Pipes & Wires

Though leadership of critical energy & infrastructure matters

Issue 204 – March 2021

From the editor’s desk…

Welcome to Pipes & Wires #204. This issue starts by examining the increasing need for centralised coordination of power systems. We then examine some market and pricing issues in Japan and the UK, and then look to some grid security issues including designating generation as must-run.

We then look at an electricity transmission tariff reset in Australia, and conclude with some industry structural reshufflings in India and South Africa. So … until next time, happy reading…

Subscribe to Pipes & Wires

If you’re receiving this second-hand, pick this link to subscribe.

Recent client projects

Recent client projects include…

· Providing an independent review of asset condition and spend forecasts for a distribution company investor.

· 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

Clean electricity

Those with a liking for Brit Comedy might appreciate Mrs Bucket’s concern for clean electricity.

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

Global – increasing need for centralised coordination

Introduction

Some readers might’ve seen the 8C’s and 6D’s model of the emerging electric company, in which 1 of the 6D’s is decentralisation. This article presents an augmented 9C’s and 7D’s model along with some topical examples illustrating how centralised coordination is becoming increasingly important as energy resources decentralise.

The 7D’s

The 7D’s are…

· Digitalisation

· Distribution

· Decarbonisation

· Desalination

· Democratisation

· Deregulation

· Decentralisation

It is worth noting that the recently released consultants’ report for long-term water supply options for Auckland includes desalination.

Examples of centralised coordination

· Australia – the establishment of a DER register to provide visibility and centralised coordination of all DER’s at residential or business locations.

· New Zealand – the establishment of a Digital Twin by Counties Power to better understand how distributed functions such as solar, batteries and demand response effect the network and provide customer benefits.

· California – establishment of a central procurement framework by the California Public Utilities Commission to ensure local resource adequacy (the further step of appointing PG&E and SoCalEd as the central procurement entities is of concern to non-utility entities such as community aggregators).

The strategic trend

At first glance this issue appears to be one of tension between centralisation (C) and decentralisation (D), with thoughts of which will win. Further thought suggests that they are in fact complimentary…

· Electric grids have always had some degree of centralised control, certainly for the last 100 years.

· Decentralisation is a matter of perspective, because again generation sources have been decentralised for the last 100 years. There are just now a lot more generation sources, with most of them being smaller.

· Technology has driven down the cost of monitoring and communication of pretty much everything, making small generation viable.

Pipes & Wires will comment further as this trend continues to emerge.

Energy markets and pricing

Japan – examining recent price rises

Introduction

It’s been a while since Pipes & Wires has been to Japan (a bit over 6 years … Pipes & Wires #140 in February 2015 actually). This article examines the recent government probe into surging prices on the Japan Electric Power Exchange (JEPX).

A bit about the JEPX

Japan has the world’s fourth largest electricity market, with annual generation of about 1,007,000 GWh (about 23x New Zealand’s annual generation). The JEPX is a public interest incorporated organization established in 2003 to facilitate both spot and forward electricity market transactions. Most of Japan’s large electric companies and electricity users are members of JEPX.

Recent events

In early January 2021 spot prices rose for the fourth day in a row, jumping to a record high of ¥103 per kWh as colder-than-expected weather coincided with constrained gas supply to power stations (for comparison, the average price for the 2020 year was ¥6.5 per kWh), which was subsequently compounded by generation shutdowns following an earthquake. Mitigations included the system operator OCCTO instructing generators increase generation and to route as much energy as possible to Tokyo and Osaka.

The government probe

The Electricity & Gas Market Surveillance Commission (EGC) is examining whether speculation and deliberate withholding of generation from the JEPX has contributed to the price spiking. Initial conclusions are that there were no obviously improper trades, and that LNG shortages constrained gas-fired generation.

UK – sixpence anytime EV charging

Introduction

Most of us with older parents probably have some sense of how much sixpence really used to buy (and how little it buys now). This article examines a recently announced 6p per kWh EV charging tariff in the UK.

A bit about Ovo Energy

Ovo Energy was established in Bristol, England in 2008 as domestic electricity and gas trader, and grew steadily by acquisition. In early 2020 Ovo acquired Scottish & Southern Energy’s 3,500,000 home energy customers, making Ovo one of the largest electricity suppliers in Britain.

