Baltic Electricity Market Forum

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Baltic Electricity Market Forum Developing
transmission networks to serve market integration
Jan Sundell EURELECTRIC Vilnius, 29 May 2008
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EURELECTRIC Key Priorities
1. Liberalisation Process Contribute to
the creation of a pan-European energy
market through harmonisation and industry action


2. Pan-European Context Contribute to a
good business environment and to the
integration of the Electricity Industry at
international level

3. Sustainable Development Promote the
role of electricity and electrotechnologies as
part of the solution to the global
environmental problem systematically
integrate sustainable development policies
in key strategies and actions promote
market-oriented policies
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EURELECTRIC Structure
SG Regional Transmission Investment Incentives
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Shortcomings in present situation

• TSOs are seldom tasked to develop regional
  markets in electricity law or company statutes
  explicitly
• National Regulators are considering national
  benefits only, based on national legislation, in
  many cases
• In some countries the allowed return on
  investments is too low for transmission
  investments to be attractive for investors
• Lines are not built because of licensing problems
• Investment in new interconnection has been very
  low. A 2006 report from the European Commission
  concluded that
• Amounts invested in cross-border infrastructure
  in Europe appear dramatically low. Only 200
  million yearly is invested in electricity grids
  with as main driver the increase of cross-border
  transmission capacity.

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Challenges

• The consideration of existing and forecasted
  generation and consumption location in network
  planning, whereby the renewable wind off-shore
  generation will in particular not be located
  close to the centres of demand!
• The complexity of authorisation procedures for
  building new grids, and
• the additional costs for underground cables
• The importance of ensuring that TSOs and National
  Regulators act with a regional mindset when
  determining their investment programmes.

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Is Ownership Unbundling the answer?
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EU initiatives so far

• Cross-border regulation 1228/2003
• use the congestion rents
• to guarantee allocated capacities
• and to fund increases in available cross-border
  capacity,
• however it is also allowed to use the congestion
  income for reducing national network tariffs.
• merchant interconnectors can be exempted from
  regulation of both access requirements and
  tariffs.
• There was also a political commitment statement
  to requiring that each Member State should have a
  minimum level of interconnection equal to 10 of
  installed generation capacity
• The Commission adopted a priority
  interconnection plan, providing some (small)
  funding for certain interconnections
• The Commission appointed 4 experts together with
  mechanisms intended to lessen political and
  bureaucratic obstacles for a small set of to
  facilitate 4 key strategic projects (whom 3 in
  power).

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Evolution congestion income and social welfare
due to a XB investment (simplified example)
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Case study the Nordic Region (1)

• The Nordic TSOs have a close cooperation in
  Nordel where they have created a grid code
  including system planning, however the grid code
  is non-binding, and includes an explicit
  recognition that it must be subordinate to the
  national rules in the various Nordic countries
• Nordel has a permanent committee, the Nordic
  Planning Committee, responsible for producing and
  updating a top-down analysis of the overall
  needs of the Nordic region, the Nordic Grid
  Master Plan.
• Nordel makes recommendations for specific
  investments on the basis of the Master Plan.
  These recommendations are non-binding, and the
  process itself is relatively informal, because
  all co-operation between the Nordic TSOs is on a
  voluntary basis. Nordel undertakes costbenefit
  analyses to assess potential investments, but
  these are not published.
• National TSOs then make their own transmission
  plans. The plans reflect a mix of national and
  Nordic criteria
• The Nordel process is also now evolving to allow
  for multi-regional planning, to include links
  with the Baltics and Central Europe.

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Case study the Nordic Region (2)

• The inter-TSO coordination occurs on an entirely
  voluntary basis, and with limited ability for
  TSOs to be financially compensated for
  investments that provide benefits outside their
  own area.
• A number of factors make the regional planning
  system more likely to succeed in the Nordic
  region than elsewhere
• There is a strong political will to create and
  sustain an integrated Nordic market and there is
  a strong history of Nordic co-operation in many
  areas
• The diversity of generation, and in particular
  the prevalence of hydro in some countries and
  thermal generation in others
• There is an ongoing discussion on how efficient
  the voluntary arrangement is and market
  participants want a more transparent process
• Preliminary Conclusions Other Regions should
  follow similar approach but more stakeholders
  involvement and transparency is needed

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Inter TSO compensation

• The inter TSO Compensation (ITC) is not giving
  significant incentives for cross-border
  transmission investments due to
• The current ITC mechanism is still based on a
  voluntary and year-by-year interim agreement
  between TSOs rather than a long-term decision by
  the Commission or ERGEG.
• ITC is looking at historical investments and not
  at giving incentives to new cross-border
  investments

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Proposed model for Regional Transmission
Investments (1)

• Transmission investments with positive socio
  economic gain on a regional basis should be
  built.
• There has to be a socio economic welfare gain for
  each country that exceeds the national costs of
  that particular investment.
• In order to secure investments that have positive
  socio-economic benefit for a regional as a whole
  but not for one or several nations, some sort of
  additional mechanism must be put in place.

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Proposed model for Regional Transmission
Investments (2)

• Existing models account only for some of the
  costs and benefits
• A model calculating the overall socio-economic
  benefits is needed
• The model must be common for the region and
  ideally for the whole of Europe
• Investments bring socio-economic welfare value
  if
• ? COSTS lt ? BENEFITS
• Where
• CHANGE OF COSTS includes (capital,
  environmentally related, operational and
  maintenance)
• CHANGE OF BENEFITS includes
• (congestion rents, producer and consumer
  surplus, system losses, security of supply,
  supply quality, cost of system operation, cost
  of congestion management, environmental
  improvement)

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Proposed model for Regional Transmission
Investments (3)

• We urge regulators and TSOs to come up with
  simplified and transparent models that give a
  fair indication of the socio-economic benefits
  from different investment scenarios and give also
  a fair indication on the burden sharing between
  markets of the investments.
• Gradually, such a model can be refined and
  improved
• Much more important is the common approval from
  all (regional and inter-regional) involved
  regulators and a common use of all involved TSOs.
  
• EURELECTRIC believes here that the regional
  overview should be in hands of the Agency (as
  proposed under the third package)
• Market stakeholder involvement is of the utmost
  importance scenarios should be driven by their
  indications