Pipes & Wires
From the editor’s desk…
Welcome
to Pipes & Wires #202 … this issue starts with an annual update on the WEC
trilemma ratings, and then picks up a previous story on curtailing rooftop
solar in Australia. We then examine some regulatory decisions from the US (on
rooftop solar feed in tariffs), and from Australia and NZ followed by progress
on the splitting of Eskom’s transmission business.
This
issue then draws to a close with a US merger based on clean energy, and some
thoughts on competing battery technologies. I’d take
this opportunity to acknowledge that 2020 has been a tough year for many, and
to wish you and yours a Merry Christmas. Pipes & Wires #203 should appear
around the 2nd week of February…
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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.
Energy mix and grid security
Global –
WEC trilemma rankings
Introduction
The
World Energy Council recently released its 2020 Energy Trilemma Index. This article examines the underlying
principle of the Trilemma and refreshes the 2019 trilemma results from Pipes & Wires #193.
The trilemma rating
The
trilemma is basically a triangle model that depicts how well a country is
balancing the trade-offs between the three important dimensions of…
· Security of energy supply.
· Accessibility and affordability of
energy.
· Environmental sustainability, including
both supply and demand side efficiencies and uptake of renewables.
Key features of the Index report
The
WEC’s website has a cool interactive
graphic which is worth having a muck about with to see which
countries are ranked best in each of the indices. Picking the country names
jumps to a screen detailing that country’s energy supply arrangements and also
(perhaps equally important) that country’s political, societal and economic
performance. Not surprisingly the top performers have a long history of stable
and consistent energy policy that has encouraged investment in security of
supply, and perhaps also has historically priced energy at a sustainable level
that doesn’t require steep price increases to recover the full cost of energy
and energy supply.
The top performers
The
top performers for 2020 are…
|
|
|
2020
index |
2019
index |
||||||
|
Rank |
Country |
Score |
Security |
Equity |
Sustainability |
Score |
Security |
Equity |
Sustainability |
|
1 |
84.3 |
24 |
9 |
1 |
85.8 |
11 |
11 |
1 |
|
|
2 |
84.2 |
6 |
28 |
2 |
85.2 |
1 |
40 |
3 |
|
|
3 |
84.0 |
4 |
15 |
10 |
84.7 |
2 |
28 |
2 |
|
|
4= |
82.1 |
12 |
14 |
12 |
81.5 |
28 |
19 |
6 |
|
|
4= |
82.1 |
2 |
31 |
22 |
81.1 |
3 |
33 |
28 |
|
|
5= |
81.7 |
18 |
21 |
5 |
81.5 |
28 |
19 |
6 |
|
|
5= |
81.7 |
17 |
14 |
11 |
81.5 |
28 |
19 |
6 |
|
What are the top performers of each
dimension doing ??
Let’s
consider what the Trilemma report has to say about the top performer in each
dimension…
|
Dimension |
Country |
Score |
What
that country is doing well |
|
Security |
Canada |
77.1% |
· Significant indigenous primary energy. · Diverse generation portfolio. |
|
Equity |
Luxembourg |
100% |
· Low energy prices (due in part to low
taxes on energy). · Continued high access to electricity. |
|
Sustainability |
Switzerland |
90% |
· Increased low-carbon generation. · Reduced overall energy intensity. |
A bit closer to home
The
rankings a bit closer to home are…
|
|
2020 |
2019 |
||||||||
|
Country |
Rank |
Score |
Security |
Equity |
Sustainability |
Rank |
Score |
Security |
Equity |
Sustainability |
|
10 |
79.5 |
29 |
24 |
18 |
10 |
79.4 |
20 |
26 |
29 |
|
|
25 |
75.4 |
34 |
17 |
60 |
28 |
74.7 |
43 |
24 |
57 |
|
Unfortunately, New Zealand’s energy import
dependence, diversity of generation and energy storage are all less favorable
than in 2019.
Aus – curtailing rooftop solar to improve grid security
Introduction
Pipes
& Wires #200
examined SA Power
Networks
recently proposed
rule change that
would provide for customers who inject rooftop solar into the distribution
network to be charged an additional monthly charge. This article the journey
into uncharted territory by examining the recently granted power to curtail
rooftop solar to improve grid security.
The power to curtail rooftop solar
From 28th September
2020, SA Power Networks has been given the right to curtail rooftop solar in a
controlled manner to mitigate the risk of state-wide blackouts due to inverters
tripping on over-voltage. Not surprisingly, this new-found right is unpopular
with the renewable energy lobby.
The underlying technical issues
A report
earlier in 2020 by the AEMO noted
the following…
· That about 200 MW of rooftop solar is being added every year, in
line with the AEMO’s High DER scenario.
· That growth could lead to minimum demand reaching zero within the
next 1 to 3 years.
· South Australia is thought to be the first power grid in the world
to be approaching zero demand from DER injection. So there is no precedent, no
playbook, and no other experiences to draw from.
