Pipes & Wires
From the editor’s desk…
Welcome
to Pipes & Wires #219 … this issue starts by examining some grid security
issues in the US and Australia, and then examines two regulatory decisions in
Australia and South Africa.
We
then examine the development of a market mechanism for battery storage in the
Philippines and some merges and asset sales. This issue then concludes with
another look at how regulators are treating grid modernisation spend.
So … until next time, happy reading…
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Recent client projects
Recent
client projects include…
· Assessing the strength of an EDB’s
organizational culture, work process and asset management practices.
· 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 – gas turbine locomotives
Taking a slight break from cool electricity
stuff, this 23 minute video clip
features the gas turbine electric locomotives developed by General Electric and
the American Locomotive Company in 1948 for the Union Pacific Railroad. The
introduction of these loco’s to replace steam, and their eventual replacement
by diesel mirrors in part the repowering of Lots Rd power station in England as
coal, oil and gas prices varied (Pipes
& Wires #218).
Energy mix and grid security
US – building a new gas plant
Introduction
Most of
us probably think that the Tennessee Valley Authority is all about hydro, built
during the 1930’s depression years, but actually the TVA has a diverse generation
fleet of hydro, coal, gas, nuclear and solar. This
article examines the TVA’s plans to replace a coal-fired station with a gas-fired
station in the context of (i) recent winter storms and forecast generation
shortfalls, and (ii) the broad trend of coal being replaced by renewables.
The winter storms and forecast generation
shortfall
Prolonged
cold weather over the 2022/23 northern winter forced some of the TVA’s coal-fired
and gas-fired generation off-line (readers will note that similar events
happened in Texas about 14 months ago).
More
broadly, the recent Long-Term
Reliability Assessment by the North
American Reliability Corporation (NERC) has highlighted several regions (but
not the TVA’s service area) as having a high risk of blackouts during extreme
weather. NERC has emphasised the importance of resilient base-load generation,
and has also expressed concern about the rapid pace of coal-fired closures
leading to declining reserve capacity margins.
Closure of the Cumberland coal-fired
station
Cumberland
comprises two coal-fired 1,235 MW steam turbines, both commissioned in 1973.
Annual generation is about 16,000 GWh, and coal burn is about 20,000 tons per
day on full load. The two units will be retired by the end of 2026 and the end
of 2028 respectively as part of an emissions
reduction plan.
The proposed new gas-fired plant
The
proposed gas-fired station will replace most of Cumberland’s retiring 2,470 MW,
and will include a 32 mile gas transmission pipeline.
Replacing coal with gas ?
Replacing
coal with gas does seem a bit unusual in a world that replaces coal with
renewables, and this has understandably enraged environmental advocates. TVA’s
response embodies two key themes…
· Reliable
base-load energy is needed, as the NERC study concludes.
· Critics
of the proposed gas-fired station ignore TVA’s plans for building 10,000 MW of
solar and its market solicitation for a further 5,000 MW of clean energy.
Pipes & Wires will closely watch the
regulatory approvals for the proposed gas-fired station, and in particular how
much weight is given to the TVA’s arguments for base-load security.
Aus –
updating the Electricity Statement Of Opportunities
Introduction
The Australian Energy Market Operator (AEMO)
regularly publishes an Electricity Statement Of
Opportunities which sets out inter alia
forecasts of available generation capacity. This article examines the AEMO’s February
2023 Update to the August
2022 ESOO, and provides a
forecast out to the 2026/27 year and an indicative forecast out to the 2031/32
year.
The
headline conclusions
The headline conclusions from the Update
include…
· Expected
unserved energy* (USE) will fall within the acceptable standard of 0.0006% for
all regions within the NEM until the 2024/25 year.
· Expected
USE is forecast to exceed the acceptable standard of 0.002% in all regions of
the NEM within the indicative forecast period of 2027/28 to 2031/32.
* The
accepted standard is for USE to be
no more than 0.002% of forecast energy throughput subject to a lesser standard
of 0.0006% until the end of the 2024/25 year.
