Tag Archives: Energy

Bidding Zones analysis – group project

Below my group project on Bidding zones for the EU Electricity ‎Network Codes course.

Do you think that the changes made by the Clean Energy Package to the bidding zone review procedure will lead to different results or create more challenges?

The newly-adopted Electricity Regulation (ER), article 14.1, states that “[…] Bidding zone borders shall be based on long-term, structural congestions in the transmission network. Bidding zones shall not contain such structural congestions unless they have no impact on neighbouring bidding zones […]”. EU TSOs and NRAs are mandated by the Capacity Allocation and Congestion Management Guideline (CACM GL) and ER to assess on a regular basis the existing bidding zones (BZ) configuration, and possibly initiate its review and reconfiguration.

A BZ review was voluntary under the CACM GL (article 32.1), but became compulsory under the ER (article 14.3). Under CACM GL, the review should include scenarios that take into account “likely” infrastructure developments within the following ten years (article 33.1), while the methodology required by the ER should be based on structural congestions that were not expected to be overcome (e.g. due to grid expansion) within three years (article 14.5). The ER obliged the TSOs to present a BZ methodology by October 2019 (article 14.5), and the all TSOs proposal was submitted on 7 October 2019. It includes one annex per region presenting the alternative BZ configurations that will be compared to the status-quo during the review.

According to the ER, the relevant regulatory authorities shall take a unanimous decision on the TSOs proposal by January 2020. If unanimity is not reached, ACER shall decide on the methodology and alternative BZ configurations, by April 2020 latest. Once the methodology has been decided, the TSOs of each region have one year to submit a proposal to amend or maintain the bidding zone configuration, based on the results of the review. The proposal comes on the table of the concerned NRAs for approval. If unanimity is not reached, the European Commission has the final say on maintaining or amending the current BZ configuration.

The puzzle is whether the TSOs’ methodology proposal is able to identify structural congestions. Via art. 16(8) ER, it can be interpreted that a Member State (MS) suffers from structural congestion if it doesn’t comply with the 70% minRAM clause. If this is the case, the MS has two options: establish a (multi)national action plan or amend its BZ. There are two BZ configuration principles. Firstly, the BZ should be constructed independent of political borders, but built around structural congestions. Secondly, the size of a BZ should be a fine balance between structural congestions and market liquidity and competitiveness.

The main opportunities and challenges arising from the changes introduced by the CEP are summarized below:

Opportunities:

  • The 70% minRAM clause of article 16(8) offers an opportunity for a willing TSO and a MS to change the configuration of a BZ.
  • Splitting BZs may be politically sensitive at the national level, so putting ACER and the European Commission in charge of final decisions may break local interests and put the interest of the EU market as a whole ahead of national interests.
  • A process for amending BZ is now relatively clearly defined, allowing MS the possibility to create and follow action plans. The clarification was important, as the first BZ review was not successful. Action plans offer MS more time, but multiple opportunities have been built into the procedure to revert from an action plan to deciding on a BZ reconfiguration.

Challenges:

  • At the center of the BZ review process lies the identification of a structural congestion. Thus, this should be the first step of the process. However, TSOs must already propose alternative BZ configurations, even if no methodology has been developed to identify structural congestions. In this context, it is not surprising that in the annex many TSOs argue that they don’t propose a BZ alternative because their country doesn’t suffer from structural congestion (see table in annex at the end of this paper). In this context, the whole process already stops at the first step.
  • The attempt to define structural congestion based on the 70% minRAM clause has also severe limitations. Differences in interpretation can be observed (not only across MS but also different stakeholders) and it is in the NRAs’ responsibility to check for compliance. Consequently, it doesn’t appear as an appropriate tool to pressure MS suffering from structural congestion to amend their BZ.
  • Additionally, it solely gives arguments for splits and not for mergers of BZs which could be beneficial from a market liquidity and competitiveness perspective. This is obvious from reading the annexes of the all TSOs proposal, where almost only arguments against or in favor of splits are listed.
  • As stated above, if the NRAs don’t come to an agreement concerning which BZ configurations should be evaluated, ACER will take the final decision. In relation with the complexity of the situation, in particular in the central EU region, questions can be raised concerning the competences, e.g. in simulation, needed for taking such decision. Any decision not well argued or missing consistency could be raised in court.

