Pipes & Wires
From the editor’s desk…
Welcome
to Pipes & Wires #197 ... not much has happened in New Zealand, so I would encourage
readers to think through the trends and patterns in other jurisdictions, which
include…
· Challenges to Lithium-Ion both as the
dominant battery chemistry, and as a storage technique.
· Regulatory expectations that smart
metering rate cases (proposals) will clearly demonstrate how customer benefits
will be captured and shared.
· Tightening gas supply, driven in part
by the expectation that gas-fired electricity generation will increase to
integrate variable renewables.
· Tension between central and state-based
investment planning.
So …
until next month, happy reading…
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Technologies and techniques
Global – declining battery prices and emerging chemistries (part 2)
Introduction
Most of us are well aware that batteries are rapidly
shifting on 2 dimensions … prices ($/kWh) are declining, and chemistries are
also rapidly changing with a key dimension being increasing energy density
(kWh/kg). This is part 2 of the 2 part article which started in Pipes & Wires #196, and which noted recent prices declines and presented some views on
where prices and chemistries might go.
Changing applications for batteries
It appears that the cycle life, charging
speed and energy density are somewhat mutually exclusive amongst the variant
forms of Lithium-ion batteries, viz…
|
Battery chemistry |
Cycle life |
Charging speed |
Energy density |
|
Lithium Nickel Manganese Cobalt Oxide. |
Low |
Average |
Average |
|
Lithium Nickel Cobalt Aluminum. |
Average |
Average |
Average |
|
Lithium Iron Phosphate. |
High |
Average |
Low |
|
Lithium Titanate. |
Very high |
Very high |
Very low |
My guess is that we will see the current emphasis on
energy density re-balanced or possibly even overtaken by an emphasis on cycle
life as EV’s progress through their lives and battery health declines.
An emerging battle between wider technologies
Pipes & Wires #196 examined gravity storage as a potential competitor for batteries,
whilst further competition may come from super capacitors. This can be
presented in the following framework…
|
Stored energy |
Specific technology |
Key features |
|
Primary energy |
Gravity |
· Appears to provide longer storage periods (eg. summer to winter). · Requires significant scale (between 1MW and 20MW) to be cheaper than
batteries. |
|
Electricity |
Batteries |
· Cheaper for small kWh. · Readily mobile. |
|
Capacitors |
· Very rapid discharge time. |
Network regulatory decisions
NZ – reducing the allowable annual revenues
Introduction
The Commerce Commission has recently reconsidered
the weighted average cost of capital (WACC) that will
apply to the Powerco and Wellington Electricity customised
price-quality paths (CPP’s). This article examines the reductions in allowable
annual revenue due to resetting the WACC.
Context
In late 2019 the Commission determined the WACC that will apply for
the third default price-quality path (DPP3) starting on 1st April
2020. The regulatory framework (refer below) allows the Commission to
reconsider a CPP after the WACC has been determined for a new DPP in order to
remove any perverse incentive to apply (or not apply) for a CPP to exploit any
material difference between the WACC’s applicable to a DPP and a CPP.
Regulatory framework
The regulatory framework is set out in clauses 5.6.7(1)(a)
and 5.6.7(2)(e) of the Electricity
Distribution Services Input Methodologies Determination 2012 (consolidated to 31st
January 2019) allows for a CPP to reconsidered after the WACC has been re-determined.
The revenue reductions
The final decisions set the allowable
revenues for the remaining disclosure years of the Powerco CPP and Wellington
Electricity CPP to reflect the 25 September 2019 determination of the 67th
percentile estimate of WACC for DPP3, viz…
|
|
|
Year ending 31st March |
||
|
|
|
2021 |
2022 |
2023 |
|
Powerco |
Original MAR |
$290.85m |
$296.75m |
$302.68m |
|
Re-determined MAR |
$241.09m |
$245.98m |
$250.90m |
|
|
Wellington Electricity |
Original MAR |
$109.53m |
|
|
|
Re-determined MAR |
$91.67m |
|
|
|
US – rejecting a smart metering rate case
Introduction
Regulatory approval of grid
modernisation rate cases (regulatory proposals) seems to be very sensitive,
especially the smart meter component ... readers might recall one of the first
glimpses of this trend in Pipes
& Wires #93 when
Baltimore Gas & Electric’s smart meter rate case was rejected. This article
examines the recent rejection of much of Dominion Energy’s rate case by the
Virginia State Corporation Commission.
Summary of Dominion’s rate case
A quick summary of the rate
case is as follows…
· During the 2018 session, the Virginia legislature enacted Senate
Bill 966 as the Grid Transformation and Security Act which inter alia deems
grid transformation to be in the public interest and requires electric
companies to file grid transformation plans for regulatory approval.
· In July 2018 Dominion filed a plan for grid transformation
specifically to request approval of additional investment over the first 3
years of the 10 year plan.
· In January 2019 the SCC approved a number of the components of the
rate case, referred to as Phase 1A.
· In September 2020 Dominion filed a second
petition designated Phase 1B for approval, which is where this story begins.
Key components of Dominion’s rate case and the SCC’s decision
Key components of Dominion’s
rate case and the SCC’s
decision
include…
|
Component |
Dominion proposal |
SSC decision |
|
|
Total |
Phase 1B |
||
|
Advanced metering
infrastructure (AMI) |
$752.5m |
$303.8m |
Rejected, reasonableness and
prudency not demonstrated. |
|
Cyber security, stakeholder
engagement and customer education |
$197.7m |
$10.4m |
Approved as reasonable and
prudent. |
|
Customer information platform |
$668.9m |
$36.5m |
Approved as reasonable and
prudent. |
|
Pilot programs and hosting
capacity analysis |
$65.9m |
$34.8m |
Approved as reasonable and
prudent. |
|
Grid hardening |
$2,900m |
$210.8m |
Partially approved as
reasonable and prudent, subject to specific requirements. |
|
Self-healing grid and related
investments |
$2,100m |
$241.5m |
Rejected, reasonableness and
prudency not demonstrated. |
The decision approves $212m of
Phase 1B.
The AMI decision in detail
A key reason for the SCC’s
rejection of the proposed $303.8m AMI spend was the testimony of several
witnesses that AMI provides few if any benefits to customers unless accompanied
by plans for smarter tariff design, energy efficiency, demand response and
integration of DER’s (distributed energy resources). The SCC noted that
Dominion’s 1B rate case did not include a comprehensive plan for capturing
those benefits, and invited Dominion to re-submit a revised rate case.
Aus – the Victorian electricity
distribution resets
Introduction
The
five electricity distribution businesses in the Australian state of Victoria
have recently started the process of having their revenues reset by the Australian
Energy Regulator (AER) for the 5 year regulatory period starting on 1st
July 2021. This article examines the Initial Proposals.
The regulatory framework
The
regulatory framework has its basis in s7 of the National Electricity Law, which states the National Electricity
Objective which is inter alia to
promote efficient investment in electricity services for the long-term benefit
of consumers. Chapter 6 of the National Electricity Rules sets out the details for economic
regulation of distribution services.
Key features of the process to date
(AusNet Services)
Key
features of the process to date include…
|
Parameter |
($
nominal) |
Preliminary
Determination |
Revised
Proposal |
Final
Determination |
|
Total
OpEx |
$1,328m |
|
|
|
|
Total
CapEx |
$1,468m |
|
|
|
|
Opening
RAB |
$4,715m |
|
|
|
|
Regulatory
depreciation |
$784m |
|
|
|
|
Unsmoothed
revenue |
$3,421m |
|
|
|
Key features of the process to date
(CitiPower)
Key
features of the process to date include…
|
Parameter |
($
nominal) |
Preliminary
Determination |
Revised
Proposal |
Final
Determination |
|
Total
OpEx |
$569m |
|
|
|
|
Total
CapEx |
$690m |
|
|
|
|
Opening
RAB |
$2,013m |
|
|
|
|
Regulatory
depreciation |
$403.1m |
|
|
|
|
Unsmoothed
revenue |
$1,613m |
|
|
|
Key features of the process to date
(Jemena)
Key
features of the process to date include…
|
Parameter |
($
nominal) |
Preliminary
Determination |
Revised
Proposal |
Final
Determination |
|
Total
OpEx |
$577m |
|
|
|
|
Total
CapEx |
$628m |
|
|
|
|
Opening
RAB |
$1,551m |
|
|
|
|
Regulatory
depreciation |
$259m |
|
|
|
|
Unsmoothed
revenue |
$1,286m |
|
|
|
Key features of the process to date
(Powercor)
Key
features of the process to date include…
|
Parameter |
($
nominal) |
Preliminary
Determination |
Revised
Proposal |
Final
Determination |
|
Total
OpEx |
$1,652m |
|
|
|
|
Total
CapEx |
$2,312m |
|
|
|
|
Opening
RAB |
$4,573m |
|
|
|
|
Regulatory
depreciation |
$760m |
|
|
|
|
Unsmoothed
revenue |
$3,694m |
|
|
|
Key features of the process to date
(United Energy)
Key features
of the process to date include…
|
Parameter |
($
nominal) |
Preliminary
Determination |
Revised
Proposal |
Final
Determination |
|
Total
OpEx |
$798m |
|
|
|
|
Total
CapEx |
$945m |
|
|
|
|
Opening
RAB |
$2,473m |
|
|
|
|
Regulatory
depreciation |
$593m |
|
|
|
|
Unsmoothed
revenue |
$2,247m |
|
|
|
Pipes
& Wires will pick up this story again when the AER releases its Preliminary
Determinations
South
Africa – court dismisses Eskom’s request for urgent relief
Introduction
It’s been a while since Pipes & Wires
has examined the follow-on from regulatory determinations. This article notes a
High Court dismissal of Eskom’s request for urgent relief from the recent MYPD4
revenue decision.
The
MYPD4 decision
Pipes
& Wires #182 and #189
examined Eskom’s MYPD4 revenue control, which is summarised below…
|
Parameter |
NERSA decision |
|
|
MYPD4 revenue (3 years) |
R763b |
R661b |
|
Price increase for YE 31st
March 2020 |
15% |
9.4% |
|
Price increase for YE 31st
March 2021 |
16.6% |
8.1% |
|
Price increase for YE 31st
March 2022 |
16.7% |
5.2% |
Eskom’s
request for relief
Eskom’s application for relief was
two-fold…
· Part A
sought a Court Order to allow Eskom to implement a tariff decision prior to the
start of the YE 31st March 2021.
· Part B
challenged the substance of the MYPD4 decision.
A key concern of Eskom’s was NERSA’s treatment of the R23b government
injection for each of the 3 years of MYPD4 as revenue.
The High
Court’s decision
The High Court’s ruling was…
· Part A
was dismissed, with the High Court arguing that whilst Part A may have merit it
was not considered urgent. Significantly,
the High Court ruling indicated…
(i)
that “NERSA violated a basic principle of
accounting by treating an equity injection as revenue”, and
(ii)
that “the
reasonable judgment that NERSA is allowed to exercise cannot translate into an
open ended discretion that insulates it from scrutiny and judicial review”.
· That
NERSA’s MYPD4 ruling of 7th March 2019 remains for the time being,
but is still subject to review as per Part B of Eskom’s application.
Next
steps
Pipes & Wires will examine the High
Court’s ruling on Part B as it emerges.
Cool multimedia stuff
Electricity
and its impact in the 1920’s
This 3
minute video notes the
improvements that electricity bought, particularly the reduction in house fires
as the use of kerosene lamps and open fires declined, and the changes in food
consumption and grocery buying habits as electric refrigeration spread.
Western
Power Electricity Historical Society
This website has
heaps of cool stuff about electricity and electric transport in the south-west
of England for the last 120 years … articles, videos, audio casts etc. Thanks
to Phil West (ex-WPD) for pointing this out.
Energy mix and grid security
Aus –
possible gas shortages in a few years
Introduction
Gas-fired generation is expected to play a
major role in decarbonising electricity, hence security of both gas fields and
pipelines becomes even more important. This article examines the Australian Energy
Market Operator’s (AEMO) recently released Gas
Statement Of Opportunities (GSOO) for
eastern and south-eastern Australia.
Regulatory
framework for the GSOO
The regulatory framework within which the
AEMO publishes the GSOO includes…
· The National
Gas Law embodying the
National Gas (South Australia) Act 2008.
· Part 15d
of the National
Gas Rules.
Key
features of the GSOO
Key features of the GSOO include…
· The GSOO
is based on 3 scenarios of supply and demand, with a central scenario based on
market forces under current Commonwealth and state policies. Not surprisingly,
these scenarios are strongly linked to electricity events including Snowy 2.0
and the anticipated closure of Liddell.
· The
expectation that forecast demand will be met until at least 2023 by existing
and committed developments but could require LNG exports to be redirected for
domestic use.
· Supply
from existing and committed developments could reduce by up to 35% out to 2025.
Unless new fields are developed, LNG imports are developed, or transmission
pipeline capacity constraints relieved, gas restrictions and even curtailment
of gas-fired generation might be required in southern states from 2024.
· Anticipated
fields could meet demand out to 2026, however that would require relief of
pipeline constraints in Victoria.
The
editor comments
These signaled gas shortages have been a
long time coming … Pipes
& Wires #162 examined the east
coast’s impending gas shortage back in April 2017 in the context of several
converging issues…
· Moratoria
on various classes of gas exploration within each state (including fracking and
coal seam methane).
· Closure
of coal-fired generation (at the time Hazelwood and Yallourn W)
· Keeping
Tamar Valley open as Tasmania’s best option for securing electricity supply.
· Increasingly
constrained transmission pipeline capacity.
Regulatory thinking and policy
Aus – allowing state-based grid planning
Introduction
Most of us appreciate the need for large
transmission investments to have at least some degree of central coordination.
This article examines a recent law
change in the Australian
state of Victoria that will allow Victoria to override the existing regulatory
framework in specific circumstances.
Victoria’s
concerns
The Victorian Government claims that
urgently required transmission grid capacity and resilience work to address new
renewables and storage, heat-waves, bush fires and extreme weather is being
discouraged by the existing NEM regulatory framework, and is unfairly
disadvantaging Victorian’s from accessing more reliable, cleaner and cheaper
electricity.
To this end, it introduced legislation to
allow transmission investment to occur outside of the NEM regulatory framework.
Whilst this has drawn support from the renewable energy sector, it has also
drawn criticism from the Victorian opposition party and from various energy
bodies who reiterate that a coordinated inter-state investment framework exists
for good reasons, and that the risk of poor investment outcomes for Victoria will
increase.
The electricity
transmission regulatory framework
The electricity transmission regulatory
framework includes…
· The National
Electricity (Victoria) Law 2005, which
effectively adopts the National
Electricity Law in the state of
Victoria.
· The National
Electricity Rules, of which Chapter
6A sets out inter alia how new investment must be
justified.
· The Electricity
Industry Act 2000, which allows the
(Victorian) Essential
Services Commission to issue
electricity transmission licenses.
The National
Electricity (Victoria) Amendment Act 2020
The bill’s explanatory
memorandum will allow the
Minister to override specific provisions of the NEL and the NER to facilitate
or expedite specified transmission augmentations, and to make any necessary
transmission license amendments. The key features of the National Electricity
(Victoria) Amendment Act 2020 are…
· The
introduction of a new Division 7 of Part 3 of the National Electricity
(Victoria) Law 2005 to modify the regulatory arrangements for specified
declared transmission system augmentations.
· Amending
the Electricity Industry Act 2000 to allow the ESC to amend a license or its
conditions.
· It will
be repealed 12 months after commencement, however any amendments made under
this Act will continue.
Industry structural changes
Global –
will decarbonisation strand gas pipelines ?
Introduction
The major focus of energy decarbonisation
seems to be closing coal-fired generation. This article examines some of the
emerging trends that could have the less visible result of stranding gas
pipelines.
Decarbonisation
and pipeline stranding
The 2 most visible drivers of pipeline
stranding appear to be…
· The
declining cost of solar generation and batteries, resulting in less gas-fired
generation.
· Increasing
restrictions on the use of natural gas as a heating and industrial fuel.
An
increased role for gas-fired generation ?
We are seeing increasing arguments for gas
as a transition fuel as most of the worlds’ electricity systems migrate from
coal to renewables, with a key issue being the integration of variable
renewable generation. Some issues to consider include…
· How well
variable renewables can be integrated in practice.
· How much
further the costs of solar and batteries will decline.
· Whether
electricity markets will correctly signal price volatility to a level that encourages
gas-fired generation (and I’m not an expert on the detail of electricity
markets, so will defer to others on that).
The
emerging hydrogen economy
Any forecasts of where a hydrogen economy
might go are probably very premature, with much more research needed on the
costs of actually making and using hydrogen. However it does hold at least some
promise for the gas pipeline industry.
Recent client projects
Recent
client projects include…
· Compiling a pricing model to reflect
asset investment levels to transmission grid exit level rather than averaged
over the entire network.
· Identifying best practices in
grid-scale and community-scale batteries for an Australian distributor.
· Identifying best practices in EV
charging on behalf of an Australian distributor.
· Recommending amendments to a security
of supply standard to better reflect demand density.
· Identifying best customer engagement
practices on behalf of an Australian distributor.
· Development of an asset management
journey aligned to ISO 55001.
· Identifying learnings from the RIIO –
ED1 reset on behalf of an Australian distributor.
· Developing a smart metering strategy.
· Advising on likely available electrical
contractors.
· Undertaking a customer survey to
identify customer preferences for off-peak EV recharging.
· Developing a strategy for complying
with the related party transaction provisions.
· Advising on the regulatory implications
of an aging timber transmission pole fleet.
· Compiling some introductory thoughts on
digital transformation and blockchain.
· Facilitating a series of client
workshops to better understand asset information criticality and in-service
failure risk.
· Assessing the strength of asset
management practices.
· Reviewing recent AER decisions to
understand the expectations around asset management practices and methods.
· Reviewing the AER’s recent treatment of
network transformation expenditure.
· Compiling overhead conductor and wooden
cross-arm fleet strategies.
· Identifying the issues around
customer-owned lines on private land.
· Developing a risk-based tree trimming
strategy.
· Developing an EV charging strategy.
· Analysing transmission charges as a
percentage of total electric bills.
· Compiling a strategy for improving the
resilience of a sub-transmission network.
· Developing a best-practice guideline
for smart metering.
General stuff
Guide to NZ electricity laws
I’ve
compiled a “wall chart” setting out the relationship between various past and
present electricity Acts, Regulations, Codes etc in
sort of a chronological progression. To request your free copy, pick here. It looks really cool printed in color
as an A2 or A1 size.
A bit of light-hearted humor
What
if price control had been around in the 1920’s and 1930’s ?
A collection of classic historical photo’s with humorous captions looks at some
of the salient features of price control. Pick here to download.
A potted history of electricity
transmission
I’ve
recently compiled a potted history of electricity transmission. Pick here to download.
Wanted – old electricity history books
Now
that I seem to have scrounged pretty much every book on the history of
electricity in New Zealand, I’m keen to obtain historical book, journals and
pamphlets from other countries. So if anyone has any unwanted documents, please
email me.
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Disclaimer
These articles
are of a general nature, they do not constitute specific legal, consulting or
investment advice, and are correct at the time of writing. In particular Pipes
& Wires may make forward looking or speculative statements, projections or
estimates of such matters as industry structural changes, merger outcomes or
regulatory determinations. These articles also summarise lengthy documents, and it is important that
readers refer to those documents in forming opinions or taking action.
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