· A credible major fault in the Adelaide metro area could cause up to
400 MW of rooftop solar to trip, leading to wider grid security issues if
conventional generation were also to trip.
For its part, SA Power Networks
is improving the voltage management systems at 140 of its major substations to
better manage the voltage rises from high solar injection.
Thinking
through the issues
The principal issues appear to be…
· The
right of rooftop solar customers to generate their own electricity regardless
of the risks to grid security (and in all fairness, probably not many electricity
customers understand how grid security works and why it is so critically
important).
· The complicated
view of at least some sectors that the legacy power industry is somehow
anti-solar, but also needed for when the sun doesn’t shine.
· The
responsibility of various authorities to balance demand with supply and
maintain frequency at a moment-by-moment level. This will only become more
difficult as more coal-fired generation is retired.
Perhaps a sustained public education
campaign of the importance of the power grid and grid security might be the
answer…
Regulating
emerging technologies
US –
rooftop solar feels the squeeze
Introduction
Pipes
& Wires #201 noted the Alabama Public Service Commission’s
decision to not only uphold Alabama Power’s solar
tariff, but to increase it. This article picks up on that trend by examining
the following recent events…
Utah
reduces solar feed-in tariffs
The Utah Public Service Commission
recently set the solar feed-in tariffs (export rates) that will apply to Rocky Mountain Power, as
follows…
· Solar
advocates requested that the existing provisional tariff of $9.2 cents per kWh
be continued (this tariff was established when Utah’s nett metering program
ended in 2017).
· The UPSC
settled on 5.969 cents per kWh for summer and $5.639 cents per kWh for winter.
· Rocky
Mountain Power sought a reduction to 1.5 cents per kWh.
The gap between the tariffs sought by the
solar industry and by Rocky Mountain Power suggests that thinking is still
poles apart.
Kansas
battles with solar tariffs
In early November 2020 the Kansas Corporation Commission
considered public views on Evergy’s
proposals to charge either…
· A
monthly network access fee of $3 per kW of installed capacity, or
· A
minimum monthly bill of $35.
A couple of points are worth noting…
· Both
proposals aim to decouple revenue from kWh consumption (1 of the long-standing
themes of these articles).
· The key
issue with applying a minimum monthly charge to all customers would be the
inherent subsidy from non-solar customers to solar customers.
Next
steps
Monthly access fees and solar feed-in
tariffs are likely to significantly shape the value landscape of the emerging
transactive distribution network, so Pipes & Wires will comment further as
these stories progress.
Network regulatory decisions
Aus – gas under pressure in South
Australia
Introduction
The Australian
Energy Regulator recently released its Draft Decision for Australian Gas
Networks (AGN) South Australian gas distribution networks for the 5
year control period starting on 1st July 2021. This article examines
the Access Arrangement and the Draft Decision to set some context for the Final
Decision.
A bit about AGN
AGN
operates gas networks nationally that supply about 1,300,000 customers through
25,000km of distribution pipelines and 1,100km of transmission pipelines. The
subject of this article is AGN’s South Australian network which is mainly in
the Adelaide metro area.
Regulatory framework
The
basis of the regulatory framework is the National Gas (South Australia) Act 2008, which sets out the National Gas Law
as a Schedule to the Act. Section 26 of the Act provides for the National Gas Rules to have legal effect, and it is those
Rules that set the detailed regulatory framework.
Key features of the process to date
Key
features of the process to date include…
|
Parameter |
Access
Arrangement |
Draft
Decision |
Revised
AA |
Final
Decision |
|
OpEx |
$357m |
$338.8m |
|
|
|
CapEx |
$579m |
$478.8m |
|
|
|
Opening
RAB |
$1,769m |
$1,769m |
|
|
|
Depreciation |
$318m |
$262m |
|
|
|
Return
on equity |
4.72% |
4.57% |
|
|
|
Return
on debt |
4.19% |
4.67% |
|
|
|
Revenue |
$1,148m |
$1,029m |
|
|
Pipes
& Wires will comment further when AGN submits it Revised Access Arrangement.
NZ – setting the WACC for gas pipelines
Introduction
The Commerce Commission recently released its cost of capital
decisions for the disclosure year commencing on 1st
October 2020 for First Gas and for Powerco’s gas pipeline business. 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 Gas Distribution
Services Input Methodologies Determination 2012 (consolidated to 3rd
April 2018).
· Clauses 2.4.1 to 2.4.9
of the Gas Transmission
Services Input Methodologies Determination 2012 (consolidated to 3rd
April 2018).
Key features of WACC’s
Key features of the WACC’s include…
|
Company |
Parameter |
25th percentile |
Mid-point |
67th percentile |
75th percentile |
|
First Gas Powerco gas |
Vanilla WACC |
3.07% |
3.78% |
4.24% |
4.49% |
|
Post-tax WACC |
2.83% |
3.54% |
4.00% |
4.24% |
Industry reshuffling
South
Africa – splitting off Eskom transmission
Introduction
Pipes
& Wires #194 examined the
proposed disaggregation of Eskom into
separate generation, transmission and distribution companies, with the
separation of transmission into a separate state-owned company hopefully within
18 months. This article notes further progress towards transmission separation,
and also examines some generic models for transmission separation.
