Environmental Economics Aspects in the Activity of the Public Utility Authority Electricity in Israe

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Environmental Economics Aspects in the Activity
of the Public Utility Authority- Electricity in
Israel A conference in honor of Prof. Mordechai
ShechterUniversity of HaifaNovember 29th ,
2007Yaron Fishman-Head of Economics
DivisionPublic Utility Authority-Electricity
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Subjects

• The Public Utility Authority (PUA)-Electricity
• Setting the regulated costs and the electricity
  tariffs for the Israel electricity company (IEC)
• Environmental economics aspects
• Renewable energy
• Premium for renewable generators
• Tariffs for solar energy
• Airborne pollutions abatement cost in the
  coal-fired steam units.
• Economic incentives to expand the use of natural
  gas

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The Public Utility Authority (PUA)-Electricity

• Established in 1996
• Objectives
• Setting the Electricity Tariffs (for IEC and for
  Independent Power Producers (IPPs))
• Setting the standards for the quality of service
• Structure
• Directorate Chair person 4 directors
• Professional divisions Economics, Engineering,
  Accounting, Licensing, Regulation, Public
  Affairs, legal consultation

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Setting the Regulated Costs for the IEC and the
Electricity Tariffs
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Verity of Electricity Tariffs
Renewable energy premium
Power station
Switching station
Switching station
IPP
Private transactions arrangement
Consumption tariffs
Infrastructure tariffs
HV Consumer
Connection tariffs
Consumer services
LV Consumer
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Regulated Cost for IEC
Capital
Operation
Fuel
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31
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About 4.2 billion
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The demand curve is changing along the Day, the
Week and the Seasons
Demand in MW
Hours along the day
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The marginal cost is changing with respect to the
change in the demand
Demand in MW
Nominal capacity
Available capacity
Diesel fuel
Crude oil
Natural gas
Coal
Hours along the day
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The electricity tariffs is changing along the
Day, the Week and the Seasons
NISc/KWh
Time load tariff
Noon
Evening
Evening
Noon
Night
Night
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Environmental Economics Aspects
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Renewable Energy

• According to targets set by the Government of
  Israel, at least 5 of electricity supply will be
  supplied from renewable energy sources by the
  year 2016.

700 800 MW
Tariffs for solar energy
Premium for renewable generators
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Premium for Renewable Generators

• Using benefit transfer methodology
• The damage costs of pollution in Greece have been
  established in Israel in terms of dollars per ton
  of pollution for each pollutant type.

• Based on these pollution prices, premium for
  renewable generators have been calculated for
  preventing pollution, ranging from 1.5 to 2.5
  cents per kWh.

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Premium for Renewable Generators
Tariffs for renewable energy
IEC generation tariffs
premium for renewable generators


8.5 cents/kWh
1.5-2.5 cents/kWh
10-11 cents/kWh


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Tariffs for Solar Energy

• Tariffs for solar energy (without
  differentiating among technologies) were
  established in September 2006

22 cents/kWh
? Facilities from 100 kW to 20 MW
Solar energy tariffs

17.5 cents/kWh
? Facilities above 20 MW

• The tariffs are guarantied for 20 years.

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Tariffs for Solar Energy
Solar energy tariffs
IEC generation tariffs
premium for renewable generators
gt

• Implementing the targets set by the Government
  of Israel

• Encouraging solar energy technology to penetrate
  the market in Israel (today)

• Encouraging solar energy technological
  improvement (in the future)

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Airborne Pollutions Abatement Cost in the
Coal-Fired Steam Units.

• The marginal cost of electricity production in
  coal-fired steam units are relatively low and
  dont reflect the social cost of using coal-fired
  steam units.
• Most of the coal-fired steam units in Israel
  dont use SO2 and NOx airborne pollution
  abatement facilities.

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Airborne Pollutions Abatement Cost in the
Coal-Fired Steam Units.

• The Ministry of Environmental Protection
  submitted to the Knesset a new airborne standards
  for electricity production units.
• The Public Utility Authority-Electricity is
  carrying out an economic research to evaluate and
  minimize the costs of implementing the new
  standards in the coal-fired steam units.
• These costs will be reflected in the future
  electricity tariffs

• The future electricity tariffs will better
  reflect the social cost of electricity production
  in Israel.

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Airborne Pollutions Abatement Cost in the
Coal-Fired Steam Units.

• LNB and SCR technologies are considered for NOx
  abatement.
• FGD technology is considered for SO2 abatement.

• Three main abatement costs are evaluated for
  each technology.
• Capital costs (depreciation and finance).
• Operation costs.
• Shutdown cost of coal-fired steam units (Shadow
  price).

LNB 5 Month SCR- 3.5 Month
Shadow price cost of using lower efficiency
units with higher fuel prices
FGD 1 Month- done with maintenance shutdown.
Shadow price 0
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Airborne Pollutions Abatement Cost in the
Coal-Fired Steam Units.
Objective Find the optimal policy of time of
investment, facility types, fuel substitutes
Minimizing the net present value
Abatement cost Damage cost Unmet energy cost
S.T Implementing the new airborne standards
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Airborne Pollutions Abatement Cost in the
Coal-Fired Steam Units.
Long time Cost Benefit Analysis is being
conducted
Two primary policy examples are considered for
implementing the new standards in all the
coal-fired steam units by the year 2016

• Installing the abatement facilities at the
  beginning of the time period (2009-2014).
• delays in the Installation (2010-2016)

Damage cost is considered for installation
delays also Unmet energy cost is considered for
low capacity reserve also
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Airborne Pollutions Abatement Cost in the
Coal-Fired Steam Units.
Damage cost ()
Pollution abatement lost due to installation
delays (Tons)
Pollution price (/Ton)

x
Unmet energy due to shutdown of units (kWh)
Unmet energy price (/kWh)
Unmet energy cost ()

x
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Airborne Pollutions Abatement Cost in the
Coal-Fired Steam Units.
Primary results
High capital and operation costs Low Damage cost
Low capital and operation costs High Damage cost
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Airborne Pollutions Abatement Cost in the
Coal-Fired Steam Units.
Primary results
Million
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Economic Incentives to Expand the Use of Natural
Gas

• In 2004, natural gas was used for the first time
  by the IEC.
• Natural gas is gradually replacing crude oil and
  diesel fuel.
• Using natural gas causing generation costs to
  decline, as well as the negative externalities
  associated with airborne pollutants.

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Economic Incentives to Expand the Use of Natural
Gas

• In 2004, the PUA has established an economic
  incentive for the IEC to advance the use of
  natural gas.
• The natural gas incentive scheme has been in
  progress during the years 2004-2006.
• The natural gas incentive left part of the fuel
  cost saving to the IEC.
• Electricity produced by natural gas at the IEC
  is expected to grow steadily during the coming
  years.
• A new natural gas incentive scheme is now
  considered to encourage the IEC to expand the
  uses of natural gas in its generation units.
• The new natural gas incentive scheme will start
  at 2008.

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Economic Incentives to Expand the Use of Natural
Gas

• The PUA has established new regulated tariffs for
  IPPs in 2005.
• The tariffs for IPPs are based manly on use of
  natural gas.
• Natural gas will be used in the future by IPPs
  as well as by cogenerators.