Ovo’s 6p tariff

In late January 2021, Ovo announced a new EV tariff of a flat rate of 6p per kWh anytime, which Ovo hopes will rival its competitors low off-peak EV charging tariffs. Taken at face value, that suggests it would cost about £1.50 to buy 110km worth of electricity for an early model Nissan Leaf.

Ovo’s modelling of EV driver behavior suggests that there will be enough idle EV’s willing to V2G (vehicle to grid) to offset those wanting anytime charging. A quick comparison of EV tariffs reveals…

Supplier	Off-peak tariff	Any-time tariff
Ovo	6p
EDF Energy	4.5p	14.3p
British Gas		19.5p
E.On	10.4p

The type-of-use tariff

Ovo has framed this tariff as a “type of use” tariff, which seems quite novel. A little thought, however, reveals that type-of-use tariffs have been around forever eg. hard-wired space heating that only worked when a separate circuit was energized. While it could be argued that this was in fact a time-of-use tariff (because it went on and night and off during the day), it was primarily a type-of-use tariff because of its unique purpose.

Energy mix and grid security

US – designating must-run generation

Introduction

Pipes & Wires #192 noted that the California Independent System Operator (CaISO) had sought approval from the Federal Energy Regulatory Commission (FERC) for broader authority to use Reliability Must Run (RMR) designations. This article notes a recent RMR designation specifically to reduce the risk of blackouts during the 2021 summer.

The RMR designation

In December 2020 the CaISO designated the 250 MW Midway Sunset Cogeneration plant as RMR, meaning that Midway has to keep the plants available on prices, terms and conditions acceptable to the CaISO.

The background to the RMR designation was that in September 2020 Midway sought approval from the CaISO to retire 2 units on 31^st December 2020 following the retirement of a third unit earlier in 2020. This would’ve left insufficient contingent capacity for the CaISO to meet various real-time grid security obligations, hence the RMR designation.

Further reading

Readers might be interested in the following articles which explore must-run requirements and proposed payment methods.

· Pipes & Wires #177 examined the various views around designating gas-fired generation in California as RMR.

· Pipes & Wires #138 examined the German regulators’ requirement to seek approval to close generation capacity.

· Pipes & Wires #119 examined who should pay for standby generation in Germany.

Ukraine – 35 years on from Chernobyl

Introduction

Next month (April) will be the 35^th anniversary of the explosion at the V I Lenin Chernobyl Power Station ... an event that many in Eastern Europe are still painfully reminded of. This article examines Chernobyl in detail and tries to uncover a bit more of what really happened there.

Some facts about Chernobyl power station

The station itself is 18km north-east of the city of Chernobyl, and at the time of the explosion in 1986 was supplying about 10% of the Ukraine’s electricity through the 330kV and 750kV grids. Construction began in 1970 and the first 4 RBMK-1000 reactors (rated at 3,200 MWt) were commissioned in 1977, 1978, 1981 and 1983 respectively. Reactors #5 and #6 that were under construction at the time of the explosion were rapidly abandoned.

Essentially the RBMK reactor is a graphite moderated, boiling water reactor (BWR) that was derived from a plutonium-producing military reactor. A critical feature of the RBMK is that when the cooling water boils to steam, its neutron absorbing capacity drops to near zero. This means more neutrons are available to fission the ²³⁵U nuclei, increasing the heat generation and in turn flashing more water to steam and further reducing the neutron absorption (giving the RBMK a very high positive void coefficient). A high positive void coefficient didn’t necessarily make the RBMK inherently unsafe as this runaway can take several seconds or even minutes, theoretically giving time to bring the reaction back under control.

Reactors #3 and #4 were second generation RBMK’s that had a number of improved safety features which reactors #1 and #2 did not have.

What actually happened on 26^th April 1986 ?

The explosion arose from an experiment to test whether the run-down of the turbine following a trip could provide sufficient electricity for the cooling water pumps while the auxiliary diesel generators were started and synchronised. Desk-top studies suggested it would work however 3 attempts to achieve this in practice over the 3 previous years had all failed.

At 1:23am on 26^th April 1986 a 4^th attempt at the experiment began by tripping the steam from reactor #4, which was followed by a run-down of the turbine and 4 of the 8 cooling water pumps. In the 39 seconds before the diesel generators were synchronised the cooling water flow dropped sufficiently to allow voids in the cooling water circuit to form. Although this started a positive feedback cycle, automatic control of the graphite control rods successfully reduced that increased heat generation. At 1:23:40am an emergency shutdown was initiated (and whether this was manual or automatic remains debated to this day). Unfortunately the design of the reactor resulted in cooling water being expelled a few seconds before the graphite rods filled the voids, resulting in a thermal runaway which was followed a few seconds later by an explosion accompanied by the last recorded power output of about 33,000 MWt (10x nominal rating). A 2^nd explosion followed, the precise cause of which remains undetermined.

