Pipes & Wires
From the editor’s desk…
Welcome
to Pipes & Wires #216 … this issue starts with a look at two grid security
issues in Australia, and then examines the raising of feed-in tariffs in
Germany.
We
then look at three network regulatory decisions in New Zealand and Australia,
and then examine how Texas survived the summer heat. This issue then closes
with a look at the full re-nationalisation of Electricité de
France. So … until next time, happy reading…
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Recent client projects
Recent
client projects include…
· Providing an independent assessment of
network condition and spend adequacy.
· 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.
· Compiling a client resilience framework
for an electric distribution 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.
· 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.
· Identifying best customer engagement
practices on behalf of an Australian distributor.
· Identifying learnings from the RIIO –
ED1 reset on behalf of an Australian distributor.
· Advising on the regulatory implications
of an aging timber transmission pole fleet.
· Compiling some introductory thoughts on
digital transformation and blockchain.
· Reviewing the AER’s recent treatment of
network transformation expenditure.
· Compiling overhead conductor and wooden
cross-arm fleet strategies.
Cool multimedia stuff
Cool
video clip – History of electricity
This 5 minute video clip
narrates the history of electricity, with observations being mainly around
static electricity such as electric eels until about the 1600’s when the
relationship between electricity and magnetism was identified. The science of
electricity really began to progress around 1750 when Benjamin Franklin
famously flew a kite during a lightning storm…
Energy mix and grid security
Aus –
closing coal-fired generation in Western Australia
Introduction
Pipes
& Wires #215 examined the
Queensland Government’s plans to keep all of its coal-fired generation
operating for the next 10 years. This article examines Western Australia’s
plans to close all of its coal-fired stations.
A bit
about WA’s coal-fired stations
Most of us probably understand that WA has
a standalone power grid known as the South-West Interconnected System (SWIS),
which has the following coal-fired stations…
· Muja – owned
by Synergy (the successor to Western Power), this plant currently comprise 4 operating
units totaling 855 MW. Units 1 to 4 (60 MW each) have previously been closed,
and units 5 and 6 (200 MW each) have already been planned for closure by
October 2022 and October 2024 respectively. Units 7 and 8 (225 MW each) continue
to operate.
· Collie – owned
by Synergy (the successor to Western Power), this plant comprises 1 unit
totaling 300 MW.
· Bluewaters – owned
by Sumitomo and Kansai Electric, this plant comprises 2 units totaling 415 MW.
· Worsley - owned
by BHP Billiton, this plant comprises 5 units totaling 216 MW.
WA also has a fleet of wind, hydro, solar,
biomass, gas-fired steam turbines, gas turbines and reciprocating gas engines.
Total installed capacity is about 5,300 MW.
The
planned coal closures
In mid-June 2022 the Premier Mark McGowan
announced the following closures totaling 750 MW…
· Collie,
scheduled for late 2027.
· Muja units
7 and 8, scheduled for late 2029.
That statement also announced…
· An
intention to invest $3.5b over the next 10 years to replace those stations,
including 800 MW of wind and 2,000 MWh of pumped storage and batteries.
· A
commitment to not commission any new gas-fired stations on the SWIS after 2030.
Further
reading
· Aus – no
plans to close coal-fired generation in Queensland (Pipes
& Wires #215).
· Aus –
suspending the wholesale market (Pipes
& Wires #215).
· Aus –
early closure of Eraring (Pipes
& Wires #212).
· Aus –
closing coal-fired generation (Pipes
& Wires #207).
· Aus –
the Liddell closure task force reports back (Pipes
& wires #201).
· Aus –
increasing concern over coal-fired closures (Pipes
& Wires #193).
· Aus –
closing coal-fired generation (Pipes
& Wires #191).
Aus – the
2022 AEMO statement of opportunities
Introduction
The Australian Energy Market Operator
(AEMO) has recently released its 2022
Electricity Statement Of Opportunities (ESOO),
with particular reference to the early retirement of Eraring. This article
examines the key features of the ESOO.
Key
features of the ESOO
Key features of the 2022 ESOO include…
· Signaling
the need to urgently build proposed generation, transmission and storage in
expectation that 5 coal-fired stations will close during the next decade.
· Insufficient
committed capacity to address the reliability gaps forecast in the 2021 Update.
· Increases
to the previously forecast consumption and maximum demands.
· The following forecast
reliability gaps as measured against the respective applicable reliability
measures…
· South
Australia in 2023/24.
· Victoria
from 2024/25.
· New
South Wales from 2025/26
· Indicative
reliability gaps across the NEM before the 2031/32 year.
