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Conditions for unbundling the electricity sector and the introduction of RES into the energy mix. By Alberto Gonzalez June 21, 2012. of Jamaica. www.jsea.org.jm. Outline:. Current market structure in Jamaica Unbundling the electricity sector

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Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Conditions for unbundling the electricity sector and the introduction of RES into the energy mix

By Alberto Gonzalez

June 21, 2012

of Jamaica

www.jsea.org.jm


Outline

Outline:

Current market structure in Jamaica

Unbundling the electricity sector

Unbundled markets in countries with similar conditions to Jamaica (cases: Slovenia, New Zealand and Canary Islands)

Current proposals to isolated electric systems (islands)

Conclusions


Outline1

Outline:

Current market structure in Jamaica

Unbundling the electricity sector

Unbundled markets in countries with similar conditions to Jamaica (cases: Slovenia, New Zealand and Canary Islands)

Current proposals to isolated electric systems (islands)

Conclusions


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Yesterday: How electricity flows to its users


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Yesterday: How electricity flows to its users

JPS

74% JPS

JPS MONOPOLY

JPS

JPS


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Tomorrow: How electricity flows to its users

JPS

Diversified and decentralized

power generation


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Why Renewable Energy?

Electricity Sector:

Electricity supply security

No cost of fuel and price/KWh estimated for the next 25 years

(no fluctuations)

Diversified energy mix

Energy independence

No CO2 emissions

(Global Warming affecting in particular Caribbean islands)

Extremely relevant for Jamaica!


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Why Renewable Energy?


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Why Renewable Energy?


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Why Renewable Energy?

Grid Parity for PV


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Why Renewable Energy?

Grid Parity for PV


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Why Renewable Energy?

Grid Parity for PV

Source: GLOBAL OVERVIEW ON GRID-PARITY EVENT DYNAMICS, Ch. Breyer and A. Gerlach, Ch. Breyer and A. Gerlach (2010)


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Current Structure:

JPS: Generators 74%

IPP

Single Buyer

JPS: Transmission Lines

OUR: Regulator

JPS: Distribution

Customers


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Current Structure: Two main conflicts

JPS: Generators 74%

IPP

Single Buyer

JPS: Transmission Lines

OUR: Regulator

JPS: Distribution

Customers


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Current Structure: Two main conflicts

Conflict of interest

JPS: Generators 74%

new IPP

(e.g. PV installation MW)

IPP

Single Buyer

JPS: Transmission Lines

OUR: Regulator

Fake competition

Last bid tender for JPS

JPS: Distribution

Customers


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Current Structure: Two main conflicts

JPS: Generators 74%

IPP

Single Buyer

JPS: Transmission Lines

OUR: Regulator

No support to self production of electricity

JPS: Distribution

Conflict of interest

Customers

Customers

Own production


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Current Structure: Two main conflicts

JPS: Generators 74%

IPP

Single Buyer

JPS: Transmission Lines

OUR: Regulator

Remember: JPS is 80% private owned, its natural purpose is to recuperate their investment and maximize profits (license until 2026)

JPS: Distribution

Conflict of interest

Customers

Customers

Own production


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Current Structure: Two main conflicts

How renewables will change electricity markets in the next five years

Ruggero Schleicher-Tappeser (2012)

Sustainable Strategies, Berchtesgadener Str. 8, 10779 Berlin, Germany

In 2010, Germany, 51% of the installed renewable power generation capacity was owned by private persons and farmers, 7% by smaller utilities and only 6.5% by the four large power companies

Conclusion: Prepare for a turbulent transformation in the electricitysector


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Current Structure: JPS position

Least-cost for customers

Net – billing: Support, it has been implemented in this year

Net – metering: Not support, it is a subsidized scheme which does not go along with JPS investments

Feed-in tariff: Support only if not subsidized tariffs. Calculation of avoided cost plus 50%


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Current Structure: JPS position

Current JPS investments for new generation:

Plant construction & conversion LNG 360MW US$ 616M

RE new capacity (hydro, wind) 21MW US $ 73M

Petcoke 100MW (estimated 2017/2018)US $ 475M

TotalUS $ 1,164M

RE projects:6% of total investments


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Policy

The Government of Jamaica has set up the goal of achieving 20% of renewables in the energy mix by 2020 and 30% by 2030.