The
proposal
Eskom’s proposal is as follows…
· Divisionalisation from
the existing vertically integrated Eskom firstly to functional separation and
then to legal separation, with the legal separation of transmission by December
2021.
· Formation
of an Independent Transmission and System Operator.
One of the key issues facing the new ITSMO
is the expected retirement of 10,000 MW of generation over the next decade,
which, when combined with demand growth, could lead to a 16,000
MW capacity gap by 2030.
Generic
models for splitting off transmission
Some generic models for splitting off
transmission include…
|
Model |
Ownership |
Operation |
Examples |
|
(1) Full vertical integration |
Remains with parent electric company. |
Remains an integrated part of operations. |
Almost all legacy electric companies. |
|
(2) ISO, RTO model. |
Remains with parent electric company |
Operated by independent third party. |
AusNet Transmission. |
|
(3) Functional separation of transmission. |
Legally separate, but owned by parent
electric company. |
Typically operated independently of
parent company. |
AEP. RTE. CEPS. |
|
(4) Ownership separation of transmission. |
Legally separate, not owned by parent
company. |
Operated on a market basis. |
Transpower pre-1996. |
|
(5) Full disaggregation with competitive
market. |
Full ownership separation. |
Operated on a market basis. |
Transpower post-1996. ElectraNet. Fingrid. |
Eskom looks to be heading for Option (3) in
the first instance.
Next
steps
The next step will be the function
separation by March 2021, after which Pipes & Wires will comment further.
US –
merger based on clean energy
Introduction
News recently emerged that Avangrid and PNM Resources are
planning a merger to create “one of the biggest clean energy companies” in the
United States. This article briefly examines the merger partners and the
proposed deal, and then takes a closer look at the strategy behind the proposed
merger.
A bit
about the merger partners
The merger partners are…
· Avangrid
is 81.5% owned by Iberdrola and
supplies about 3,100,000 electric and gas customers across New York, Maine and
Connecticut.
· PNM
Resources (the former Public Service Company of New Mexico) supplies 790,000 electric
customers across northern New Mexico and western Texas.
A merged company would supply about
3,600,000 regulated electric and gas customers across 5 states, but would also
have renewable energy operations in 24 states.
The
proposed deal
Avangrid have offered $50.30 per PNM share,
a 19% premium over the previous months’ average price. That offer values PNM’s
equity at about $4.3b, and has been endorsed by PNM’s directors.
In addition to the usual state, FERC, NRC
and FCC approvals, antitrust and foreign investment approvals are also required
which is expected to take about 12 months.
The
strategy behind the deal
A key component of the merger is Avangrid’s
and PNM’s strong focus on both renewable energy generation and distribution,
with an intent to use the regulated earnings to fund renewable development. In
contrast to the strong renewable strategies of both Avangrid and PNM, readers
might recall from Pipes
& Wires 201 that Duke Energy’s
15,000 MW of coal-fired generation was seen as inconsistent with NextEra’s
renewables focus.
Technologies
and techniques
Global –
competing battery chemistries
Introduction
Lithium-Ion seems to be the dominate
battery chemistry, and is widely expected to dominate for the next few years at
least. This brief article sets out a few thoughts to (hopefully) make sense of
the key issues and provide a bit of a framework for analysis.
Key
drivers of battery chemistries – the high-drain device
Most of us are probably old enough to
remember how high-drain devices were a key driver of battery chemistries,
probably going back to scientific calculators and digital watches in the early
1980’s with the little button-tab Mercury-Cadmium batteries. The next
generation of high-drain devices was the digital camera around 2000, which kind
of stepped up the pursuit of batteries that could hold more charge and discharge
rapidly. And then the EV emerged as the next generation of high-drain device,
further stepping up the pursuit of more charge, faster charging and more
cycles. Undoubtedly grid-scale batteries will drive this pursuit further.
Somewhere along this journey Lithium emerged as a dominant battery chemistry.
Battery
characteristics
Different applications require a number of
characteristics to be considered…
· Weight –
important for mobile applications, even more important for flight.
· Cycle
life – important for continually charging and discharging applications such as
rooftop solar and wind buffering.
· Charging
speed – important for mobile applications.
· Discharge
rate – important for grid support applications.
· Ability
to hold charge – important for seasonal storage of energy.
It seems that no one battery chemistry does
all things well, so it is important to understand the dominant requirement of
the application.
Emerging
battery chemistries
New battery materials and combinations of
materials (eg. Cobalt, Aluminum, Phosphate, Manganese and Nickel as Oxides and
with Graphite) seem to be emerging all the time, but the curious thing is that
they all seem to contain Lithium.
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.