The media and opposition politicians have
been a little more forceful in their language, including phrases such as “brace
for blackouts”.
Key features
of the February 2023 update
Key features of the February 2023 update
include…
|
Operator |
Asset |
Change from August 2022 ESOO |
Market impact |
|
AGL |
Torrens Island B |
Expected closure bought forward from 2035
to 2026. |
Withdrawal of 800 MW of secure generation
9 years early. |
|
Origin |
Osborne |
Delay expected closure from 31st
December 2023 to 2026. |
Retention of 180 MW of secure generation
for 2˝ to 3 years. |
|
Infigen |
Bolivar |
Committed, expected to be available over
the 2022/23 summer. |
Addition of 123 MW of secure generation
any time now. |
|
Snowy |
Snowy 2.0 |
Delay commissioning from December 2026 to
December 2027. |
Delay addition of 2,000 MW of secure,
quick-start generation and 350 GWh of storage by 1 year. |
|
Snowy |
Kurri Kurri |
Delay commissioning from December 2023 to
December 2024. |
Delay addition of 660 MW of secure,
quick-start generation by 1 year. |
|
NSW Government. |
Waratah |
Committed, expected to be available by
late 2025. |
Addition of 700 MW / 1,400 MWh of battery
storage. |
Additional smaller commitments totaling 461
MW of batteries and 1,326 MW of wind are also noted. As always, those with a
deep interest in this matter should read all the documents in full.
Further
reading
· Pipes
& Wires #218 – AGL to complete
coal exit by 2035.
· Pipes
& Wires #216 – the 2022 AEMO
statement of opportunities.
· Pipes
& Wires #215 – no plans to
close coal-fired generation.
· Pipes
& Wires #214 – the updated AEMO
statement of opportunities.
· Pipes
& Wires #212 – early closure of
Eraring.
Network regulatory decisions
South
Africa – pruning Eskom’s revenue proposal
Introduction
South Africa’s state-owned electric company
Eskom is
currently subject to the Fifth Multi-Year Price Determination (MYPD5) set by
the National Electricity Regulator NERSA. This article examines NERSA’s recent
pruning of Eskom’s revenue proposal for the years ending 31st March
2024 and 31st March 2025.
Regulatory
framework
Eskom’s regulatory framework is based on
the Electricity
Regulation Act 4 of 2006, and inter alia requires a revenue
application to comply with a methodology that has been previously consulted
upon and approved by NERSA, and which remains in place until replaced by an
approved alternative methodology.
NERSA’s
decisions
NERSA’s decisions are as follows…
|
Year ending |
31st March 2024 |
31st March 2025 |
|
Eskom’s proposed revenue increase |
32% |
22.52% |
|
NERSA’s approved revenue increase |
18.65% |
12.74% |
This is on the back of previous decisions
that have also pruned Eskom’s proposals.
Further
reading
· Pipes
& Wires #194 – proposed break
up of Eskom.
· Pipes
& Wires #197 – court dismisses
Eskom’s request for urgent relief.
· Pipes
& Wires #198 – Eskom recovers
additional revenue.
· Pipes
& Wires #202 – splitting off
Eskom’s transmission.
· Pipes
& Wires #210 – regulator
rejects Eskom’s MYPD5
· Pipes
& Wires #211 – Eskom wins court
case against NERSA.
Energy
markets and pricing
Philippines
– a market mechanism for battery storage
Introduction
Most of us appreciate the importance of
correct regulatory settings for all aspects of the supply chain. This article
examines the recently announced Battery
Storage Market Mechanism for the
Philippines Electricity Market.
Key
features of the framework
The framework report sets out 25
recommendations, which includes…
· Requiring
battery operators to disclose technical parameters such as maximum charge and
discharge rates, and maximum depth of discharge, along with annual updates.
· Making
the registration process more technology-neutral by focusing on its terminal
electrical parameters such as directionality and discharge rates.
· Treating
pumped storage as dispatchable demand.