There is no specific goal set by the GOJ which establish the percentage of electricity to be generated from RE.

Electricity generation accounted for 23% of the petroleum consumption in 2008.


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Current Structure: JPS position and RES

  • Questions and Answers:

  • Q: Will JPS invest significantly in RES up to 2030?

  • A: No, large utility companies hardly invest in new decentralized RE projects (take a look to Germany, Italy, Spain). Up to now only 6% of the investments made by JPS for new generation capacity has been assigned to RE projects (in Germany large utilities own 6% of RES installed capacity)

  • Q: Why JPS will not be the main player for renewables in the future?

  • A: There are many reasons to justify this answer:

    • Renewables is not JPS core business (expertise, capacities, know-how)

    • RES are characterized by been decentralized and distributed systems (many kW to sum MW)

    • In the case of Germany, more than half of the total renewable power generation capacity is owned by private persons and farmers (51%). Investments are meant to be done by private persons, farmers, industries, small utilities, households, farmers


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Current Structure: JPS position and RES

Questions and Answers:

Q: Is JPS constrained to produce certain percentage of electricity from renewables?

A: No, it is not stipulated in their license

Q: Will Jamaica achieve a 30% renewables of energy mix by 2030?

A: Hardly. Road, Rail, Shipping, Bauxite, Aviation will hardly contribute to this goal. Electricity has one of the main contributions to make but JPS is not committed and current lack of policies (Net-metering, feed-in tariff) will not allow the introduction of new small investors. On the other hand projects under 25MW coming from renewables would not have to compete in a bid tender process with other technologies and the GOJ is increasing (currently) the tariffs to attract more investors in the next 3 years to increase the share of RE into the grid, however these tariffs would need to be re considered if such investors do not come.


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Question:

  • Is it convenient for Jamaica to separate its electricity services?

    • generation,

    • transmission

    • distribution

  • an horizontal and vertical disaggregation of the electricity sector?


Outline2

Outline:

Current market structure in Jamaica

Unbundling the electricity sector

Unbundled markets in countries with similar conditions to Jamaica (cases: Slovenia, New Zealand and Canary Islands)

Current proposals to isolated electric systems (islands)

Conclusions


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Unbundling, what is it?


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Unbundling

Source: How to make a European integrated market in small and isolated electricity systems, Y. Perez, F.J. Ramos Real / Energy Policy (2008)


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Unbundling

5 types of separation!

Source: How to make a European integrated market in small and isolated electricity systems, Y. Perez, F.J. Ramos Real / Energy Policy (2008)


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Unbundling

Avoid discriminatory practices and allow competition

Source: How to make a European integrated market in small and isolated electricity systems, Y. Perez, F.J. Ramos Real / Energy Policy (2008)


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Unbundling

Avoid discriminatory practices and allow competition

It does not establish competition in the market

Source: How to make a European integrated market in small and isolated electricity systems, Y. Perez, F.J. Ramos Real / Energy Policy (2008)


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Unbundling

Avoid discriminatory practices and allow competition

It does not establish competition in the market

Marketing to the client, competition in the retail exchanges. The end users choose their provider according to offers and supply quality.

Source: How to make a European integrated market in small and isolated electricity systems, Y. Perez, F.J. Ramos Real / Energy Policy (2008)


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Unbundling

Consensus in economic theory and EU policy is to propose an TSO to manage the flows of energy, and also that it is preferable to separate these activities if the dispatcher is also the owner of the generating assets

Source: How to make a European integrated market in small and isolated electricity systems, Y. Perez, F.J. Ramos Real / Energy Policy (2008)


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Unbundling

The unbundling option for distribution proposes a view that clearly distinguishes between the owner of the network and the operator of the network.

