thematic line 4 - minem.gob.pe

Spanish Fund for Latin America and the Caribbean

Consulting: Conceptual Frameworks Proposals

Thematic Line 4:Transmission Systems Improved Regulation

and Management, and InterconnectionsAlberto Pototschnig and Guido Cervigni

Q & A Session

2

1. Project scope and initial recommendations

2. List of comments received

3. Discussion of relevant comments

Contents

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Contents

4

Propose conceptual models and frameworks

for improving the regulation and management

of the Peruvian transmission system

First stage towards a While Paper/Book for the

Reform towards the Modernization of the

Peruvian Electricity Sector

Project scope

Recommendations - 1

Sub-transmission

planning

• Reference distributor responsible for planning in the demand area

• COES to provide technical assistance

• Implement open and transparent planning process

• Osinergmin’s role limited to supervision / approval

Implementation of

sub-transmission

investments

• Assign implementation responsibility to distributor

• Reference distributor has last-resort role

• Consider introducing incentive regulation

• Discontinue optional tendering system

Redes no planificada

• Limited to assets that are unlikely to be shared; otherwise

implement an appropriate connection discipline

• Integrate authorisation to build redes no planificada with sub-

transmission planning process

Transmission

planning and

implementation

• Planning responsibility left with COES (in ISO role)

• A structured process to coordinate Plan de transmisión, plans ex-

Contractos-ley, rural electrification and sub-transmission plans

• Integrate large connection requests in transmission planning

Topic Measure Expected benefits

• More effective distribution – sub-

transmission planning

• Exploit synergies of distribution and

sub-transmission operations

• Prevents network ownership

fragmentation

• Efficient network development

• Avoids disputes related to third party

access

• Efficient network development

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Recommendations - 2

Reinforcements• Discontinue tendering system for reinforcements

• Implement regulated model, possibly with incentive features

• Timely implementation of

reinforcements

Transmission tariffs

• Place on the demand the entire tariff burden

• Alternatively, move to charges independent from injections for

generators

• Locational electricity prices in case of congestions

• Correct incentives to generators’

availability

• Avoids double marginalization

• Efficient dispatch and price signals

on transmission adequacy

Public-sector

distributors

• Explore for long-term financial architectures compatible with

Peru’s national accounts

• Streamline cost-benefit assessment of network investments

• Performance-based management compensation

• Correct incentives and adequate

resources to invest in sub-

transmission and future-proof

distributors

Topic Measure Expected benefits

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Contents

8

1. Calidda

2. COES

3. Conelsur

4. Distriluz

5. Electro Ucayali

6. Electrodunas

7. Enel

8. Engie

9. Kalipa

10. REP-ISA

11. Statkraft

Stakeholders providing commentsto the Initial Report on Thematic Line 4

We reviewed all comments and addressed those that

fall with the scope of the assignment

We do not address comments that:

- are more general than the scope of the assignment

(e.g. on establishing an entity responsible for

centralized planning of the electricity sector)

- refer to detailed aspects of the regulatory regime

(e.g. on improving existing mechanisms or

processes, e.g. the standard costing methodology)

We do not discuss comments that are broadly in line

with our recommendations

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Contents

Poor sub-transmission

investment performance

depends on the (publicly

owned) distributors It is

not a good idea to enlarge

their responsibilities.

For the same reasons it is

not a good idea to limit the

scope for private investment

in Redes no planificadas

(Engie Question 2,

Comentario 12 and 14;

Conelsur, N. 7-11;

REP-ISA, Subtransm. p.11-

16, Enel p.10)

Role of distributors in sub-transmission

Comment Our reply Changes in the report

Our recommendation is based on the assumption (to be verified

at a later stage of the assessment) that it is possible to remove

the obstacles that impair the distributors’ ability and incentives

to invest in sub-transmission assets.

We note incidentally that the issues highlighted as possible

causes of the distributors’ underperformance in sub-

transmission are likely to affect also the distributors’ investment

performance in distribution. For that reason, addressing them

should be a matter of priority for Peru.

However, we believe it is appropriate to mention in the report

alternative (in our view second-best) approaches to addressing

the problem, including:

• Privatisation of distributors

• Implementation for sub-transmission of the same model

implemented as default for back-bone transmission (auctions)

Further, a TSO model in transmission and vertical integration of

transmission and sub-transmission is conceivable

Included third option (TSO model in

transmission + vertical integration)