· The
strong pipeline of renewables, storage, demand-side solutions and transmission
needs to be urgently built.
· Noting
that project commissioning delays are emerging, and risking grid security.
· Noting
that the 2022 Integrated System Plan is forecasting scenarios in which
additional generation closes.
Readers should note the following…
· The updated ESOO
published in April 2022 that noted the closure of several coal-fired power
stations sooner than expected.
· The suspending of the
wholesale market during the 2022 winter.
Further
reading
· Pipes
& Wires #215 – Aus suspending
the wholesale market.
· Pipes
& Wires #214 – Aus updated AEMO
statement of opportunities.
· Pipes
& Wires #212 – Aus early
closure of Eraring.
· Pipes
& Wires #208 – Aus future
energy scenarios.
· Pipes
& Wires #205 – Aus gas under
pressure on the East Coast
Regulating
emerging technologies
Germany – raising feed-in tariffs
Introduction
Feed-in
tariffs seem to be increasing in some jurisdictions (to promote rooftop solar
in particular), and declining in others (after being seen as an unnecessary
subsidy). This article examines the recent increases in solar feed-in tariffs
in Germany.
The proposed increases
Back
in July 2022 the Bundestag enacted a revised version of the Renewable Energy Act, which includes the following
features…
· Amending the Renewable Energy Act to
state that increasing renewable energy will be given priority over other
matters (including environmental concerns) until carbon neutrality is achieved.
· Introduction of two separate feed-in
tariffs, as follows (example based on 10kW)…
|
Tariff
component |
Feed-in
tariff |
|
Self-consumption,
surplus exported |
€0.086 |
|
Fully
exported (no self-consumption) – additional €0.048
payment applies |
€0.134 |
Reasons for the increases
A
key reason for introducing the higher rate for 100% export was rooftop solar
owners sizing their panels to meet their own kWh consumption, which was observed
to leave a lot of rooftop solar potential unused. This is seen as integral to
achieving Germany’s renewable energy targets
Further reading
· Pipes & Wires #213 – Germany – the new governments’
energy and climate priorities.
· Pipes & Wires #212 – Aus – solar curtailment in the West.
· Pipes & Wires #209 – Aus – introducing dynamic solar
exports
· Pipes & wires #205 – Aus – centralised control of rooftop
solar
Network regulatory decisions
NZ –
recent cost of capital decisions
Introduction
The Commerce Commission recently released the cost of capital
determinations that will apply to the following regulated
infrastructure…
·
Vector and GasNet’s distribution pipeline businesses.
·
Transpower.
·
Christchurch and Auckland Airports.
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 3.5.1 to 3.5.8 of the Transpower Input
Methodologies Determination 2010 (consolidated to January 2020).
·
Clauses 5.1 to 5.7 of the Airport Services Input
Methodologies Determination 2010 (consolidated to December 2016).
Key features of the Vector
and GasNet distribution pipeline WACC’s
Key features of the WACC’s include…
|
Parameter |
25th percentile |
Mid-point |
67th percentile |
75th percentile |
|
Vanilla WACC |
6.00% |
6.70% |
7.17% |
7.41% |
|
Post-tax WACC |
5.38% |
6.09% |
6.55% |
6.79% |
Key features of the
Transpower WACC
Key features of Transpower’s WACC’s include…
|
Parameter |
25th percentile |
Mid-point |
67th percentile |
75th percentile |
|
Vanilla WACC |
5.49% |
6.17% |
6.62% |
6.85% |
|
Post-tax WACC |
4.87% |
5.55% |
5.99% |
6.23% |
Key features of the
Christchurch and Auckland Airport WACC’s
Key features of the Wellington and Auckland Airport WACC’s include…
|
Parameter |
Mid-point |
|
Vanilla WACC |
7.24% |
|
Post-tax WACC |
6.98% |
Aus – the Powerlink final revenue decision
Introduction
The Australian Energy Regulator
has released its final
decision for Powerlink for the
5 year control period commencing on 1st July 2022. This article (belatedly)
examines the key features of that final decision.
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 |
$864m |
$882m |
$882m |
|
OpEx |
$1,029m |
$1,119m |
$1,071m |
$1,159m |
|
Opening RAB |
$6,958m |
$6,983m |
$7,140m |
$7,158m |
|
Post-tax nominal WACC |
4.44% |
4.65% |
4.65% |
5.08% (vanilla) |
|
Depreciation |
$881m |
$947m |
$843m |
$818m |
|
Smoothed nominal revenue |
$3,565m |
$3,652m |
$3,680m |
$3,804m |
This concludes Pipes & Wires
analysis of the Powerlink revenue reset.