Source: How to make a European integrated market in small and isolated electricity systems, Y. Perez, F.J. Ramos Real / Energy Policy (2008)


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Why unbundling the electricity sector

competition is considered to increase efficiency, reduce costs and improve quality

Remove barriers to entry in generation

Ensure that the grid is managed by an independent operator who maintains reliability, manages transmission congestion, operates various markets to facilitate trade, liquidity and risk management.

Ensure that the transmission network is open and accessible to all under transparent and

non-discriminatory prices


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Why unbundling the electricity sector

Analyzing 20 years of electricity market reforms all around the world, including liberalization and unbundled markets

Good examples

bad examples

Pages: 688

Year publication: 2006


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Why unbundling the electricity sector

“Policies aiming at the expansion of renewable energy technologies should encourage competition in the electricity market” [1]

“Philippines Case: reform with private sector participation, liberalizing the market for IPP, increased social welfare”[2]

The question to Jamaica is not only if by unbundling the electricity sector the price/kWh is going to be lower in the near future as a direct consequence (which might be), but if it will provide an appropriate market environment to the introduction of RES and the development of a more diversified energy mix in the long term

[1] More competition: Threat or chance for financing renewable electricity?, SandorSzabo, European Commission, DG Joint Research Center

[2] Welfare impacts of electricity generation sector reform in the Philippines, Natsuko Toba, University of Cambridge


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Castalia report commissioned by JPS:

Options to lower electricity prices in Jamaica

“However, the benefits from implementing such reform (separation of electricity services) can only be achieved in markets that are large enough to accommodate sufficient generators to compete with each other. With a small system of the size of Jamaica’s, there is little scope for attracting more than a few generators; thereby resulting in an oligopoly, with prices much higher than under competition”

The question to Jamaica is not only if by unbundling the electricity sector the price/kWh is going to be lower in the near future as a direct consequence (which might be), but if it will provide an appropriate market environment to the introduction of RES and the development of a more diversified energy mix in the long term


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Depending on oil imports to supply more than 85% of energy needs


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Depending on oil imports to supply more than 85% of energy needs

> 1 million population


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Jamaica

Population 2’847.232 (2012)

Country Area10.991 Km2

Power installed capacity 820 MW

Jamaica Public Service Company (JPS) is the sole distributor of electricity. The company is engaged in generation, transmission and distribution of electricity, it purchases power from 5 IPPs.

JPSCoprovides 60% of all electricity consumed on the island. Private companies generate the remaining electricity supply


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Comment

10 out of the 15 state members import oil to supply more than 85% of their energy needs. The rest of the members have some indigenous energy resources like natural gas (Trinidad and Tobago) and hydro plants (Suriname, Dominica, Haiti, Belize). The case of Jamaica is unique, as it is the only country in CARICOM with more than 1 million population that depends highly on oil imports (2.8 million population and more than 90% oil imports).

Take references from somewhere else!


Outline3

Outline:

Current market structure in Jamaica

Unbundling the electricity sector

Unbundled markets in countries with similar conditions to Jamaica (cases: Slovenia, New Zealand and Canary Islands)

Current proposals to isolated electric systems (islands)

Conclusions


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Slovenia

Population 2’050.000 (2012)

Country Area20.273 Km2

Power installed capacity 3.200 MW

The Slovene electricity sector is composed of 4 generation companies, 5 distribution companies and 1 TSO.ELES ,the Transmission System Operator (TSO) in Slovenia, is the public utility for transmission network management and is 100% state owned. As a national Operator its primary responsibility is to reliably operate the Slovenian electric power system and to offer quality electricity supply to consumers. ELES also buys electricity from the generation companies. ELES sells electricity to the 5 regional public distribution companies: ElektroLjublijana (37% of the sales), Elektro Maribor (20%), ElektroCelje (19%), ElektroPromorska (15%) and ElektroGorenjska (9%). 


