Pipes & Wires
From the editor’s desk…
Welcome
to Pipes & Wires #209, which starts with a look at regulating solar exports
in Australia. We then examine phasing out of coal in Germany, and consider
whether hydrogen-fired gas turbines might beat batteries.
After
examining an Australian electricity transmission revenue decision, we end this
issue by considering industry reshufflings in Australia and the US. So … until
next month, happy reading…
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Recent client projects
Recent
client projects include…
· Developing an asset lifecycle risk
strategy for an electric distribution company.
· Identifying a range of structural and
service delivery models for an electric company.
· Identifying the global and regional
trends facing transmission grid operators for a US client.
· 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
Building
NZ’s electric system
The next few issues will include links to
some videos of building NZ’s electric system … this grainy black-and-white
video copied off an 8mm
film shows the construction of the 90 MW Karapiro hydro station near Cambridge
during the 1940’s. With a total population of only 1,700,000 (of whom about
140,000 were away fighting the war) we built…
· Karapiro –
1940 to 1947. · Tekapo
A – 1938 to 1951
(recess from 1942 to 1944). · Highbank –
1939 to 1945. |
· Cobb –
1937 to 1944. · Piripaua –
1939 to 1943. · Kaitawa –
1943 to 1948. |
That’s an impressive record for a small
country that then went on to build a whole heap more hydro, coal and geothermal
stations during the 1950’s.
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.
Radiohead cover … by my awesome
daughter
Pick this link to see my awesome daughter Becca Caffyn singing Radiohead’s "High And Dry" off the 1995
album The Bends.
Regulating
emerging technologies
Aus –
introducing dynamic solar exports
Introduction
One of the 12D’s of
the emerging distribution network is
Decentralisation, which now appears to also have an increasing component of
centralisation. This article examines the centralised coordination of rooftop
solar using the introduction of dynamic solar export in South Australia as a
starting point.
What
exactly is dynamic export ?
Put simply, dynamic export is the
centralised control of rooftop solar inverters being centrally instructed when
they can export to the network, and how much. The key reasons for needing to
limit solar injection are to prevent component overload and ensure grid
stability, which is no different to a TSO instructing a large steam or hydro
generator to reduce generation.
The
proposed introduction of dynamic export in South Australia
The Australian Energy Market Operator (AEMO) already
has the authority to curtail rooftop solar export to ensure grid stability. In
contrast to this simple curtailing of solar exports to address overall grid
stability, dynamic export will allow more localised congestion to be reduced by
centralised ramping of inverters.
A recent virtual
power plant (VPP) trial in South Australia
has revealed that all of the 1,000 participating rooftop solar customers were
able to export more into the network than if they had operated within SA Power
Networks’ fixed 5kW per phase export limit. The expected benefits include…
· Avoiding
network capacity augmentation.
· Providing
frequency control ancillary services (FCAS).
· Additional
export revenue for solar customers.
A start
date of 1st July 2022 for
inclusion of dynamic export functionality has been proposed.
Further
reading
· Pipes
& Wires #205 – centralised
control of rooftop solar.
· Advanced
VPP grid integration.
Energy mix and grid security
Germany – phasing out coal
Introduction
Obtaining
an orderly exit from coal-fired generation that correctly balances supply
security, prices and emission reductions is obviously a major strategic
challenge for many electric companies. This article examines Germany’s recently
enacted Coal
Phase-Out Act.
Key features of the Coal Phase-Out Act
Key
features of the Act include…
· Prohibiting
the start of any new coal-fired generation after 14th August 2020,
unless a license to operate was granted before 29th January 2020.
· Requiring
the national fleet of anthracite-fired generation to reduce to 15,000 MW by
2022, to 8,000 MW by 2030 and to be fully closed by 2030.
· Requiring
the national fleet of lignite-fired generation to reduce to 15,000 MW by 2022,
to 9,000 MW by 2030 and to be fully closed by 2038.
· Reviewing
these phase-out schedules in 2026, 2029 and 2032 to determine whether full
closures can be achieved by 2025.
· Designating
the Garzweiler
lignite mine as essential to
securing electricity supply, and allowing it to operate until 2038.