· Increasing
the number of pricing bands to ensure batteries are competing evenly with
generators and demand reduction.
· Amend
the rules to allow the System Operator to instruct all batteries to stop
charging in emergencies.
The
wider Philippines electricity industry
The Philippines electricity industry is
based around three separate grids on the respective island of Luzon, Visayas
and Mindanao, with the following features…
· Generation
totals about 20,000 MW, with about 43% coal, 24% gas, 13% geothermal and 12%
hydro.
· Transmission
is a revenue-regulated state-owned monopoly.
· Distribution
is revenue-regulated, and is by a mix of municipals, private companies and
cooperatives.
· The wholesale
market is overseen by the Philippine
Electricity Market Corporation.
Aus –
introducing a solar tax
Introduction
Readers probably well remember the battles
in various US states around introducing fixed monthly charges, which the solar
lobby claimed undermined the value of rooftop solar (which it undoubtedly did).
This article picks up a similar theme in Australia, where charges have been
proposed for excessive injection in the middle of the day along with rewards
for injection in late afternoon.
Key
features of the solar tax
The key feature of the solar tax is the
proposed introduction of charges for injecting more than a specified threshold
into the networks owned by Ausgrid, Essential Energy, and Endeavour Energy in
an effort to ease network congestion. The proposal also offers to reward
customers who inject into the network in the late afternoon as demand
increases…
|
Distributor |
Threshold |
Export charge |
Export reward |
|
EvoEnergy |
5kW in any single hour |
1.642 c/kWh between 11am and 3pm |
4.926 c/kWh between 5pm and 8pm |
|
Ausgrid |
2,500kWh / year |
1.18 c/kWh between 10am and 3pm |
2.19 c/kWh between 4pm and 9pm |
|
Endeavour Energy |
2kW in any month |
3.6 c/kWh between 10am and 2pm |
Either 3.336 c/kWh or 11.03 c/kWh between
4pm and 8pm (seasonal) |
|
Essential Energy |
1.5kW in any month |
0.94 c/kWh between 10am and 3pm |
13.67 c/kWh between 5pm and 8pm |
Further
reading
· Pipes
& Wires #216 – Germany –
raising feed-in tariffs.
· Pipes
& Wires #212 – Aus – solar
curtailment in the West.
· Pipes
& Wires #209 – Aus –
introducing dynamic solar exports.
· Pipes
& Wires #208 – Aus – becoming indifferent
to energy direction.
Industry reshuffling
Global –
Brookfield’s recent deals
Introduction
Brookfield Corporation is an
investor in long-life infrastructure and energy assets, with about $725b of assets
under management. This article examines two of Brookfield’s recent deals.
Brookfield’s
bid for Origin Energy
In conjunction with EIG Global Energy Partners,
Brookfield launched an A$15.5b bid for Australia’s Origin Energy,
representing a 55% premium over Origin’s closing stock price. This offer was
subsequently pruned to $15.3b, due in part to the imposition of a 12 month
price cap on coal and retail gas.
It is intended that Origin will be broken
up, with Brookfield taking the retail electricity business and EIG taking the
gas and LNG assets.
Brookfield’s
bid of FirstEnergy’s regulated transmission
Brookfield recently acquired a 30% stake in
FirstEnergy’s
FERC-regulated transmission subsidiary FirstEnergy Transmission (FET) for
$3.5b, lifting Brookfield’s stake to 49.9%. This latest acquisition values FET
at about $11.7b, and suggests a PE ratio of about 27.
FET is the holding company for American Transmission Company,
Mid-Atlantic Interstate Transmission and the Trans-Allegheny Interstate Line
Co.
The
emerging strategies and trends
The following strategies and trends have
been identified…
· FirstEnergy
– retire debt, and recycle capital through its fixed assets.
· Brookfield
– capture the electricity generation and retail transition.
· EIG –
capture an LNG export business that is riding high on global gas prices.
· Origin
Energy – to lead
the energy transition through cleaner
energy and customer solutions.
