REGULATION
ReSHAPING
By Laura Sandys, Dr Jeff Hardy & Professor Richard GreenPOWERING FROM THE FUTURE
Interim Update 28th July 2020 A webinar with experts from the Sector
Interim Update 28 th July 2020 A webinar with experts from the - - PowerPoint PPT Presentation
Interim Update 28 th July 2020 A webinar with experts from the Sector ReSHAPING REGULATION POWERING FROM THE FUTURE By Laura Sandys, Dr Jeff Hardy & Professor Richard Green Su Support orters & & Co Co-Cr Creator ors
REGULATION
ReSHAPING
By Laura Sandys, Dr Jeff Hardy & Professor Richard GreenPOWERING FROM THE FUTURE
Interim Update 28th July 2020 A webinar with experts from the Sector
Supporters:
Co-Creators:
Demand and Supply equally valuable Free feedstock, high CAPEX, low OPEX
Ca Capital As Assets changing the COST base of
th throughout th the system
Blended Assets & Service ces th the new VALUE Consumer Models ch changing how how e ene nergy i is P PRI RICED ED Tailored Services & Products replacing commodity pricing
Blended Assets Varied Business Models Multi-actor Management
Unlocking the value
Unlocking the value trapped within the system Unlocking the capital to invest in the right things
0.00 50.00 100.00 150.00 200.00 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19
Lots of commodity not enough storage and processing Depressed price requiring more and more public support Rising system management costs paid for by consumers Still supporting Fossil fuels Kill value in digitalisation and smart system Much more Network Optimisation needed Unequal access to negative pricing
2019 - £1.2bn
Demand and Supply are Equal Blended & Processed Energy Wasted Energy & Capital Customers Value Marginalised Limited Optimisation Manage Peaks NOT Meet Peaks Unlocking total flexibility value Deeper Utilization of all Network Assets
Optimise the 5 C’s
Significant but Efficient Capital Demand and Production Competing Unlock the System Value
Carbon Capital Capacity Cost Customers
Citizen Dividend Citizens should explicitly benefit from decarbonisation
and blended assets
socialized
energy utility
regulation
as much as flexibility
Mainframe PC
Cloud / Data Centres / Broadband/ Mobile From Mainframe to in home first responder N a t i
a l S e r v i c e s
Sized around Demand
Choice
Optimised Supply Chain Tesco
Special Supply Core demand delivered by an optimized Supply Chain
Consumer Choice
Self Service
Choice & Competition
Optimized Utility across complex system options
Regulator Role
CfDs: £600m Balancing & System Costs: £1.94bn Capacity Market: £3.85 bn Network Reinforcement : £2bn Balancing : 0.29% DSR Customer Assets Energy Efficiency
Demand Assets & Actions
Capacity Market: 5.6% storage / 2.35% DSR
Supply Assets
Avoided Cost of Peak Energy Networks : limited & tactical
Demand & Supply of Equal Value
All demand actions, assets and actions throughout the system must receive equal access to markets, support, focus of regulation and policy attention.
Full Value of Avoided Cost
Integrate a discounted value to Avoided Cost of Energy & Carbon into all policy and market design. ACE is the fully loaded cost of generating, managing & distributing energy & is excellent for valuing energy efficiency
Self Supply
Capital Assets delivering flexibility or generation
Demand Shifting
Assets or actions contributing value to the system
Energy Efficiency
Permanent reduction of total energy needs
Balancing Costs Increase access to all demand shifting assets & actions Capacity Market Increase access for efficiency, all storage types, self-supply & DSR
First Steps: Democratise the System
Customers & their “agents” need equal access to derisk capital investment & markets as much as large developers
Consumer Contracts for Difference Contract for Difference miniaturized Permanent Demand Reduction Fully loaded value of Avoided Cost of Energy and Carbon Real Time Tariffs
£0 £50 £100 £150 CCGT Nuclear Gas CCS Biomass CCS Onshore wind Offshore wind Solar - large £/MWh
Technology direct costs Capacity adequacy costs Balancing costs Network costs Displaced generation costs
Energy efficiency DSR Blended assets
Chart includes illustrative cost benefit estimates developed for the ETI in 2017/18.
Self Supply
New Metrics
De Demand & Supply Compared: Fu Fully loaded costs s between demand and su supply actions Da Data to be delivered to the project ct by mid August
Optimised Demand
Unlocks the new customer capabilities delivering a downward cost pressure changing the demand curve from security of supply to security of service.
Processed Supply
The delivery of utilizable energy
“dispatch” and “stability”. Moves from a “commodity” to a full “service” and breaks down the artificial silos.
New System Tools
Significant focus on system tools, delivery optimization, data and digitalization transforming system stability, active network management & market design
Optimised Utilisation: Reward More from Less
Reversing regulatory incentives to unlock new innovative business models and reduce overall
efficiency, productivity and optimization of all assets, actions and actors.