· Paying
workers aged 58 and older who lose their jobs for up to 5 years.
· Amending
the Renewable
Energy Sources Act to raise the
percentage of renewable generation to 65% by 2030.
In
parallel, the Structural
Support for Coal Regions Act
provides for the following…
· Providing
€14b of aid to lignite-mining regions until 2038.
· Providing
€1b of aid to anthracite-mining regions until 2038.
· A
further €26b of aid to all coal mining regions to support infrastructure
development and job creation.
Balancing the energy trilemma
We now
consider how the coal phase-out might impact each dimension of the energy
trilemma…
· Emissions
reduction – this will only occur if every coal-fired kWh is replaced by
renewables. If those kWh are simply replaced by imported coal-fired kWh no
global emissions reduction will occur.
· Security
of supply – the evidence from the Australian NEM is that security of supply
declined as major coal-fired plants were closed. The long phase-out period
suggests that the German authorities might be nervous about security of supply.
· Price –
again, the evidence from both Europe and the Australian NEM is that wholesale
prices rose when nuclear and coal-fired generation was withdrawn from the
market.
Further reading
· Pipes
& Wires #207 – closing
coal-fired generation.
· Pipes
& Wires #138 – closing generation
capacity.
· Pipes
& Wires #131 – coal makes a
come-back.
· Pipes
& Wires #129 – slowing the
transition to renewable energy.
· Pipes
& Wires #102 – phasing out the
phase out of the phase out.
Global – could hydrogen-fired gas turbines
beat batteries ?
Introduction
Pipes
& Wires has previously examined the emerging battle between gas turbines
and batteries for the peaking market. This article examines recent news that
hydrogen-fired gas turbines could squeeze out Lithium-Ion batteries.
The engineering aspects
Firing
gas turbines on a mix of gas and hydrogen appears to be well established, with
at least some models of turbines also being capable of full hydrogen firing.
Possible advantages
Lithium-ion
batteries are playing a significant role in buffering renewable energy, however
two of the recognised limitations are…
· The
emerging view that whilst batteries can provide buffering for minutes or hours,
they appear to have a limited ability to provide inter-seasonal buffering eg. storing summer solar electricity for release in winter.
· Batteries
must be fully charged at the start of a peak period, and eventually go flat (in
contrast to generation, which can keep supplying).
Indicative
levelised costs per MWh for both green and blue hydrogen-fired gas turbines are
below that of Lithium-ion batteries, and are expected to decline further as
hydrogen infrastructure is built.
Further reading
· Pipes
& Wires #188 – what future hath
gas turbines ?
· Pipes
& Wires #187 – setting an end
date for gas turbines
· Pipes
& Wires #184 – batteries versus
gas turbines
· Pipes
& Wires #177 – replacing gas
turbines with batteries
· Pipes
& Wires #175 – will batteries
displace gas turbines for peaking ?
Global –
WEC trilemma rankings
Introduction
The
World Energy Council recently released its 2021 Energy Trilemma Index. This article examines the underlying
principle of the Trilemma and refreshes the 2020 trilemma results from Pipes & Wires #202.
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…
|
|
2021
index |
2020
index |
||||||
Rank |
Country |
Score |
Security |
Equity |
Sustainability |
Score |
Security |
Equity |
Sustainability |
1 |
84.2 |
5 |
19 |
2 |
84.2 |
6 |
28 |
2 |
|
2 |
83.8 |
24 |
6 |
1 |
84.3 |
24 |
9 |
1 |
|
3 |
83.0 |
11 |
10 |
7 |
84.0 |
4 |
15 |
10 |
|
4= |
81.7 |
2 |
21 |
19 |
82.1 |
2 |
31 |
22 |
|
4= |
81.7 |
19 |
9 |
10 |
81.7 |
17 |
14 |
11 |
|
5= |
81.0 |
16 |
10 |
12 |
82.1 |
12 |
14 |
12 |
|
5= |
81.1 |
17 |
16 |
8 |
81.7 |
18 |
21 |
5 |
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 |
Key
features |
Security |
80.6 |
· Significant indigenous primary
energy. · Diverse generation portfolio. · Emerging concerns about long-term
affordability. |
|
Equity |
69.5 |
· Emphasis on universal access and
affordability. · Diverse generation with high system
reliability. |
|
Sustainability |
83.8 |
· Increased low-carbon generation. · Reduced overall energy intensity. · Strong energy security, supported by
low dependence on imports. |
A bit closer to home
The
rankings a bit closer to home are…
|
2021 |
2020 |
||||||||
Country |
Rank |
Score |
Security |
Equity |
Sustainability |
Rank |
Score |
Security |
Equity |
Sustainability |
9 |
79.1 |
28 |
17 |
18 |
10 |
79.5 |
29 |
24 |
18 |
|
18 |
74.6 |
30 |
12 |
59 |
25 |
75.4 |
34 |
17 |
60 |
Unfortunately, New Zealand’s energy
security has declined since 2020 due to declining diversity and increasing
reliance on fuel imports.
