Supporting RES and DG in a competitive market

Socio-economic and infrastructure issues

Prof. Michael P. PapadopoulosRAE-GREECE

Objective:– Promotion of electricity production from

RES within the context of the regulatory framework of the competitive electricity market

Issues(a) How RES energy enters in the electricity

market(b) Adapting third party access to the grid to

accommodate RES(c) Incentives for grid infrastructure expansion

to support RES

RES Energy in the Market (1)

Old promotion practices seem to be incompatible with the competitive market structures

If we seek for large-scale RES penetrations, then: Direct subsidisation of RES investment may violate state-

aid rules Mandatory absorption of any RES energy production and

fixed price payment may distort market competition Consideration of RES payment as public service

obligation may generate excessive charges on consumers

RES Energy in the Market (2)

Public policy about RES penetration targets has to be imposed as global constraint on the market, so as to let the electricity market to find the cost-efficient market equilibrium

Methods after imposing a global RES penetration target: Impose a quota obligation to all electricity suppliers and

let them acquire RES energy after free negotiations Impose a quota obligation to the pool or TSO and let the

power exchange market to determine the origin of RES energy

RES Energy in the Market (3)

Public policy incentives, apart the imposition of a global constraint, may also include: Tax rebates Lending rate subsidisation Minimum and/or maximum regulated bounds on prices for

RES energy purchases by supplier or by the TSO

RES Energy in the Market (4)

Regimes with extreme competitions among the RES producers are suitable for countries that already have developed RES plants at a sufficient scale, because otherwise they may lead to non-bancability of RES projects

Intermediate solution: the pool or the TSO define a global Power Purchase Agreement for RES and create a second-order competition among RES

RES Energy in the Market (5)

Regimes based on quota obligations of electricity suppliers need ex-post supervision of competitions to avoid the case of suppliers eventually abusing their dominant position. In such cases the weakening of RES economics may lead to a future reduction of their potential development

RES Energy in the Market (6)

Whatever competitive market regime for RES is selected, the internal or regional electricity market needs harmonisation on: The level and timing of global constraint for RES energy

by country or region (optimum allocation among countries leads to equality of marginal costs of RES potential)

The method and procedures for RES energy entering in the electricity market

The additional incentives to promote RES projects The legislation to grant production licenses to RES

projects

ACCESS TO THE GRID:

Open non-discriminatory access to the network for RES producers as for all generators

Development of cost and service reflective tariffs for RES power injected to the network according to the methodology used for embedded generation

Standardisation of technical connection terms for different types of DG and loads

The main principles:

GRID INFRASTRUCTURE:

Development of planning methods, taking into account the location specific and varying in time behavior of RES and normal loads

Development of cost allocation methods and tariffs, taking into account real conditions

Economical design for networks dedicated for RES (e.g. with reduced reliability)

Support initiatives for the development of networks in isolated regions, taking into account their contribution to the environment

Planning and design principles:

PROCEDURE FOR TAKE-OFF:

The state fixes targets of RES development taking into account:– Existing RES potential by region of a country

– Classification of the RES according to their total cost (investments, connection to the grid etc.)

Decision concerning the policy of RES entry in the market Planning of the required grid infrastructure and estimation

of the cost for different RES penetration levels, taking into account the local environmental impact

Tariff development, taking into account the total real cost (RES investments, use of transmission, and distribution network etc. )

The main steps: