Pipes & Wires
From the editor’s desk…
Welcome
to Pipes & Wires #200 … yes … 200 editions, which at a guess is about 1,500
short articles. This edition starts with a look at regulating rooftop solar in
Australia and EV charging in the US, and then examines regulatory decisions in
NZ and the UK.
We
then look at some assets sales in the US and the UK, and then take a
preliminary look at the California black-outs. This edition concludes with a
look at the technical features of a really big DC cable in Germany. So … until
next month, happy reading…
Reflecting back on Pipes & Wires #1
Pipes & Wires #1 was published in March 2001, from an
upstairs bedroom in Palmerston North, New Zealand, and reached about 55 readers
as a printed newsletter. The articles included…
· US – what’s really happening in
California (ironic that PW #200 is looking at California again).
· UK – the consequences of excessive
regulation.
· UK – ring-fencing the distribution
businesses.
· NZ – possible merger of water
activities.
· Aus – ring-fencing the distribution
businesses.
· NZ – disclosing gas asset management
plans
· Current comment – contrasting how some
states in the US required generators to divest their supply businesses with the
forward integration of NZ generators into supply.
Subscribe to Pipes & Wires
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Recent client projects
Recent
client projects include…
· Estimating the costs of DERMS
(distributed energy resource management system) penetration for distribution
feeders for a large US electric company.
· Identifying leading practices in
behind-the-meter activities (eg. batteries, solar, smart data, VPP’s etc) for a
large US electric company.
· Identifying key learnings from the
transformation of a Dutch electric, gas and heat company for a large US
electric company.
· Identifying best Australian practices
in EV charging for a large US electric company.
· Identifying key features of demand
management in the Australian NEM for a large US electric company.
· 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.
Cool multimedia stuff
CEGB
Midland Region website
Any readers who worked for the CEGB in the
1960’s might be interested in the CEGB Midland Region website.
Asset management
and asset strategy podcasts
My colleagues at the UMS Group have put
together a series of podcasts on asset management and asset strategy,
including an interview with me on how to make asset
management happen in small companies. This
has also been republished as a short
narrative.
Regulating
emerging technologies
Aus – charging customers to inject solar ?
Introduction
Two key trends that have
emerged from the increasing penetration of rooftop solar are…
· Increasing the fixed monthly tariff that rooftop solar customers pay
so they contribute more fairly to the fixed costs of the distribution network
(the declining kWh argument).
· Ramping down the feed-in tariffs (as the appetite for subsidising
solar customers seems to be declining, and electric companies are calculating
the true value of injected solar energy).
This article examines recent
moves in Australia to charge rooftop solar customers for injecting into the
distribution network.
Recent moves in Australia
Most of us are familiar with
the argument that reduced nett kWh consumption by rooftop solar customers
reduces their contribution to the high fixed costs of owning and operating the
distribution network, and shifts some of those costs on to non-solar customers.
This shifting of costs has been a major concern to social service agencies, so
it is not really surprising that the St Vincent de Paul Society of Victoria and
the Australian Council of Social Services with the backing of SA Power Networks has proposed
a change to the National Electricity Rules that would allow distributors to charge rooftop solar customers
for injecting.
The regulatory framework
Initial comments from the
submitters suggests that whilst the all-important definition of direct control
services clearly contemplates the consumption of electricity by
customers and the conveyance of electricity to customers, it is not
clear that this definition was intended to also apply to injection of
electricity from customers. This in turn makes the application of the
pricing principles in Chapter 6.18.5 of the National
Electricity Rules
unclear in regard to whether specific tariffs applying only to injection can be
compiled.
Initial comments
Initial comments from SA Power
Networks suggest the proposed rule change would allow an increase of a rooftop
solar customers annual bill by between $10 and $30, but that SA Power Networks’
allowable annual revenue would not increase. Not surprisingly, rooftops solar
customers and the solar lobby are unhappy with this proposal, and are warning
of chaos and confusion.
The wider issue of grid stability
Increasing penetration of solar
(thought to be about 1,500MW of capacity, and about 12% of South Australia’s
generation last year) seems likely to cause the following problems…
· Over-voltage on LV feeders, for which SA Power Networks is
planning a further 100 voltage monitoring sites for the 2021 year.
· Sudden loss of generation if the attached inverter can’t ride
through faults.
· Squeezing rotating plant out of the market as the issue becomes
minimum demand rather than maximum demand, leading to a loss of frequency
keeping capability and system inertia.
This represents a major
frontier for DER’s, hence Pipes & Wires will comment further as this rule
change in particular and the AEMO’s wider work in general progresses.
US –
recovering the cost of EV charging infrastructure
Introduction
Xcel Energy
recently announced its plan to provide charging infrastructure for 1,500,000 EV’s
by 2030 (a 30x increase from current numbers). This article looks for any early
clues as to…
· How the
cost will be recovered, including from which classes of customers.
· How
individual regulators are likely to treat those cost recovery plans.
Xcel’s
plan in brief
Key features of Xcel’s
plans include…
· Providing
charging infrastructure for 1,500,000 EV’s through Xcel’s service territory
(Minnesota, Michigan, Wisconsin, North Dakota, South Dakota, Colorado, Texas
and New Mexico).
· Saving
its electric customers over $1b in gasoline every year by 2020.
· Providing
low, off-peak charging tariffs that are equivalent to no more than $1 per
gallon of gas.
Early
indications of cost recovery
Early indications of cost recovery include…
· Minnesota
– unlimited off-peak charging for a flat monthly fee.
· Colorado
– incentives to charge when the grid is not congested (based on a time-of-use tariff).
Both of these tariffs are well aligned to
the core theme of encouraging off-peak charging.
Possible
regulatory treatment
It’s not clear that any firm regulatory
views have emerged, other than some previous recommendations from the Michigan Public Service Commission that
the capital cost of EV chargers (and presumably the associated infrastructure)
should be excluded from the rate base, and that residential EV chargers should
be treated as regulated assets.
Network regulatory decisions
NZ – setting the WACC for electricity and
airports
Introduction
The Commerce Commission recently released its cost of capital
decisions for the disclosure year commencing on 1st
July 2020 for Transpower, GasNet, Vector’s gas pipeline business, Auckland Airport, and Christchurch Airport. This article examines the key features of
those decisions.
Regulatory frameworks
The regulatory frameworks are set out in…
· Clauses 2.4.1 to 2.4.9
of the Transpower Input
Methodologies Determination 2010 (consolidated to 29th January 2020).
· Clauses 2.4.1 to 2.4.9
of the Gas Distribution
Services Input Methodologies Determination 2012 (consolidated to 3rd
April 2018).
· Clauses 5.1 to 5.7 of
the Commerce Act (Specified
Airports Services Input Methodologies) Determination 2010.
Key features of WACC’s
Key features of the WACC’s include…
|
25th percentile |
Mid-point |
67th percentile |
75th percentile |
|
Transpower |
Vanilla WACC |
2.87% |
3.55% |
3.99% |
4.23% |
Post-tax WACC |
2.61% |
3.29% |
3.73% |
3.97% |
|
GasNet, Vector gas |
Vanilla WACC |
3.20% |
3.90% |
4.37% |
4.61% |
Post-tax WACC |
2.94% |
3.65% |
4.11% |
4.35% |
|
Auckland, Christchurch Airports |
Vanilla WACC |
|
4.81% |
|
|
Post-tax WACC |
|
4.71% |
|
|
UK – the draft RIIO – 2 decisions
Introduction
Ofgem’s RIIO – 1 price controls for electricity and gas are coming to
an end. This article examines the key features of Ofgem’s draft RIIO – 2 decisions for gas distribution, gas transmission
and electricity transmission.
Background
Pipes
& Wires has examined progress on the RIIO – 2 price controls as follows…
· Pipes & Wires #191 examined progress on the RIIO – GD2
price controls that will apply to the UK’s 4 gas distribution companies for the 5 year control period starting
on 1st April 2021.
· Pipes & Wires #192 and #196
examined the early stages of the RIIO – ED2 price controls that will apply to Britain’s
14 electricity distribution networks from 1st
April 2023 (Pipes & Wires will examine the RIIO – ED2 price controls in
detail during 2022).
The draft decisions for the gas
distribution businesses
Key
requirements of the draft decisions for the gas distribution businesses
include…
Requirement |
||||
Allowed
annual return |
2.63% |
2.63% |
2.63% |
2.63% |
Efficiency
gain |
8% |
13% |
|
5% |
Vulnerable
customer support |
£2.7m |
£11.1m |
£2.6m |
£6.1m |
Other |
75%
of car fleet to be ultra-low emission. |
10%
reduction in energy consumption |
10%
reduction in electricity consumption |
£10m to support biomethane injection |
The draft decisions for the
transmission businesses
Key requirements
of the draft decisions for the gas transmission and electricity transmission businesses include…
Requirement |
||||
Allowed
annual return |
2.63% |
2.63% |
2.63% |
2.47% |
Efficiency
gain |
8% |
16% |
14% |
14% |
Target
reliability improvement |
|
53% |
62% |
15% |
Funding
to connect renewables |
|
15,000MW |
1,000MW |
3,000MW |
Next steps
Pipes
& Wires will comment further once Ofgem publishes its final decisions
around December 2020.
Industry reshuffling
US –
Dominion sells gas storage and transmission assets
Introduction
Readers will be familiar with
how assets are bought and sold to realign businesses with strategic objectives.
This article examines Dominion Energy’s sales of its gas storage and transmission assets to Berkshire Hathaway.
Description of assets
The assets being sold include
12,200 miles of gas transmission pipelines and 900 BCF of gas storage.
Dominion’s gas distribution businesses that supply 1,300,000 customers in Ohio
and West Virginia its gas retail business that supply a further 1,000,000
customers in Utah, southern Wyoming and south-eastern Idaho are excluded from
the sale.
The transaction
The transaction involves
Berkshire Hathaway paying Dominion $4b in cash, and assuming $5.7b of debt. The
deal is expected to conclude in late 2020 pending regulatory approval.