Network regulatory decisions
Aus – the
AusNet transmission revenue determination
Introduction
The Australian Energy Regulator
is currently resetting AusNet Services electricity transmission revenue for the
5 year control period commencing on 1st April 2022. This article
examines the AER’s draft decision.
A bit about AusNet’s electricity transmission business
AusNet Services owns and
operates the 500kV and 220kV transmission networks in the Australian state of
Victoria, with an annual revenue of about $530m.
In addition, AusNet also owns
and operates an electricity distribution network supplying 737,000 customers
and a gas distribution network supplying 710,000 customers. AusNet is 32.2%
owned by Singapore Power, 19.9% owned by State grid Of China, and 48%
publically owned.
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 AusNet
electricity transmission process to date include…
Parameter |
Revised Proposal |
Final Determination |
||
CapEx |
$796m |
$754m |
|
|
OpEx |
$1,371m |
$1,318m |
|
|
Opening RAB |
$3,582m |
$3,546m |
|
|
Nominal vanilla WACC |
4.44% |
4.76% |
|
|
Regulatory depreciation |
545m |
$560m |
|
|
Smoothed revenue |
$2,646m |
$2,675m |
|
|
Pipes & wires will comment
further once AusNet submits its revised proposal.
Industry reshuffling
Aus – AGL Energy proposes demerger
Introduction
Structural separation of businesses to
release value is certainly a popular theme. This article examines the proposed
demerger of Australian electricity and gas company AGL Energy.
A bit about AGL
AGL began as the Australian Gas Light
Company in Sydney in 1837, and listed on the Sydney Stock Exchange sometime
around 1871. From those simple beginnings, AGL has grown into an integrated
energy services company supplying 4,200,000 electric and gas customers and
operating a portfolio of coal and renewable generation totalling almost 11,000
MW (which supplies about 20% of the National Electricity Market).
AGL’s proposed demerger
The proposed demerger will
firstly involve a name change to Accel Energy, and then the separation of the
energy retailing business which will retain the AGL Energy Australia Ltd name.
The businesses separations will include…
· Accel Energy will retain the coal-fired generation,
some gas storage, some wind generation and some batteries.
· AGL Energy will retain gas-fired generation, hydro
generation, solar generation, some gas storage, some wind generation and some
batteries.
A key strategy of Accel Energy will be
migration away from coal-fired generation, which is a now a well-established
global strategy. Pipes & Wires will comment further as the demerger
progresses.
The strategy behind the bid
As noted in Pipes & Wires #208,
investment strategies over the last 15 years or so have shown the following…
· A divergence of the regulated cash returns from lines
businesses and the growth prospects of energy businesses. This was very clear
in Germany as electric companies like E.On and RWE divested their transmission
grids (stable, regulated earnings) to focus on generation and retail
(unregulated growth opportunities).
· A divergence between thermal and renewables within
energy businesses, as generators sought to distance themselves from perceived
dirty energy and sought the emerging high returns of renewables.
· A further divergence within renewables, between hydro
and wind / solar eg. the Trustpower demerger in
2016.
· A possible re-converging of lines and wind / solar,
combining the regulated cash returns (attractive to pension funds) and the
emerging high returns of solar.