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

New Zealand

Population 4’429.789 (2012)

Country Area268.680 Km2

Power installed capacity 9.485 MW

First two decades:

retailers and generators became vertically integrated, failure in light handed regulation

  • Lessons learned:

  • Specialized electricity regulator in 2003

    • Managing the ongoing information disclosure regime

    • Setting price and revenue caps

    • Coordinating the investment plans of various industry players

    • Maintaining reserve generation capacity

    • Overseeing industry governance arrangements

    • Guiding new investment by the issuing of “statements of opportunity”

The New Zealand electricity market is a competitive market. There is open entry to the market subject to conditions developed by the Electricity Commission.

As of October 2009, five generation companies operate in the country, the national grid is wholly owned and operated by Transpower, a state-owned company. Distribution is the responsibility of 28 separate distribution companies


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Canary Islands (Spain)

Population 2’117.519 (2012)

Country Area7.493 Km2

Power installed capacity 1.980 MW

Before 2006, Unelco-Endesa was a vertically integrated company that managed the system, generated most of the electricity and had exclusive control over the transmission, distribution and supply of the electricity.

New arrangement from 2006:

Appearance of the REE as the manager of the transmission network and system operator. The REE is responsible for ensuring access to the grid for all stakeholders under conditions of transparency and equality. In this sense, the REE acts as a single buyer that purchases energy using a generation merit order.

Appearance of the figure of the supplier who buys energy from the network operator.


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Canary Islands (Spain)


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Canary Islands (Spain)

Generation Costs (2008)

Source: Trabajo IUDR - FEDEA


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Canary Islands (Spain)

Source: Análisis de los sobrecostesde la Energía del Sistema Energético de Canarias, RICAM


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Slovenia

Nuclear: 38%Coal and Lignite: 34%

Hydroelectric: 24%Natural Gas: 3%Biomass and others: 1%

New Zealand

Canary Islands

Hydro-electric: 56.6%

Thermal: 31.2%

Geothermal: 6.7%

Wind: 5.3%

Biogas: ~0.3

Fossil based: 90.5%

Renewables:5.7%

Others: 3.8%

El Hierro, 100% RES 2012

All islands, 30% RES 2015

90% RES by 2025


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Comment

Convenience for separation of electricity generation, transmission and distribution depends on case by case, including aspects like market size, current competition, companies ownership, geographical conditions and diversity of energy resources: natural gas, hydro, nuclear, oil, coal, solar, wind.

Separation of electricity sector in Jamaica is an option to develop a more diversified energy mix, incentive competition and introduce RES.


Outline4

Outline:

Current market structure in Jamaica

Unbundling the electricity sector

Current situation in CARICOM

Unbundled markets in countries with similar conditions to Jamaica (cases: Slovenia, New Zealand and Canary Islands)

Current proposals to isolated electric systems (islands)

Conclusions


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Proposals in Europe

Unbundle generation, transmission and distribution to eliminate monopolies so that separate entities can have the same power grid access to allow renewable energy equal or favorable treatment in transmission and distribution systems.

Source: Maximization of the penetration of RES in Islands, Roadmap (2010)


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Proposals in Europe

Suggested market structure for Crete, Greece

Source: Maximization of the penetration of RES in Islands, Roadmap (2010)


Outline5

Outline:

Current market structure in Jamaica

Unbundling the electricity sector and advantages

Unbundled markets in countries with similar conditions to Jamaica (cases: Slovenia, New Zealand and Canary Islands)

Current proposals to isolated electric systems (islands)

Conclusions


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Conclusions:

Introducing competition on generation and retail of electricity might lower the costs of production, increase efficiency and provide better service, however lowering production costs does not always reflect a decrease in electricity prices for end-consumers.

