Pipes & Wires
From the editor’s desk…
Welcome
to Pipes & Wires #220 … this issue starts with a look at two regulatory
decisions in New Zealand and Australia, and then further examines the proposed
market mechanism for encouraging more generation in the Texas ERCOT market. We
then examine three grid security issues in Australia and Germany in the context
of coal and nuclear closures.
We
then examine the sale of a clean energy business in the US, and continue our
analysis how regulators are treating grid modernisation spend. So … until next time, happy reading…
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Recent client projects
Recent
client projects include…
· Compiling a road map to guide an EDB on
its asset management improvement journey.
· 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.
· Compiling some introductory thoughts on
digital transformation and blockchain.
· Reviewing the AER’s recent treatment of
network transformation expenditure.
Cool multimedia stuff
History
of the Texas interconnected grid
This 10 minute video clip (about
6 years old now) describes the 75 year history of the Texas interconnected
grid, which starts at about 0:45. A couple of salient points include…
· Public
electric supply began when industrial users starting selling surplus
electricity.
· The
Texas electric companies avoided coming under the jurisdiction of the then
Federal Power Commission (now the FERC) in 1935 by not interconnecting across
state lines.
This video clip also complements Pipes
& Wires analysis of the ERCOT reserve capacity margin.
Network regulatory decisions
NZ – setting the WACC for EDB’s
Introduction
The Commerce Commission recently released its cost of capital
decision for electricity distribution businesses (EDB’s) for the disclosure year
ending on 31st March 2024. This article examines the key features of
that decision.
Regulatory frameworks
The regulatory frameworks are set out in…
·
Clauses 4.4.1 to 4.4.7 of the Electricity
Distribution Services Input Methodologies Determination 2012 (Consolidated to
20th May 2020).
Key features of WACC’s
Key features of the WACC’s include…
|
Parameter |
25th percentile |
Mid-point |
67th percentile |
75th percentile |
|
Vanilla WACC |
6.07% |
6.75% |
7.20% |
7.43% |
|
Post-tax WACC |
5.37% |
6.05% |
6.50% |
6.73% |
Aus – the ElectraNet revenue determination
Introduction
The Australian Energy Regulator
(AER) recently published its Final
Decision for
the 5 year control period applying to ElectraNet commencing on 1st
July 2023. This article examines the key features of that Final Decision.
A bit about ElectraNet
ElectraNet owns and operates
the high voltage transmission grid in South Australia, comprising 5,600km of
275kV, 132kV and 66kV circuits along with 91 grid substations. ElectraNet is
owned by State
Grid Corporation Of China, YTL
Power investments and
the Utilities
Trust Australia.
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 ElectraNet
process to date include…
|
Parameter |
Proposal |
Draft Determination |
Revised Proposal |
Final Determination |
|
CapEx |
$742m |
$696m |
$749m |
$744m |
|
OpEx |
$571m |
$633m |
$701m |
$674m |
|
Opening RAB |
$3,594m |
$3,817m |
$3,860m |
$3,854m |
|
Post-tax nominal WACC |
4.29% |
5.56% |
5.56% |
5.55% |
|
Depreciation |
$341m |
$274m |
$228m |
$314m |
|
Smoothed revenue |
$1,836m |
$2,118m |
$2,179m |
$2,215m |
This concludes Pipes & Wires
examination of ElectraNet’s revenue determination.
Energy
markets and pricing
US –
securing generation in the Lone Star State
Introduction
Pipes
& Wires #218 discussed the
proposed Performance Credit Mechanism which was included in the energy market
overhaul approved by the Texas Public Utilities
Commission in January 2023.
The proposed performance credit
mechanism
The
core principle of the performance credit mechanism would require every electric
company selling electricity to guarantee that they in turn are buying that
electricity from reliable sources
Recent
events
Recent events over the past few months
include…
· The
release of an economic
consultants’ report commissioned by major
electricity users which concluded inter
alia that the proposed Performance Credit Mechanism could increase total
customers’ bills by about $5.7b per year, and that much cheaper alternatives
were available.