US – AEP
sells unregulated renewables
Introduction
A couple of recent deals in the US have a
focus on de-risking the business, either the vendor’s business or the
purchaser’s business. This article examines American Electric Power’s recent
sale of its unregulated wind and solar business.
A bit
about AEP
American Electric Power owns and operates
31,000 MW of generation supplying 5,600,000 customer in 11 states through
225,000 miles of lines. Key goal areas include having about 50% of its
generation to be renewable by 2032 whilst also selling its competitive retail
energy business.
The deal
AEP agreed to sell its unregulated,
contracted 1,200 MW of wind and 165 MW of solar to IRG Acquisition Holdings for
a consideration of $1.2b in cash and the assumption of $300m in debt.
Strategy
and emerging trends
A key strategy of AEP as the vendor is to
de-risk their own business and priortise investment in its regulated wires and
generation businesses.
Further
reading
· Pipes
& Wires #218 – Brookfield’s
recent deals.
· Pipes
& Wires #217 – refocusing on
the regulated wires business.
· Pipes
& Wires #213 – selling
unregulated renewable generation.
Regulating
transformation spend
US – examining grid modernisation spend
Introduction
Pipes
& Wires #218 continued the
examination of grid modernisation proposals (rate cases), and specifically
looked at the reasons for rejecting some or all of the proposed spend. This
article examines 1 more grid modernisation proposal, and augments the table
from Pipes & Wires #218 to identify any emerging trends.
AEP Ohio
Key features of AEP
Ohio’s $2.2b, 6 year electric security plan include…
· Replacing
350 transformers, 475 circuit breakers and 560 regulators that are expected to
reach the end of their expected lives by 2032.
· Improving
the reliability of 247 circuits where customers have experienced 5 or more
supply interruptions over the last 3 years.
· A pilot
program to use generators and batteries to restore supply after faults.
Some
specific cases
Some specific cases of grid modernisation
expenditure being pruned include…
|
Applicant(s) |
Purpose |
Sought |
Approved |
Key reasons for rejection |
|
AEP Ohio |
Targeted reliability improvements,
planned asset replacement |
$2.2b |
TBC |
|
|
Public Service of New Mexico |
Smart meters, network reinforcement |
$344m |
TBC |
|
|
Duke Energy |
Network hardening, renewable generation,
hydrogen enablement |
$145b |
TBC |
|
|
Southern California Edison |
Grid management software |
$908m |
$425m |
Regulatory hesitancy to allow recovery of
spending on unproven automation technologies, despite the technology plan
being consistent with regulatory directives to integrate DER’s. |
|
Baltimore Gas & Electric, Delmarva
Power & Light, Potomac Edison and PEPCO. |
Install public EV chargers to meet state
EV goals |
24,000
chargers |
5,000
chargers |
The PSC believed it is in the public
interest to approve a limited EV charging program at a reduced cost to
customers, but which will provide valuable insights. |
|
Dominion Energy |
Install advanced metering, intelligent
devices and grid hardening. |
$1,349m |
Nil |
Dominion
has not demonstrated these plans to be reasonable or prudent. In regard to
intelligent devices, the SCC ruled that DER penetration was still too low to
justify widespread deployment of such devices, and that Dominion had no
documented evidence that DER’s were causing voltage or reliability problems. |
|
Baltimore Gas & Electric |
Install smart meters |
$835m |
Nil |
The
PSC rejected BG&E’s proposal, stating that “the proposal asks BG&E's
ratepayers to take significant financial and technological risks and adapt to
categorical changes in rate design, all in exchange for savings that are
largely indirect, highly contingent and a long way off." |
Further
reading
· Pipes
& Wires #218 – US challenging
grid modernisation proposals.
· Pipes
& Wires #214 – US challenging
grid modernisation proposals.
· Pipes
& Wires #184 - US regulator
prunes Dominion’s grid modernisation plan.
· Pipes
& Wires #183 – US Maryland
prunes EV charging program.
· Pipes
& Wires #94 – US smart
metering in Maryland.
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
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