The question to Jamaica is not only if by unbundling the electricity sector the price/kWh is going to be lower in the near future as a direct consequence (which might be), but if it will provide an appropriate market environment to the introduction of RES and the development of a more diversified energy mix in the long term


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Conclusions:

As long as JPS has the monopoly of the electricity market, the introduction of renewable energy systems into the national grid will be limited. (6% ?, 10% ? by 2030). JPS will only invest in profitable centralized large scale RE projects. On the other hand, it depends strongly on the tariffs applied to RE generators, which should encourage investors to come into the market.

If RES are meant to be a significant part of the energy mix, a new market organization is suggested to be set up, in particular the introduction of a new Transmission System Operator (TSO) in charge of the management of the national grid, which guarantees transparency and access for all stakeholders.


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Conclusions:

The Government of Jamaica (through OUR as a regulator) have to define clear objectives for the introduction of RES in the national grid. Policies such as Feed-in Tariff has been demonstrated to be determinant for RES success penetration in other countries like Germany, Italy and Spain. Priority for power coming from renewables should be encouraged in future bit tender processes for new IPP come into the market.


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Conclusions: Follow Canary Islands model?

New legislation: establish an independent

Transmission System Operator (TSO)

Buy out the transmission lines from JPS: Public, Private, Association

Introduce the figure of supplier/retailer of electricity

Law in Electric Sector 54/1997, regional legislation, decree 50/2003,

Taking place 2006. In 2010 REE purchased the Canary Islands Transmission Assets


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Conclusions: suggested market structure

new IPP

(e.g. PV installation MW)

JPS: Generators 74%?

IPP

Single Buyer

Storage

(When RES share enough)

new TSO: Transmission Lines

JPS: Transmission Lines

new Retailers: Distribution

JPS: Distribution

OUR: Regulator

new Retailers: Distribution

Customers

Customers

Customers

Own production


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Promoting RES in Islands:

Maximization of the penetration of RES in islands: Road Map

http://www.storiesproject.eu/docs/STORIES_ROAD_MAP_BROCHURE_EN_20042010.pdf

Market organization of autonomous electricity systems

http://www.storiesproject.eu/docs/Market_organisation_E_Panteri.pdf

Scheme for market organization of autonomous electricity systems

http://www.storiesproject.eu/docs/STORIES_Deliverable3_4FINAL__2_.pdf

On the economics of electricity consumption in small island developing states: a role for renewable energy technologies?

Daniel Weisser, Imperial College London, 2004


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Reforms in the electricity sector:

How renewables will change electricity markets in the next five years

Ruggero Schleicher-Tappeser n

Sustainable Strategies, Berchtesgadener Str.8 , 10779 Berlin, Germany (2012)

Electricity Market Reform: An International Perspective

Fereidoon Sioshansi, 2006

Power sector reform in small island developing states: what role for renewable nergy

technologies?

Daniel Weisser, Imperial College London, 2003

How to make a European integrated market in small and isolated electricity systems? The case of the Canary Islands

Yannick Perez, Francisco Javier Ramos Real

Energy Policy

http://jsea.org.jm/docs/

Competition, regulation and privatisation of electricity generation in developing countries: does the sequencing of the reforms matter?

Yinfang Zhang, University of Manchester 2005


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

Thank you

Any Questions

Find the presentation in our website: www.jsea.org.jm/docs

Contact for questions: Alberto Gonzalez, [email protected]


Conditions for unbundling the electricity sector and the introduction of res into the energy mix

PV costs residential

Today June 2012

CIF Kingston: USD 0.66/W

280w panel for USD320

280w x 5.97 hrs per day

x 30 days per month =

50kWh/month

(12% losses)

12MWh in 20 years lifetime

USD 0.026/kWh (roughly without inverter and installation costs)

Pay back in 3 years with

Current prices from JPS


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