Penalty for accessing balancing market No Curtailment Payments
0.00 50.00 100.00 150.00 200.00 J a n
9 F e b
9 M a r
9 A p r
9 M a y
9 J u n
9 J u l
9 A u g
9 S e p
9 O c t
9 N
9 D e c
9 Energy Imbalance Operating Reserve STOR Constraints Negative Reserve Fast Reserve
Some system services need to stay with ESO Cost reallocated where possible for businesses to manage
Reallocate Risk & Reward
All market players should own as much of their system risk as possible and benefit from the rewards. But penalised for “socializing” the risk
££ for Optimised Demand
Penalty for accessing balancing market – not socialised
££ for “Processed” Energy Enabled by Data Flow, Optimization Technology & Digitialised Markets
A&E
£££££
Hospital
£££
Consultant
££
GP
£
Self Help/Pharmacy/Online
Which end to you start from?
D a t a R i s k
Role for the ESO
to enable data flows
the businesses themselves
requiring their intervention
the system not just stability
competitive calculations
Mandated Decarbonized Supply Demand & long term certainty Revenue Stacking & Blended Assets More revenue
Driving Storage Unlocking investment drivers for all storage needs Change Merit Order Reduce competition from fossil generation CfD / CM Amalg Increased support mechanisms Demand Action Competing Limited but important competitor to supply No Constraint Payments Driving greater utilization of assets Citizen Dividend Once capital has been recouped Fair & Equitable De-Risking Through Market Measures REGOs Make Regos much more robust What role for the public good? Counterparty Risk Maturity of Technology Construction Risk Reducing Cost of Capital Operational Risk Planning Risk Risk sitting with the investors
Immediate Actions to Unlock Investment
Competition
ACE
% ECO/ WHD / supplier/ network
Flexible Demand Delivery Flexibility Actions Demand Purchase Agreements Energy Efficiency Demand First Productivity Regulation
Optimized Demand
Demand Purchase Agreements ACE PACE
Permanently Avoided Cost of Energy
Demand Purchase Agreements
Demand Reduction ACE SPAs from Generators / Suppliers Commodity Producers Flexible Supply Mature Tech Immature Tech PPAs with guaranteed low floor price Commodity + Storage Service Purchase Agreements Contracts for Difference Stand Alone Storage ACE
Optimized Supply
Avoided Cost of Energy Service Purchase Agreements Avoided Cost of Energy Avoided Cost of Energy Avoided Cost of Energy
Optimise the 5 C’s
Significant but Efficient Capital Demand and Production Competing Unlock the System Value
Carbon Capital Capacity Cost Customers
Citizen Dividend Citizens should explicitly benefit from decarbonisation
and blended assets
less
socialized
energy utility
regulation
as much as flexibility
Push back Push forward Agree Disagree
A regulatory Model for Doing More with Less – the Optimiser Regulatory and System Stability Roles Vulnerability
Procure Energy Services, nationally & locally Incentivise Demand Responses
More from Less
Data Flows
System Optimiser
Getting More From Less Insurance penalties for imbalance Energy “budget” Auction Rewards for reducing energy consumption Blending and Optimizing all energy assets & services at lowest price Rewards for DSR & EE part of Suppliers energy package
Data Flows
The Optimiser
Performance Based Regulation
REGULATION
the existing silos has to be audited for any knock on cost in other parts of the system. There are misalignments in the current regime that kicks cost and operational responsibility to another part of the system
model treats every part of the country more or less in a similar manner. With greater nuance locally and devolved administrations, regulation needs to develop optionality and regulatory menus offering tailoring to locality.
the new system, multiple actors, interacting with each other regulation needs to focus on both outcomes and where risk lies rather than “process” regulating the whole system SYSTEM OPERATOR
parts of the system, security of the service that might be provided behind the meter, needs to set the new metric for a secure energy system
these risks and mitigations should sit within the businesses themselves with the ESO picking up the extreme misalignments with the ESO acting as the A&E department rather than the GP in every neighborhood
growing and will increase significantly all of which is passed onto the consumer. A % of these funds should be reallocated to incentivizing the risk makers to design out these risks
would be to develop the appropriate data flow mechanisms and ensure that it has oversight of potential risk, detriment and instability
PROBLEMS
Whether technically vulnerable or not, most consumers don’t feel in control due to how & what is “sold”
Buying mobile “ceiling” packages embedded in exciting products, or leasing cars, or buying basic service broadband.
changing market and fragility of many of the suppliers, delivering social obligations will become a real challenge.
accountability: As social actions are distributed across the system there is muddled accountability for outcomes and these responsibilities need to be consolidated around
inhibited the commercial supplier sector from behaving truly commercially inhibiting competition.
POLICY OPTIONS
incentives from delivering more, to optimized utility the drivers to reduce consumption through energy efficiency will be significantly increased
having a highly regulated element of the sector to consolidate accountability, deliver coherent and locally designed focus on the execution of social policies.
clear responsibility and evaluation of impact on key target groups
delivering neighborhood system optimization assets such as localized storage, PVs and EV charging
local knowledge devolved nuances can be developed working with local authorities and housing bodies