Arrangements for sub-transmission: the options

Sub-transmission

planning

• Planning responsibility on the “reference

distributor” for the demand area

• COES to provide technical assistance

• Osinergmin supervision / approval

Implementation of sub-

transmission investments

• Implementation responsibility to distributor

• “Reference distributor” has last-resort role

• Incentive regulation

Sector’s organisation &

structure

• Current process and regulation retainedTransmission planning

and implementation

Area of intervention Option 1: Integrated sub-TO and DSOOption 2: Transmission model

extended to sub-transmission

• New elements: sub-transmission

assets treated like transmission

assets

• Planning responsibility on COES


• Current process and regulation

retained

• Current regulation retained, except

for sub-transmission responsibilitiesPublic-sector distributors

• Explore long-term financial architectures

compatible with Peru’s national accounts

• Streamline cost-benefit assessment

• Performance-based mgmnt compensation

• New elements: distributor/”reference

distributor” is the monopolistic sub-TO

• Auctions as currently done for

transmission

Option 3: Integrated TSO and sub-

TO

• New elements: transmission moves

from ISO to TSO model; TSO in

also sub-TO in the monopoly area

• Planning responsibility on TSOs


• Implementation by (regulated)

TSOs

• Current regulation retained, except

for sub-transmission responsibilities

• Implementation by (regulated)

TSOs

Arrangements for sub-transmission: assessment

• Might not be effective without

privatisation

PROS

Option 1: Integrated sub-TO and

DSO

Option 2: Transmission model

extended to sub-transmission

• Addresses sub-transmission

investment issues by removing

them from the distributors’

responsibility

• Risk of fragmentation of sub-

transmission ownership

• Risk of coordination issues

between sub-transmission and

distribution


investment issues, while preserving

the elements of current model that

are not problematic

• Promotes development DSOs

• Exploits synergies between

distribution and sub-transmission

Option 3: Integrated TSO and

sub-TO


investment issues by removing

them from the distributors’

responsibility

• Modifies well-functioning

elements of current model

• If multiple TSOs are established,

requires arrangements for inter-

TSO coordination

CONS

Cross-border interconnection


Long-term cross-border

transmission rights should

be allocated, to support long-

term cross-border supply

contracts

(Engie, Comentario 17)

Agree Clarified in the report

No basis for prohibiting

COES from planning cross-

border interconnections

(COES, page 9)

Report was meant to stress the need for high level of

transparency and neutrality of cost-benefit analysis. Reworded and clarified in the report

Cross-border interconnection: the issues

Issues Approaches

Risk that interconnectors turn out to be less

valuable than expected

• Rigorous cost-benefit analysis with consumers taking the risk

• Merchant investment / Open seasons for long term transmission rights

Different wholesale and retail sector

organisation/structures (liberalised, monopoly

...) in the interconnected countries

• Long term supply contracts

• Centralised buyer/seller

• Design of transmission rights and national settlement rules

Split of (net) benefits between exporting and

importing country

• Allocation of transmission rights (or of their value) to the countries

• Inter-TSO payments

Full exploitation of security benefits from

interconnection• Coordination of TSOs’ operations

Transmission tariffs


Recommendation based on

a wrong understanding of

the current tariffication

mechanism

(Engie, Comentario 16: Enel,

p. 10)

Generators should not be

charged the negative

difference between tariff

revenues and allowed

revenues to SPT/SGT

owners

(Statkraft, p. 3)

We have revised our recommendations based on improved

understanding of current tariff systems:

• We see no reason to place demand risk on generators,

since they don’t have any obvious advantage in managing

or reduce it.

• Transmission charges on generators to cover SCT/SST

cost should be based on capacity, to avoid distorting their

offers in the market when moving to bid-based dispatch

Report modified based on correct

understanding of transmission tariff

system

Redes privadas - 1


Role of Osinergmin unclear

Enel, p. 10)

Engie, Question 3: on

possible conflicts of interests

of distributors (that are also

retailers and possibly

generators) in connecting

additional generators

We see Osinergmin’s role in approving (or setting guidelines

for) the distributor’s decision on whether to implement the

development proposed by a private party as part of the

development of the public network

Regulation should mitigate the effects of distributors’

integration in generation on discrimination of third-party

generators seeking connection.

We consider that this conflict of interest is easier to address

compared to the one due to distributors being also electricity

retailers.

We will make explicit reference to

the conflict of interest issue

Redes privadas - 2


How to:

• Decide if an infrastructure

is to be developed

privately or as an element

of the public networks? (in

particular for generation)

• Address financial

problems of the

distributor?

Some hints (tentative):

• Distributor should have the last word on whether it believes a

new item is going to be shared, based on available

information

• One possibility would be to transfer ownership and

management of the asset to the distributor (as the sub-T

operator) while granting the generator a volume of

transmission rights equal to its capacity (to be negotiated

when the infrastructure is built) for the assets lifetime.

• Alternatively, a mechanism could be established where

management and ownership of the asset is transferred to the

distributor as soon as a connection request is submitted by a

new would-be user.

• The problem of “unused capacity being not made available”

would be solved by transferring operations to distributors (but

transmission rights granted in exchange of the asset’s

ownership should be firm, otherwise we would be

expropriating the generator which built the asset).

No changes in the report

(implementation is out-of-scope)

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