Coordination and generation of of transmission investment

Transcription

1 Coordination and generation of of transmission investment John John Gleadow Senior Senior Advisor Transmission Presented to to the the Transmission Advisory Group April 2007

2 Purpose of this presentation Present the discussion paper - Coordination of transmission and renewable generation investment - circulated to the TAG Promote discussion on: the issue of coordination generation and transmission investment and the proposed approach for addressing this coordination problem 2

3 Background One of the main issues for the electricity industry is the coordination of transmission and generation investment in the deregulated generation sector Several stakeholders has raised concerns that this coordination problem with the Commission The Commission is currently considering the coordination of renewable generation and interconnection investments 3

4 The coordination problem Investors in new generation will be more willing and able to invest if new transmission assets are committed that are required to support (or increase utilisation of) new generation If a transmission investment is not needed in the absence of new generation, investors in transmission assets will rationally want investors to commit to building new generation This problem is further exacerbated by the usually substantially longer lead time of a large transmission investment relative to a generation investment 4

5 Conceptual approaches Various conceptual approaches internationally: Argentina: Transmission only built when one user (or a group of users) agree to underwrite a specific investment. Past experience in New Zealand has demonstrated that it is not a practical approach Alberta (Canada): Market generation investment outcomes are uncertain and, therefore, a constraint-free grid is provided to allow for connection of future generation in any location 5

6 The constraint-free approach Some parties have in the past advocated the constraint-free approach However, off-take customers face the cost of new interconnection assets and would only want a new asset if: it is necessary for reliability purposes or provides a clear economic benefit Endorsing the constraint-free approach would likely result in over investment in the grid and is inconsistent with the current regulatory framework and objectives of the Commission 6

7 Rule framework Two type of investments Economic investments - benefits outweigh the cost Reliability investments - needed to meet reliability standards Interconnection investments needed to support remote generation investment are treated as economic investment if they are not needed to security standards (this will almost always be the case) 7

8 SOO and the MDS The Statement of Opportunities (SOO): is produced every two years enables the identification of potential opportunities for efficient management of the grid provide participants with a list of committed and highly likely generation projects sets out the market development scenarios (MDS) The MDS represents the possible future states of the electricity market and: are used to evaluate the merits of a transmission investment option with the GIT and assign specific economic parameters for possible future projects 8

9 Investment cycle 9

10 Current approval process The Commission recognised that, some time after publication of the SOO, more accurate information regarding the demand levels or prospective generation would arise Accordingly, the GIT allows Transpower, the proponent of a transmission alternative or the Commission to use a more appropriate revised set of MDS to evaluate a proposal This approach has already been used for several reliability investment projects where assumptions have been made regarding the location and costs of possible future transmission and generation investments 10

11 Staged approval (1) However, Transpower has indicated that a key issue is being able to initiate the RMA process, as it dominates the overall lead time for building transmission lines A pragmatic solution is the staged approval of long lead time investments within the existing Rules framework As the current Rules framework allows Transpower to submit an economic investment for approval, before a commitment by investors to build generation, approval of transmission investment could be sought in stages 11

12 Staged approval (2) The Commission is able to approve expenditure for initial stages (such as preliminary design, RMA and land costs) Approval of remaining stages of expenditure (such as capital costs) would be at a later date This would allow Transpower (and the Commission) to the receive further information on the commitment of investors and other relevant parameters before approving the majority of the expenditure is incurred This process avoid the provision of unnecessary transmission interconnection assets 12

13 Staged approval (3) Step I EC Support for (RMA) consultation Step II Initial and preparatory stage(s) approved Step III Approval of remaining stages Project Cost $ Transpower recovers expenditure from internal budget Costs incurred passed on to industry through pricing methodology, regardless of whether unconditional approval is given 10% Time Now Oct 2007 Late 2008 Late Typical Grid Upgrade Approval Timing 13

14 Staged approval (4) In approving a staged investment, the Commission may, for example, consider: The extent that a coordination problem is addressed (primary effect on proposed generation and secondary effect on future generation) The extent to which net benefits are diminished by delaying transmission and generation investment The effect of staged approval on the comparison the proposal to alternatives at later stages 14

15 Other types of transmission investment There are other types of investment that need to be discussed Substation investment: often located at one physical site and offer modification of existing sites Greenfield substations would involve similar timescale to new generation investment Connection assets: new generators require the use of dedicated connection assets (e.g. spur transmission lines) process and cost need to be agreed with the developer some recent wind generation projects have identified these assets in their RMA process 15

16 Examples Central Hawkes Bay (1) Transpower and Commission staff have recently discussed the effect of a number of wind generators potentially connecting in the Central Hawkes Bay It was suggested that a revised regional scenario be developed to include new information to assist in demonstrating the economic need for investment provide effective coordination in investment activities by supplying valuable information and signals to potential investors 16

17 Examples Central Hawkes Bay (2) The Commission would need to take into account the difference in timing between work to build the transmission investment and that for generation investment Therefore, a staged approval process would also be appropriate to coordinate investment so that any investment was likely to be utilised after commissioning In addition to the short term focus, the Commission could consider the likelihood of investment in the medium term that may also occur 17

18 Examples Lower South Island (1) Concern about constraint on the grid in the Central Otago region 733 MW of new wind generation in Central Otago proposed Currently 752 MW of hydro generation in the same region Existing constraints sometimes lead to hydro generation at Roxburgh/Clyde being unable to generate to capacity New wind generation, without sufficient investment in transmission, could lead to the further constraint of Roxburgh/Clyde generation 18

19 Examples Lower South Island (2) USI Demand HVDC Benmore /Twizel Existing Generation (Clyde, Roxburgh, Manapouri) G Transmission Constraint Roxburgh /Clyde Possible New Wind Generation (Project Hayes, Lake Mahinerangi) LSI Demand (including Tiwai) 19

20 Examples Lower South Island (3) In this example the coordination problem means that wind energy could displace hydro, and economic loss may arise as a result of energy spill Generation investors may become concerned with the level of transmission constraints in the region - they need to have confidence that necessary transmission investment would be forthcoming to invest 20

21 Examples Lower South Island (4) The Commission has undertaken analysis that provides information that reflects the likely result of different levels of investment which provides a signal which may, in part, relieve coordination problems reflects (at a very high level) the type of analysis that Transpower would undertake to support a staged economic investment that arises from potential new generation The results of the analysis are set out on the following slide. Details of the analysis are set out in Appendix 3 of the accompanying discussion paper 21

22 Examples Lower South Island (5) 22

23 Examples Lower South Island (6) 23

24 Conclusion Transpower has the opportunity to seek approval for economic investments through the normal GIT process (i.e. using the SOO MDS) or a combination of the following approaches Modifying the MDS (which the Commission must ultimately agree are appropriate) A staged approval process A further process of engagement is to be initiated with Transpower to discuss the opportunities for a staged approval process This could be through the GUP/GIT guidelines 24