Martin Crouch – OFGEM - Future Energy Strategies

Report
Electricity interconnectors
– next generation
Martin Crouch
Future Energy Strategies seminar
3 July 2012
Agenda
• Ofgem’s role
• How much interconnection?
• Regulatory framework
• Is interconnection a good thing?
2
Interconnection from Great Britain: the
context
2012
figure:
4.8%
Average total import capacity relative to installed generation capacity by
percentage, 2004
(Source, DG Competition Report on Energy Sector Inquiry, 2007)
3
Policy context – an electrical island
But less so in future
Existing
Construction
Planned/
possible
4
Energy Infrastructure Package:
Interconnection capacity to
support 2020 RES targets
2020
(Source: Imperial College & KEMA, study for EIP communication, 2010)
5
ECF 2050 Pathways:
Interconnection capacity to
support 80% RES by 2050
2050
Source: ECF – Roadmap to 2050 (www.roadmap2050.eu)
6
Agenda
• Ofgem’s role
• How much interconnection?
• Regulatory framework
• Is interconnection a good thing?
7
Drivers for change
• Potential for commercially viable interconnection
– But pure merchant financing of projects less viable …
– We want to see timely development of new infrastructure to
contribute to the delivery of internal energy market
• Financing gap- greater need for 3rd party investors?
• Need for a common / coordinated approach to regulation of
shared assets
• Challenges with merchant-exempt regime:
– Regulated “risk” of exemptions, which are seen as the
exception not the rule
– European model, national TSOs deliver interconnector
investment
Need to develop a regulatory regime to remove regulatory barriers and
facilitate investment
8
Regime principles
•
The regulatory framework will take into account the commercial viability of a
project as well as considering the wider benefits efficient levels of
interconnection can offer to consumers for example: security of supply,
integration of renewable energy sources, competition and market integration
across Europe,
•
Consumers should be protected from the cost implications of excessive returns
or market power that might accrue to interconnector owners,
•
Developers should be able to earn returns that are commensurate with the
levels of risk they are exposed to under the regulatory framework,
•
Regulatory treatment of developers should be coordinated between NRAs at
either end of the shared asset and
•
(For GB and new interconnector developments) Regulatory treatment should
allow third party developers and should be impartial and unbiased between
TSOs and non-TSO developers, existing and future developers
9
The Cap and Floor approach
•
•
•
•
•
•
•
Inetrconnectors derive their revenues
(congestion rents) from auctioning
capacity at different time horizons
Recoup returns within bounds of preset cap and floor
Returns over cap – paid back to
consumers
Returns fall below floor – triggers
payment from consumers
Allows revenue regulation, protects
consumers from market power
Maintains element of market valuation
of interconnection
Within the regulated regime favoured
by Third Package
10
Agenda
• Ofgem’s role
• How much interconnection?
• Regulatory framework
• Is interconnection a good thing?
11
Two real examples that demonstrate the benefits
of interconnection
Example 1: Interconnectors can reduce
the cost for National Grid to manage the
system
The Moyle
Interconnector was
offline between June
2011 and Feb 2012
This resulted in an
additional £20 million
constraint costs for
National Grid in
Scotland (excess wind
power in Scotland
could not be exported
to N Ireland)
X
Example 2: National Grid can call on
interconnectors to assist in emergency
situations
The IFA Interconnector
provided 30% of the
emergency assistance
used by National Grid to
meet a 3.5 GW shortfall in
Feb 2012 – this helped
avoiding problems in GB
12
Hypothetical concerns...
40
48
50
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Hypothetical concerns...
40
38
52
50
14
Benefits of interconnectors are likely to be
higher if...
1. Interconnected countries have different generation and
demand patterns – asymmetric shocks + access to diversity of
generation sources and reserve
2. The GB price respects and reflects the physical
constraints of the GB transmission system as well as
scarcity – our price needs to signal when we need more energy
and where we need it
3. Good cooperation between neighbouring TSOs and full
implementation of internal market rules
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