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Transcript of Moving away from the present fuel mix: regulatory tasks and dilemmas in supporting renewable...
Moving away from the present fuel mix:
regulatory tasks and dilemmas in supporting renewable electricity
penetration
Péter KaderjákDirector, REKK
Alternate member of the Board of Appeal, ACER
World Forum on Energy Regulation VQuébec, May 15, 2012
Coal is still here
Global primary energy demand growth between 2000 and 2010
Major role played by power generation in non-OECD countries
Source: IEA WEO 2011
Where do we go with the present fuel mix?
3Source: Varró L., IEA, 2012
Is CCS deployment on track?
Source: Varró L., IEA, 2012
To reach its projected contribution to the 450 ppm policy, 100 projects would need to be under construction at any time until 2035And one year project time overrun wipes out 30% of NPV
Nuclear: the dream that failed? (The Economist, March 2012)
Source: Varró L., IEA, 2012
The rest of presentation
• Major RES-E regulatory principles and tasks
• Five RES-E related regulatory dilemmas
• Transparency and support level: which is the more important promoter of RES-E?
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Questions
• The regulatory environment is decisive for RES-E investments and growth
• 3 recent studies by REKK‣ ‚Principles of Regulation to promote the development of
Renewable Energy Sources (RES)’, the Black Sea Regional Regulatory Initiative, with NARUC
‣ ‚Support Schemes for Electricity Produced from Renewable Energy Sources’ with ERRA
‣ ‚Clean Energy Finance Solutions: Central & Eastern Europe’, with Cambridge Programme for Sustainability Leadership
• What are the main regulatory principles, tasks and dilemmas with regard to RES-E regulation?
• What do we know about the impact of regulatory characteristics on RES-E penetration?
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There are just a few general regulatory principles to follow
• Effectiveness – to meet policy objectives• Cost efficiency – to provide least cost
solutions for end customers• Transparency, consistency, credibility - to
promote a proper RES-E investment climate and prevent corruption
• A certain level of flexibility – to reserve regulatory ability to adjust support levels to changing technology costs
• Easy and inexpensive authorisation – to promote easy entry
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Prominent RES-E related regulatory tasks
• Contributing to the design of RES-E support schemes (production price support or quota obligation schemes)
• Regulating grid access and integration for RES-E (balancing and settlement regime, grid connection rules, cost allocation rules for grid upgrade, remuneration for additional reserve needs, etc)
• Licensing and monitoring of the RES-E market• RES-E certification • Promoting cross-border cooperation in RES-E
utilization
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1. Poor RES-E support design might create undesirable investment cycles
• Stress on support budget
• Excess demand for grid connection licenses
• Might prompt an unplanned change of regulation that undermines credibility
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Capacity over 0,5 MW Capacity under 0,5 MW Generation (GWh)
„Gold rush”: effectiveness without cost-efficiency
Growth of installed PV capacities in the Czech Republic
Source: REKK analysis
Smart design is needed: e.g. learning curves and adjustment of feed-in tariffs
Total installed geo, MW
Market price of electricity
FIT2
MC geothermal
Q3
FIT in period 1
FIT1
Cost, prices
t1
FIT3
Q1
FIT in period 3
t2
t3
Total installed wind MW
MC wind
Q3
t1
Q1
t2t3
Total installed solar, MW
MC solar
Q3
t1
Q1
t2
t3 FIT in period 3
FIT in period 3
FIT in period 1
FIT in period 1
Transparency and flexibility: rate adjustmentonly for new projects
2. Asymmetric incentives for RES-E generation versus network to be balanced
• RES-E generation: fast; sexy; simple incentives
• Network upgrade: slow; complicated; counter-incentives
• Queue management• Integrated resource and
network planning• Sufficient incentives for
transmission and distribution upgrade is key
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3. Licensing: how to make it simple and cheap?
• Limit on the time and cost of administrative procedures (e.g. Moldova)
• One-stop-shop licensing (e.g. Germany, Denmark)
• Reduced number of authorities involved in RES-E licensing (e.g. Georgia)
‣ Reduction of corruption opportunities
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4. Electricity market integration process can boost RES-E
• Electricity market integration promotes RES-E growth‣ Better spatial distribution of weather-dependent
RES-E production
‣ Common pool of reserves and storage capacities
• RES-E should get a role when electricity market coupling rules are created
• Harmonized green certification regimes might promote cross border trade in RES-E and thus promote investment
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5. Regulatory governance, capacity building and policy feedback is needed
• The promotion of RES-E is a relatively new competence for energy regulators
• Considerable regulatory knowledge and human resources are still to be developed
• A requisite organizational solution can also help the Regulator meet the new expectations in this regard‣ RES certification, licensing and market monitoring
• Fast feedback of market information into the rulemaking process‣ Regular consultations with ministry and stakeholders
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6. Is transparency or support level the more important promoter of RES-E?
16Survey results from ERRA
Hypotheses
• Hypothesis 1: Higher RES-E production support levels lead to higher RES-E penetration
• Hypothesis 2: Good regulatory practices, including transparent, consistent and flexible regulation are preconditions for a faster RES-E penetration
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Production support levels, 2011
- German PV FIT level 2012
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Typical pattern: RES-E capacity shares versus support level - wind
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RES-E capacity shares versus support level – solar PV
Indicators involved in regulatory characteristics analysis
Licensing/target setting Grid Tariff and GC
Transparency
Consistency /credibility/ stability
Easy entry and flexibility
capacity threshold for RES-E licensing
connection rules
allocation of connection capacities
technical standards
balancing responsibility
capacity allocation
FIT/premium/GC setting mandate
eligibility period
non-planned revisions
regular tariff review
priority network access
RES-E target
legal remedy
GO certification
lead time
technical standards
tariff level
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Transparency
-0,02
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-1 -0,8 -0,6 -0,4 -0,2 0 0,2 0,4 0,6 0,8
TR
BG EE
BiH
AL
HU PL
SK UA
LT LV AM RO
RS AE MK
CR
Transparency Index
RES-E Capacity growth 2007 - 2010
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Integrated effects – Regression analysis
Dependent Variable: LOG(CAP_GR) Method: Least Squares Sample (adjusted): 1 16 Included observations: 14 after adjustments1 Variable Coefficient Std. Error t-Statistic Prob. C -7.333706 3.377328 -2.171452 0.0550 TRANS 1.097044 0.513469 2.136536 0.0584 LOG(PRODPR) 1.405245 0.296314 4.742422 0.0008 LOG(FIT_WEIGHT) -0.286652 0.585180 -0.489853 0.6348 R-squared 0.800302 Mean dependent var -3.991196 Adjusted R-squared 0.740393 S.D. dependent var 1.279444 S.E. of regression 0.651898 Akaike info criterion 2.217100 Sum squared resid 4.249713 Schwarz criterion 2.399688 Log likelihood -11.51970 F-statistic 13.35854 Durbin-Watson stat 1.947352 Prob(F-statistic) 0.000785
1 Bosnia (Federation BiH), Macedonia and United Arab Emirates were left out by the program due to missing data.
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Lessons
• ‚Good regulation’ (transparency, consistency and easy entry) and healthy general investment environment are important pre-conditions to RES-E capacity growth
• No such a relationship can be detected between RES-E growth rate and the nominal level of support (FIT)
• The main regulatory message here is that countries aiming to increase their RES-E shares should as first step design their regulatory environment carefully, while the level of Feed-in tariff or premium is less determining in achieving higher RES-E penetration levels
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