NZ – transitioning Powerco back to the
DPP
Introduction
Powerco’s
electricity lines business is currently subject to a Customised Price-Quality
Path (CPP) which expires on 31st March 2023. This article examines
the Commerce Commission’s Electricity Distribution Services Default
Price-Quality Path (Powerco transition) Amendments Determination 2022.
A bit about Powerco’s CPP
Powerco’s CPP allowed it to spend $1.27b over the 5
year period from 1st April 2018 to 31st March 2023.
Powerco had proposed to spend $1.32b over that 5 year period, which was a
significant step-up from the $937m spent over the previous 5 year period from 1st
April 2013 to 31st March 2018.
Regulatory framework
The
regulatory framework for CPP’s is set out in Sub-Part 6 of Part 4 of the Commerce Act 1986.
Key features of the draft decision
Key
features of the draft decision include…
· An allowable revenue of $319.723m for
FY24.
· An allowable revenue of $326.118m for
FY25.
· An annual rate of change of 0%.
· Forecast OpEx of $114.129m for FY24 and
$119.800m for FY25.
Pipes
& Wires will comment further once the final decision emerges. As always,
interested parties should read the decisions in full.
Further reading
· NZ – transitioning Powerco back to the
DPP (Pipes & Wires #215).
· NZ – the final decision for Powerco’s
CPP (Pipes & Wires #174).
· NZ - Wellington Electricity’s
customised price path (Pipes & Wires #172).
· NZ – the final decision on Orion’s
return to the DPP (Pipes & Wires #158).
Energy
markets and pricing
US – the
Lone Star State survives the heat
Introduction
Pipes & Wires has been examining the
declining security of supply margin in the Texas ERCOT market for the last few
years. This article examines how Texas coped with the summer of 2022 as demand
climbed to 79,000 MW.
The
summer of 2022
The summer of 2022 has seen ERCOT
requesting customers to reduce demand (including not charging EV’s), which is
standard procedure when the margin is forecast to drop below 2,300 MW for than
one ½ hour period. Key reasons for the decline in margin include…
· Decline
in wind generation.
· Less
fossil-fired generation than ERCOT forecast in its Seasonal Assessment of
Resource Adequacy.
· Increased
air conditioning demand as temperatures spiked.
The demand reduction response included
1,000 MW of industrial load shedding for about 3½ hours, and ERCOT was able to
maintain a margin of 1,150 MW.
The
financial implications
Most of us appreciate that wholesale prices
rise as the security of supply margin declines, which generally means higher
revenues and profits for those generators that are unhedged. Estimates of those
profits are around $10m of EBITDA for each hour the ERCOT grid operates at
$5,000 per MWh.
Further
reading
· Pipes
& Wires #213 – US – reforming
the Texas market to prevent future blackouts
· Pipes
& Wires #206 – US – moving on
from the Lone Star blackouts
· Pipes
& Wires #205 – US – winter
security in the Lone Star State.
Industry reshuffling
France – fully re-nationalising EDF
Introduction
Most of us
will be familiar with Electricité de France (EDF) but probably never thought
much about it not being fully state-owned (spoiler alert – it’s not, the French
government only owns 84%). This article examines the French Government’s
recently announced plans to buy the 16% of shares that it doesn’t already own.
The proposed purchase
The French
Government proposes to pay about €9.7b for that 16% stake, or about €12 per
share. Although that €12 per share represented a 30% premium at the time of
announcement, it is still a long way short of the EDF’s listing price of €32
per share back in 2005 (and in all fairness, those shares did reach a high of
€76 in 2007).
It is
reported that the Government would prefer that people voluntarily sold their
shares back to the Government rather than being forced to by legislation.
The reasons for the purchase
The
publically stated reasons for the purchase include…
· Giving the
Government more ability to restructure EDF.
· Strengthening
the security of France’s electricity supplies as Europe struggles with reduced
imports of Russian gas.
· A view that
the market is ailing (or possibly failing), as reduced Russian gas supplies
increase Europe’s wholesale prices relative to the French Government’s
self-imposed price cap. The bigger picture appears to be that a fully
nationalised EDF could end up providing electricity below cost as a social
services.
· Managing its
aging fleet of reactors, along with the cost over-runs of new reactors (of
which it plans to build more over the next 20 years).
· A shift in
the patterns of Frances electricity import and exports, noting that France
would normally be exporting around the northern autumn but is currently
importing.
Next steps
Pipes & Wires will comment further as the
re-nationalisation process progresses.
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
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