Dominion’s strategy for selling
A key element of Dominion’s strategy
for selling the gas transmission and storage business is to focus on
sustainable, state-regulated businesses. This is part of a wider zero-carbon
strategy that includes closing 4,000MW of coal and oil-fired generation,
migrating to renewable gas, and investing in zero-carbon generation.
UK – PPL plans to sell Western Power Distribution
Introduction
Most of us will be familiar
with the successive waves of US investment in the UK that began last century
when Entergy bought London Electricity (and sold it a couple of years later), closely followed by Pennsylvania Power & Light’s (PPL) purchase of South Western Electricity which ultimately grew
into Western
Power Distribution. This
article examines PPL’s recently announced plans to sell WPD.
PPL’s strategy
PPL’s announcement to sell WPD
follows a strategic review which concluded that the market was undervaluing
WPD’s contribution to PPL, and is therefore worth more to another owner. Key
components of PPL’s strategy include…
· Sharpening the focus on building a cleaner energy future in the
US.
· Simplifying PPL’s business.
· Freeing up cash to pursue US investments.
· Strengthening the balance sheet and providing flexibility.
A bit about WPD
WPD owns and operates the
electricity distribution licenses that correspond to the legacy South Western,
South Wales, Midlands and East Midlands electricity boards which supplies
7,900,000 customers over a 55,000km2 service territory. Annual
revenue is
about £1.7b, and after-tax profit is about £550m. WPD is noted for consistently
out-performing its revenue incentives under the RIIO – ED1 price control.
Next steps
JP Morgan Securities have been
retained to advise on the sale, which is expected to be completed by mid-2021.
It would seem that foreign electric companies interest in the UK is shrinking,
so we might expect the recent trend of pension and investment funds buying
European infrastructure to continue…
Energy mix and grid security
US – rolling
blackouts in the Golden State
Introduction
California has recently experienced rolling
blackouts. In amongst the political slagging and haunting memories of 2001,
this article tries to get a clearer picture of what the underlying cause might
be.
Actual
events
During the middle of August 2020,
California experienced record high temperatures (getting close to 110oF)
and the California
Independent System Operator (CAISO) declared
various states of grid emergency as demand exceeded supply. It appears that an
unhelpful convergence of the following factors occurred…
· High
temperatures, leading to increased air conditioning demand.
· Pandemic
restrictions that kept people at home, requiring more air conditioners to run.
· Loss of
about 1,000 MW of wind generation.
· A forced
outage of 470 MW of gas-fired generation.
· Cloud
cover and the inevitable nightfall that reduced solar generation.
· Lower
imports from Oregon and Washington due to high air conditioning demand there also
(the heat wave was across the whole west coast, not just California).
What
seems to be the underlying cause
An official statement from the CAISO is
“renewables are not really a factor (in the outages) … it’s simply a matter of
raw capacity”. Other (less official) comment notes that although the impact of
renewables on the power grid is reasonably well understood there is still more
work to be done, particularly around the wider principle of resource adequacy
and specifically how solar is accounted for on an hour-by-hour or
minute-by-minute basis.
Former FERC member and chair Cheryl LaFleur
set out the following 4 key points in her recent
editorial which nicely
summarises things…
· Lack of
clear accountability for having the resources to keep the lights on.
· Lack of
resources to balance solar and wind power.
· Closing
disfavored resources before opening the new ones.
· Operating
in a silo.
Possible
answers looking forward
A key part of the energy transition will be
recognising the security of different resources, which would appear to raise a
couple of issues…
· Traditional
reserve capacity margins (eg. 15% in California, 17% in the UK) appear to have
assumed that all reserve capacity was secure. In the days of coal-fired steam
turbines, that was a reasonable assumption, but not so as wind and solar
penetration increases.
· Policy
and regulatory indifference to specific technologies might require a re-think.
So further work on resource adequacy, such
as that planned in California, would seem to be a good starting point.
Techniques
& technologies
Europe –
examining the A-Nord cable
Introduction
Most things with lots of volts are cool,
and if it also has lots of amps they are even cooler. So when news
emerged of a major cable supply contract being awarded, it was
a little bit exciting. This brief and unashamedly technical article examines
the A-Nord HVDC
cable which is part of
the 2,000MW German electricity corridor.
The A-Nord
The A-Nord is part of Germany’s (and
Europe’s) integrated electricity corridor, stretching about 300km from Emden to
Osterath. This will connect with the Ultranet which runs a further 320km south
to Philippsburg. The HVDC link is being built by transmission grid owner Amprion.
The
cable itself
The cable itself is pretty amazing … a
525kV DC thermoplastic elastomer cable rated at 1,000MW. So that’s a bit bigger
than the bit of 220kV AC XLPE cable under my garage bench (which from memory is
a 2,500mm2 copper cable rated at about 550MW).
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.
Utility Consultants Ltd accepts no liability for action or inaction
based on the contents of Pipes & Wires including any loss, damage or
exposure to offensive material from linking to any websites contained herein,
or from any republishing by a third-party whether authorised or not,
nor from any comments posted on Linked In, Face Book or similar by other
parties.