Institutional Barriers to Distributed Energy:Understanding and Overcoming

Chris DunstanInstitute for Sustainable Futures, UTS

21 November 2008

I-Grid Research Program Structure

P1: Control Methodology

of DG

P2: Market & Economic

Modelling

P3: Optimal Siting & Dispatch

of DG

P4: Instit Barriers, Stakeholder

Engagement & EconomicModelling

P5: I Grid Social Impacts

P6: I Grid in New

Housing Development

P7:OperationalControl &

Energy Management

Management Committee

Economic regulatory barriers & Solutions

Business deliberation

on I Grid & DE

DANCE Model

D-CODE Model

CSIRO

InstitutionalBarriers

QUT UTS Curtin Uni UniSAUni of Qld Uni of Qld QUT

Why study Institutional Barriers to DE?

Global average temperature

Permanent Arctic ice may disappear by 2030

Scientist warn that if we do not quickly reduce greenhouse pollution, the melting of Greenland ice cp will be unstoppable and raise global sea

level by 7 metres

Problem Response

Politics demands

A very senior Australian bureaucratonce said, when advising junior bureaucrats:

“as a bureaucrat, the most important thing you can do …

is to stop things from happening”

(not Sir Humphrey Appleby)

Problem

“Market Failure”

Response

“Market Intervention”

Politics demands

Policy demands

A licence to act.

"Climate change is a result of the greatest market failure the world has seen.” – Sir Nicholas Stern, Nov 2007

"the greatest market failure ever seen". – Prof Ross Garnaut, July 08

“once we have an effective price on carbon through an Emissions Trading scheme, we can do away with a range of inefficient policies and programs…”

MRET, PV Rebate, EEOA, VEET, REES, NEET, etc,

Barriers to Distributed Energy

“Non-Institutional” Barriers include:– Technical barriers– Economic (cost) barriers

Some Institutional Barriers (and market failures)1. Imperfect Information2. “Regulatory failure” and inefficient incentives3. External Costs excluded4. Inefficient pricing (not cost reflective)5. Split Incentives (landlord/tenant problem)6. High transaction costs7. Lack of access to finance8. Cultural norms9. Underdeveloped market for Distributed Energy

Technology Barriers

Economic Barriers

Institutional Barriers

What it does

What it costs

What slows it down

Barriers to Distributed Energy

“United States could reduce emissions by 31% to 46% by 2030”

Distributed Energy is crucial to carbon abatement

Institutional Barriers: A framework

Economic outcomes

Environmental/ Social outcomes

Technology Frontier

“Best practice”

Institutional Barriers

Current practice

Disarray

Mispricing

Disinterest

Maladministration Impatience

Ignorance

Barriers to Distributed Energy: “The Seven D.E. Sins”

Confusion

Regulatory barriers

Cultural barriers

Lack of information

Split Incentives: landlord/ tenant etc

High discount rates

Externalities and price structures

0

50

100

150

200

GridPower

Cogen GridPower

Cogen

Ind

ica

tiv

e C

os

ts (

$/M

Wh

)

Carbon cost

Innovation risk

Negotiation cost & risk

Capital contributions

Standby charges

Retail etc

Distribution

Transmission

Fuel + O&M

Capital cost

Indicative Impact of Institutional Barriers on Costs

Current Costs

“Real” Costs

Tool 4: Market transformation analysis

Demand0

Supply0

p0

q0 q1

Price

Quantity

Demand1

a

cccc Supply1

b

Overcoming Institutional Barriers: “Moving the Market”

Push PullL

ift

Regulation Incentives

Information

The Policy Palette

Primary Instruments

Facilitation

Pricing

Targets

Regulation Incentives

Information

The Policy Palette

+ Secondary Instruments

Culture

Facilitation

Pricing

Targets

Regulation Incentives

Information

Facilitation

Pricing

Targets

Regulation Incentives

Information

The Policy Palette - “PIRFICT”

Coordination

Regulation

> Mandatory Audits and Plans> Mandatory information disclosure> Minimum Energy Performance Standards

Targets

> Mandated Targets (regulated)> Policy target (adaptive management)> Aspirational targets (report and review)

InformationInformation

> Benchmarking> Performance labelling> Performance Reporting (no target)> Education and Awareness campaigns> Case studies

FacilitationFacilitation

> High Level Commitment> Accreditation> Training> Audits, Advice and Assistance> Case Studies> Networking> Community Engagement

Incentives

> Cash Rebates> Competitive Subsidies> $ support for Research and Development > Loans and Financial guarantees > Expedited Planning > Public recognition and awards> Prizes

Pricing

> Price in Externalities (Carbon Tax)> Cost reflective tariffs> Dynamic Pricing> Fixed cost vs Variable Cost pricing

Coordination

> Strategic Planning – Plan, Act, Report, Review

> Interagency and intergovernmental cooperation> Coordinating Agency

Example: Residential Energy Efficiency

Reg Targets Info Facil’nFacil’n IncentivesIncentives PricingPricing

Building Shell BASIX NABERS, ACT Disclosure

Heat/Cool MEPS

Hot Water MEPS GGAS GGAS, NRET, CCF

Off peak tariffs?

White Goods MEPS Labelling

Lighting Incandescent ban

GGAS GGAS, VEET

Brown Goods 1W standby

Conclusions

> Understanding institutional barriers important – for good policy and program design – to create a “licence to act”– to build the case for a suite of actions

> Not just about complementing Emissions Trading but also about making it work

> This analysis is a work in progress> Forthcoming Discussion Paper and Industry Forum

– Adelaide, 5 December

www.igrid.net.au

Thank you.

For more information on the I Grid Research program:Web: www.igrid.net.au

Tel: 02 9514 4950 (ISF)

Email: Chris.Dunstan@uts.edu.au