· A ruling
by the Court Of Appeals for the Third District that
the Texas PUC exceeded its authority to set prices at $9,000 per MWh for 4 days
during Winter Storm Uri in February 2021.
· The
passage of Senate
Bill 6 which provides inter alia for the establishment of the
Texas Energy Insurance Program to promote $10b of investment in 10,000 MW of
emergency gas-fired generation.
Pipes & Wires will continue to follow
this story as the ERCOT market is redesigned.
Further reading
· Pipes
& Wires #218 – US – securing
generation in the Lone Star State.
· Pipes
& Wires #216 – US – the Lone
Star state survives the heat.
· 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.
Energy mix and grid security
Aus – keeping Eraring open ?
Introduction
One of Pipes & Wires’
regular themes has been the closure of coal-fired generation in Australia,
hence the news that both ends of the political spectrum in New South Wales may
have considered keeping the coal-fired Eraring power station open comes as a
big surprise.
Recapping the planned closure of Eraring
Earing
has 4 black coal fired steam turbines that were originally rated at 660MW, but
which were upgraded to 720MW each in 2012 and 2013. Construction started in
1977, with the first unit being synchronised in 1982. Pipes
& Wires #212 noted that Origin
Energy had originally planned to close Eraring in 2032 but bought
that closure forward to August 2025, noting
that cheap wind and solar has hollowed out the market for inflexible coal
generation.
What the politicians are thinking
So what are the
politicians thinking…
· The then NSW Energy Minster Matt Kean initially flagged an
interest in keeping Eraring open to avoid a decline in supply reliability, but
then appears to have back-pedaled as the then NSW Premier Dominic Perrottet
stated that the Liberal government had no plans to intervene to extend
Eraring’s life.
· The leader of the NSW Labour Party, Chris Minns, appeared
open to buying Eraring back from Origin to keep it open if Labour won the state
election scheduled for 25th March 2023. It is not clear if Minns
view was prompted by Kean’s statement, however media commentators observed that
it would be likely to cause a rift in the Labour Party. Regardless, Labour’s
statement about keeping the lights on and prices down is likely to have voter
appeal.
Why keep Eraring open ?
Indeed, yes … why keep
Eraring open ? Two reasons mainly…
· The revised AEMO Statement Of
Opportunities (Pipes & Wires #219) forecast that unserved energy (USE) would breach
reliability thresholds in the near future.
· An effort to reduce prices as more and more Aussie’s find
electricity unaffordable.
Post-election events
The following
post-election events are significant…
· Although Labour won the 25th March 2023 state
election, it was far from the hoped-for landslide and left Labour with a
minority in the Legislative Assembly (lower house).
· A likely follow-though of the previously signaled commitment
to establish the NSW Energy Security Corporation to accelerate renewable
investments.
Pipes & Wires will
pick up this story again as more details emerge.
Germany – closing the last three nuclear stations
Introduction
Long-time readers may
remember Germany’s tortured cycle of proposed nuclear generation closures
around 2011 that included a re-think on closures, and a more recent re-think on
closures as the Ukraine war resulted in shortages of Russian gas. This article
examines the closure of Germany’s 3 remaining nuclear stations back in
mid-April 2023.
The station closures
The three stations that
closed were…
· Emsland –
a 1,360 MW reactor near the Dutch border, opened in 1988.
· Neckarwestheim 2 – a 1,435 MW reactor north of Stuttgart, opened in 1976.
· Isar 2 –
a 1,485 Mw reactor north-east of Munich, opened in 1979.
Impacts on grid security and prices
These closures have
withdrawn about 4,200 MW of secure generation from the European grid. Precise
figures are hard to obtain, but not surprisingly electricity prices have risen
(which we also saw in the Australian NEM as coal-fired generation was
withdrawn), CO2 emissions have increased, and air pollution deaths have risen.
Further reading
· Pipes & Wires #175 – Aus – prices rise as Hazelwood exits the NEM.
· Pipes & Wires #108 – Germany - the shifting sands of the nuclear phase out.
Aus – Liddell finally closes
Introduction
After a lot of analysis,
the Liddell coal-fired power station in the Australian state of New South Wales
was finally removed from service in April 2023. This article recaps the closure
process and examines how the market has responded to the final closure.
