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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:. 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

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  1. 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

  2. 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

  3. 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

  4. Yesterday: How electricity flows to its users

  5. Yesterday: How electricity flows to its users JPS 74% JPS JPS MONOPOLY JPS JPS

  6. Tomorrow: How electricity flows to its users JPS Diversified and decentralized power generation

  7. 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!

  8. Why Renewable Energy?

  9. Why Renewable Energy?

  10. Why Renewable Energy? Grid Parity for PV

  11. Why Renewable Energy? Grid Parity for PV

  12. 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)

  13. Current Structure: JPS: Generators 74% IPP Single Buyer JPS: Transmission Lines OUR: Regulator JPS: Distribution Customers

  14. Current Structure: Two main conflicts JPS: Generators 74% IPP Single Buyer JPS: Transmission Lines OUR: Regulator JPS: Distribution Customers

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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%

  20. 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 Total US $ 1,164M RE projects: 6% of total investments

  21. 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.

  22. 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

  23. 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.

  24. Question: • Is it convenient for Jamaica to separate its electricity services? • generation, • transmission • distribution • an horizontal and vertical disaggregation of the electricity sector?

  25. 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

  26. Unbundling, what is it?

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

  28. 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)

  29. 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)

  30. 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)

  31. 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)

  32. 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)

  33. 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)

  34. 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

  35. 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

  36. 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

  37. 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

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

  39. Depending on oil imports to supply more than 85% of energy needs > 1 million population

  40. Jamaica Population 2’847.232 (2012) Country Area 10.991 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

  41. 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!

  42. 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

  43. Slovenia Population 2’050.000 (2012) Country Area 20.273 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%). 

  44. New Zealand Population 4’429.789 (2012) Country Area 268.680 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

  45. Canary Islands (Spain) Population 2’117.519 (2012) Country Area 7.493 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.

  46. Canary Islands (Spain)

  47. Canary Islands (Spain) Generation Costs (2008) Source: Trabajo IUDR - FEDEA

  48. Canary Islands (Spain) Source: Análisis de los sobrecostesde la Energía del Sistema Energético de Canarias, RICAM

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