5 December 2013

2. What is the role of a regulator?
Appeal
and/or
Legal
challenge
Industry/
Capital
Markets
Legislation
Economic
Energy
Regulator
Consumers
Government
Policy

3. Typical Regulatory Objectives
•
•
•
•
•
the lights stay on
the gas continues to flow
prices for energy are fair and reasonable
Complying with environment policy and laws
Best practice regulatory processes

4. The Energy Trilemma
Price
Security
Environment

5. The impact of clean energy
• The wholesale market
• The Transmission System
• The Distribution System
• Retail

6. European Renewable Electricity Targets for 2020

7. The Cost of Renewables
600
500
€/MWh
400
300
200
100
0
Hydro
Wind
Biomass
Biogas and waste
Photo-voltaic
Geo-thermal

8. The Wholesale Market

9. European Context
Creating the Single Market
• Interconnectors historically underused, markets segmented
• Uneconomic cross border flows undermine EU energy policy goals
of sustainability, competitiveness and security of supply
• EU has addressed this by forging an internal market in electricity to
form part of single European market in goods and services

10. European Context
Creating the Single Market (2)
• 1st and 2nd electricity liberalisation packages (1996 and 2003):
– Some success but price correlation between regional markets remained poor
and cross border capacity was inadequate or inefficiently used
• 3rd electricity liberalisation package (2009):
– Establishment of ACER and ENSTO-E
– harmonisation of market rules - market coupling
– increase in physical cross border investment
• Target Model – end 2014
– SEM derogation to end 2016

11. 
Market Integration 2000
Implicit auctions
Only explicit auctions
Other methods
Nord Pool

12. 
Market Integration 2006
Implicit auctions
Only explicit auctions
Other methods

13. 
Market Integration 2010
Only explicit auctions
Other methods
Implicit auctions
APX
EMCC
CWE

14. 
Market Integration 2014?
Implicit auctions
Only explicit auctions
Other methods
Euro Pool

15. 
Market Coupling 2016
Implicit auctions
Only explicit auctions
Other methods
Euro Pool

16. Different Market Designs
•
•
Gross Pool markets are centrally dispatched with TSOs deciding centrally on
generator running order
Bilateral markets like those in Britain and continental Europe are self dispatch,
where TSOs only balance the system close to real time
SEM
British Market

17. European Target Model
Long-term
allocation
Day-ahead implicit
auctions
Intraday
continuous trading
Zone delineation
Capacity
calculation
How it works…
Common cross-border arrangements
The interaction between the two should encourage
harmonisation
Diverse national arrangements
Cross-border
balancing

18. Forward Capacity Allocation
• Rules for calculating and allocating cross border capacity
– Auction Rules
– Allocation Platforms
• Cross Border Risk Hedging and Firmness
– Physical Transmission Rights (PTRs) with UIOSI
– Financial Transmission Rights (FTRs)
– Other hedging tools if sufficient liquidity exists

19. Day Ahead Market Coupling
•
•
•
•
Centrepiece of the Target Model
Links separate day-ahead spot markets using cross-border (XB) transmission
capacity
It is an “implicit auction” – meaning cross border capacity allocation is integrated
with the energy market (‘explicit auctions’ sell capacity separately)
Common prices between spot markets when there is sufficient capacity

20. Market Coupling (2)
If there are XB capacity constraints, these will limit the flows between the coupled
markets and a price difference will persist

21. Hourly Capacity Utilisation - Explicit
CAPACITY UTILISATION
100%
Wrong direction
A to B
0%
B to A
Wrong direction
100%
A >> B
A=B
A << B
PRICE DIFFERENCE
21

22. Hourly Capacity Utilisation - Coupled
Optimal utilisation (same price unless congested)
CAPACITY UTILISATION
100%
A to B
0%
B to A
100%
A >> B
A=B
A << B
PRICE DIFFERENCE
22

23. Future Issues – Capacity Mechanism
•
•
Target Model is being finalised and is due to be implemented by 2014
But, in parallel several Member States have or are considering CRMs
– Generation Adequacy– e.g. German nuclear closures and LCPD impacts
– Missing money problem
– Impact of RES on energy only markets

24. Does Clean Energy need Support?
•
•
•
•
Limits of Energy Only market (marginal cost)
High Capex, Low Opex
Reducing cost of capital
Regulatory/Policy Certainty

25. Elements of Market Dysfunction
• Cheap Coal from US
• Dropping gas demand
• Good Utility/Bad Utility – security of supply?
• Nuclear Support
• Cost competitiveness for large industry

26. The Transmission System

27. Grid Roll-out
• Much wind in west, demand in east
• Rolling out the grid is critical to
meeting 2020 renewable target
• EirGrid has major Grid 25
plan
• Over €1 billion in grid
investment allowed by CER
from 2011 to ‘15
• Planning and land access are
a major challenge

28. DS3 Project
Delivering a Secure,
Sustainable, Electricity System
(“DS3”) – integrating wind
while maintaining secure
operation of system
•
75% instantaneous wind
penetration;
•
Greater flexibility from
conventional plant
(existing & new);
•
RoCoF settings
•
Keep curtailment to
“bankable” levels i.e. 5%
•
Better wind forecasting,
real time data and
controllability;
•
Demand Side
Management;
•
Cost & Benefit to
consumers

29. System Non-Synchronous
Penetration (SNSP)
50% SNSP
75% SNSP

30. The Distribution System

31. Changes to DSO
• New technologies such as embedded (e.g.
micro) generation and electric vehicles
• Smart grids
• Smart metering
• Demand Side participation
• Ancillary service provision and flexibility

32. DSOs Issues for Regulators
•
•
•
•
•
•
Distribution tariffs
Promoting innovation
The scope and extent of DSOs functions
Price controls and incentives
Data handling and protection
Future unbundling/separation requirements

33. The Retail Market
•
•
•
•
•
•
Green Tariffs
Changing Consumption Behaviour
Smart Meters – Static or Dynamic ToU Tariffs?
Microgeneration Issues
Consumer Confusion & impact on competition
EV integration

34. Conclusions
• Regulatory Change Needed to Delivery Green
Targets:
– Wholesale market evolution
– Public Friendly Transmission Investment
– New Role for DSO
– New Engagement with Consumers