Note that this was the 2^nd of 3 incidents that occurred, the first being a partial core meltdown on reactor #1 in 1981, and the third being a simple non-nuclear generator hydrogen leak on turbine #4 (associated with reactor #2).

What happened after the 26^th April 1986 ?

Seconds after the second explosion, the 2,000 ton upper plate of the reactor vessel was torn lose and blown off, and flaming material caused at least 5 separate fires on the bitumen-coated roof. Some 3 hours later at about 5:00am the reactor was shut down at the instruction of the night shift superintendent.

Evacuation of the nearby town of Pripyat began at 2pm on 27^th April, almost 37 hours after the explosion, however there was still no official word of the explosion until 3 days later on 29^th April when radiation alarms at Forsmark power station in Sweden were activated. To this day a 30km exclusion zone still exists around Chernobyl.

Network regulatory decisions

Aus – the Powerlink revenue determination

Introduction

Powerlink recently submitted its Regulatory Proposal (rate case) to the Australian Energy Regulator (AER) for the 5 year control period commencing on 1^st July 2022. This article sets some context for examining the AER’s draft and final decisions.

A bit about Powerlink

Powerlink owns and operates the high voltage transmission grid that stretches from the Gold Coast in the south to Cairns in the north, comprising 15,300km of lines and 140 grid substations. Powerlink is owned by the Queensland State Government, and has an annual revenue of about $700m.

Regulatory framework

The basis of the regulatory framework is Chapter 6a of the National Electricity Rules, which is made pursuant to the National Electricity Law.

Key features of the process to date

Key features of the Powerlink process to date include…

Parameter	Proposal	Draft Determination	Revised Proposal	Final Determination
CapEx	$864m
OpEx	$1,029m
Opening RAB	$6,958m
Post-tax nominal WACC	4.44%
Depreciation	$881m
Smoothed revenue	$3,565m

Pipes & wires will comment further once the AER releases its draft decision.

Industry reshuffling

India – consolidating distribution businesses

Introduction

Most of us are familiar with consolidation of distribution businesses … Pipes & Wires recent examination of Western Power Distribution in the UK is a good example. This article examines the planned consolidation of the non-Kolkata distribution subsidiaries of the RP-Sanjiv Goenka (RPSG) Group in India.

A bit about RP-Sanjiv Goenka

The RPSG Group is an industrial services group based in Kolkata with annual revenues of about US$4b. Its electric distribution businesses include the Calcutta Electric Supply Corporation (CESC), which in turn has 5 subsidiaries that hold distribution licenses outside of Kolkata…

· Noida Power Company Ltd (joint venture between RPSG and the Greater Noida Industrial Development Authority).

· Kota Electricity Distribution.

· Bikaner Electricity Supply Ltd.

· Bharatpur Electricity Services Ltd.

· Malegaon Power Supply Ltd.

In additional to these 5 distribution subsidiaries, there are also several coal mining and coal-fired generation subsidiaries.

The planned consolidation

It is proposed to consolidate the 5 subsidiaries into 1 business called Eminent Electricity Distribution to improve focus and strip out costs. Eminent will be a wholly-owned subsidiary of CESC with an annual revenue of about US$485m.

This consolidation represents a significant reversal of RPSG’s originally proposed strategy of inter alia demerging the distribution and generation businesses. Section 17(3) of the Electricity Act 2003 requires regulatory approval to either assign a license or transfer any part of a business, which the West Bengal Electricity Regulatory Commission declined to do.

South Africa – progress on splitting off Eskom transmission

Introduction

Previous issues of Pipes & Wires have examined Eskom’s proposal to split off the transmission business to inter alia provide third-party generators with confidence that grid access will be transparent with respect to Eskom’s own generation. This article examines recent progress.

Recent progress

Eskom has recently announced that it plans to complete the legal separation of its transmission business by the end of 2021, followed by legal separation of generation and distribution during 2022. A key issue will be the allocation of Eskom’s debt amongst the separated businesses.

Further reading