Further reading
· Pipes & Wires #208 – Spark Infrastructure accepts takeover offer.
· Pipes & Wires #207 – Mercury enters binding agreement to acquire
Trustpower’s retail business.
· Pipes & Wires #206 – Demergers in the quest for value.
US – merger based on clean energy
Introduction
Pipes & Wires #202 examined the proposed merger of Avangrid and PNM Resources to
create “one of the biggest clean energy companies” in the United States. This
article examines the merger partners’ recent engagement with the New Mexico Public Regulation Commission.
Recapping the proposed merger
The merger of Avangrid’s 3,100,000
electric and gas customers across New York, Maine and
Connecticut with PNM Resources 790,000 electric customers across northern New
Mexico and western Texas would create a merged company supplying about
3,600,000 regulated electric and gas customers across 5 states, but would also
have renewable energy operations in 24 states. 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.
Regulatory approvals required
In addition to the usual state, FERC, NRC
and FCC approvals, antitrust and foreign investment approvals are also required
due to Avangrid’s foreign parent. A further lengthy list of stakeholders were
included as intervenors, and has resulted in the merger partners agreeing to
provide $133.5m of customer credits and economic development funding.
Recent engagement with the New Mexico PRC
It is reported that the PRC has agreed not
to oppose the merger in exchange for specific service quality commitments from
Avangrid, which appear to be in response to declining service and supply
reliability in both PNM and Avangrid’s legacy service territories. Those
service quality commitments are based on PNM’s SAIDI and SAIDI over the period
2013 to 2017, and include
· A starting $340,000 penalty for exceeding the average
by more than 10% for 2 consecutive years, which would increase to $510,000 for
a third year.
· A further $34,000 penalty for each additional percentage
over the 10% threshold, which would increase to $51,000 for a third year.
Pipes & Wires will pick up this story
again as the final regulatory approvals are obtained.
Aus – Brookfield makes non-binding bid for AusNet
Introduction
As noted in Pipes & Wires #208, Brookfield Asset Management recently made a
non-binding bid of A$9.6b for 100% of AusNet Services.
This article examines that non-binding bid more closely.
A bit about AusNet
AusNet owns the following businesses…
· The high voltage transmission grid across the state of
Victoria, which includes plans for new connections to renewable energy projects
in western Victoria.
· The electricity distribution network in the northern
and eastern suburbs of Melbourne, and across eastern and north-eastern Victoria
as far as the NSW border.
· The gas distribution networks in western Melbourne and
across central and western Victoria.
· A technology services business (Mondo).
AusNet’s current owners include Singapore
Power International (32.3%), State Grid Corporation Of
China (19.9%) with the remaining 48% being publically owned.
Brookfield’s non-binding bid
Brookfield’s A$2.50
per share bid in mid-September 2021 followed two previously rejected bids of
A$2.35 and A$2.45 respectively, and values AusNet at A$9.6b. AusNet’s share
price increased to A$2.36 when the latest offer was
announced. Acceptance would require the approval of either of the two main
shareholders, as well as by the Foreign Investment Review Board.
APA makes an offer
In late September 2021 energy
infrastructure owner APA made a A$10b bid for AusNet,
however Brookfield had already secured an exclusive 8 week due diligence period.
APA challenged that exclusivity at the Takeovers Panel, and in late breaking
news as this issue goes to print has been granted due diligence by AusNet. A
bid by APA is likely to face competition scrutiny from the Australian
Competition & Consumer Commission (ACCC) due to APA’s already extensive
asset footprint.
Similar to the KKR-led takeover of Spark
Infrastructure, decarbonisation is an obviously attractive component of the
bids for AusNet.
And off to the side…
Pipes & Wires #208 also noted that Sydney Airport rejected a A$22b bid from IFM Investors. A further bid of A$23.6 was
made in mid-September 2021, which has allowed IFM to begin due diligence. This
bid is likely to concern the Australian Competition & Consumer Commission
(ACCC) due to IFM’s ownership stakes in Melbourne, Brisbane, Adelaide and
Darwin Airports.
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.
Extending
the above, a second collection of classic historical photo’s with humorous
captions looks at some topical issues of regulating emerging technologies. 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,
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