A bit about the closure
Liddell is a 4 x 500 MW
black-coal fired steam turbine station in the Hunter Valley region that was
built in the early 1970’s. The planned closure of Liddell during 2022 was first
announced by AGL in 2015, and resulted in the then Prime Minister Malcolm
Turnbull seeking assurances that there would be no electricity shortages. This
resulted in AGL deciding to keep 3 units open until April 2023 (Unit 3 was
removed from service on 1st April 2023), whereupon the following
removals from service occurred…
· Unit 4 – 24th April 2023.
· Unit 2 – 26th April 2023.
· Unit 1 – 28th April 2023.
Results of the closure
Opinions on whether prices
would rise varied as late as the week prior to Unit 4’s closure, including minimal
price rises (due to Liddell not being a significant price setter), to some
volatility (but not as much as when Hazelwood closed back in 2017 with only 5
months’ notice), to overall price increases in NSW and Queensland. Similarly,
concerns about supply reliability also vary.
Further reading
· Pipes & Wires #201 – the Liddell closure task force reports back.
· Pipes & Wires #196 – the draft Liddell Task Force report.
· Pipes & Wires #192 – examining the impact of the planned Liddell closure.
· Pipes & Wires #175 – Aus – prices rise as Hazelwood exits the NEM.
Industry reshuffling
US –
ConEd sells clean energy business
Introduction
Recent issues of Pipes & Wires have
examined the sale of unregulated renewables by some of the large US electric
companies. This article examines the sale of Consolidated Edison’s Clean Energy
Business to German electric company RWE.
A bit
about RWE
RWE is a
multi-national energy company with annual revenues of €13b. RWE was founded in
1898, and now has electricity operations in Asia and the US as well as Europe, and
focuses on the following 4 core businesses…
· Off-shore
wind.
· On-shore
wind and solar.
· Hydro,
biomass and gas.
· Retail
supply and trading.
A bit
about the ConEd Clean Energy Business
ConEd’s Clean Energy Business operates
about 4,800 MW of on-shore wind and about 3,200 MW of solar in the US, along
with a development pipeline of 24,000 MW of wind, solar and batteries that includes
3,900 MW of off-shore wind.
The deal
RWE paid $6.8b to acquire ConEd’s Clean
Energy Business, which has been renamed RWE Clean Energy. RWE Clean Energy
intends to invest €15b in the US market.
Strategies
behind the deal
Key strategies behind the deal include…
· A strong
and obvious fit with RWE’s strengths in on-shore wind, off-shore wind and
solar.
· Capturing
the growth in renewables in the US.
· Allowing
ConEd to focus more narrowly on leading New York’s clean energy transition.
Regulating
transformation spend
US – examining grid modernisation spend
Introduction
Pipes & Wires #219 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 2 more grid modernisation proposals, and augments the table
from Pipes & Wires #219 to identify any emerging trends.
Entergy
Louisiana
Key features of Entergy Louisiana’s grid
resilience plan includes…
· Total
spend of $9.6b over 10 years, to be implemented as two 5 year programs which is
expected to save $2.1b of storm restoration costs and avoiding 34,000,000,000
lost customer minutes over the next 50 years.
· A total
of 9,600 network projects that will strengthen 269,000 structures and 11,000
miles of lines.
Entergy
New Orleans
Key features of Entergy New Orleans’ grid
resilience plan includes…
· Total
spend of $1.6b over 10 years, with expected benefits of $461m of reduced storm
restoration costs and avoiding 8,300,000,000 lost customer minutes over the
next 50 years.
· A total
of 890 network projects that will strengthen 33,000 structures and 650 miles of
lines.
· Develop
several microgrids.
Some
specific cases
Some specific cases of grid modernisation
expenditure being pruned include…
|
Applicant(s) |
Purpose |
Sought |
Approved |
Key reasons for rejection |
|
Entergy New Orleans |
Resilience and storm hardening |
1.6b |
TBC |
|
|
Entergy Louisiana |
Improve network resilience, improve
restoration times |
9.6b |
TBC |
|
|
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 #219 - US examining
grid modernisation proposals.
· 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
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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parties.