Conclusions

The BZ reconfiguration is a necessary step towards solving several present and future congestions, in addition to requesting TSOs to offer more capacity to the market. The ER, part of the Clean Energy Package, was a natural opportunity to develop such a plan. A rather clear and agreed methodology, follow-up steps and backup solutions are all foreseen in the ER.

However, there are a number of drawbacks, such as the bias towards splitting BZ in the BZ reconfiguration, instead of merging them as well. The procedure for identifying structural congestions is possibly flawed, as TSOs must propose alternative BZ configurations in parallel with developing a methodology that must be approved by regulators. In addition, connecting BZ configurations to the 70% clause with all of its limitations (diverse interpretations, in/sufficient data availability, etc.) and action plans does not contribute to its implementation, but it is watering down the process. Furthermore, leaving European institutions as ultimate decision-makers, might look as a solution but it remains to be seen if it will be fit for purpose due to the dominantly political nature of the process.

PROMO: Energy MBA in Bucharest

The MBA in Energy at the Academy of Economic Studies (ASE) in Bucharest starts the registrations for prospective candidates between 23-25 July 2018.

Organized by the Faculty of Business Administration in Foreign Languages (FABIZ), the Energy Master is the best in Romania and is done in collaboration with representatives of the energy business environment (OMV Petrom, Siemens, CEZ, Electrica, Transgaz etc.).

Join the new challenges and be a part of the Energy Business!

The programme is open to all bachelor degree graduates, but candidates need one year experience in energy. Of course, a good command of English is required, as it is taught in English.

It is a flexible MBA, held during weekends, for 4 semesters. The courses range from “EU Policy in Energy” to “Energy Trading”. The professors and experts’ team is excellent, including one of Romania’s best energy professionals, Corina Popescu.

Please find below the brochure of the programme.

Brosura_MBA-Energie_6.2018

More information also at the following link: mba-energie.ase.ro.

Coal: A Human History – Barbara Freese

Some saw in the mines scientific proof of biblical flood. Some credited coal with protecting people from the bubonic plague; others accused it of promoting baldness, tooth decay, sordid murders, caustic speech and fuzzy thinking.More recently many of us believed we could burn vast amounts of coal without disrupting the natural balance of the planet. No doubt we have still much to learn about coal, but at least we’ve been able to dispel many of the old myths.

The book talks about the history of coal, since Roman times to modern day. Barbara Freese talks about both the good and the bad sides of the mineral. As the author is an environmental lawyer, the book slightly tips on the bad side of coal, however the research is deep, insightful and entertaining.

Coal is appreciated by Ms Freese as the basis of the Industrial revolution and the rock that made the British Empire and the United States. It significantly improved living standards by increasing on a massive scale the efficiency of industrial processes.

On the other side, the bad environmental effects were constant, from the fumes and hard working conditions to current greenhouse gas problems.

The message of the book is that coal was never popular, but always useful. The author finishes the book on a positive note, such as using coal for in plastics and other alternative uses.

Regulation of the Power Sector – Ignacio Pérez-Arriaga (ed.)

Grids limit the operation of the electricity system in many ways. The most typical limitation is congestion, which occurs when the maximum current that can be handled by a line or other facility is reached, thus determining the amount of electric power that can flow through the element in question. The underlying cause for the limitation may be thermal, and therefore dependent upon the physical characteristics of the facility. It may also be related to the characteristics of system operation as a whole; for instance, provisions to guarantee security in the system’s dynamic response to disturbances or to stability-related problems that usually increase with line length.

Another typical grid constraint is the need to maintain voltages within certain limits at all nodes, which may call for connecting generating units near the node experiencing problems. The maximum allowable short-circuit power established may also limit grid configuration. Generally speaking,
the main effect of grid constraints is to condition system operation and in so doing to cause deviations from economically optimum operation. The most common constraints in distribution grids are related to voltage and maximum line capacity.

“Regulation of the Power Sector” is a comprehensive technical book on the electricity sector, aimed at specialists and advanced students. It encompasses several scholarly fields, including law, economics, regulation, physics and political science.

It is divided into 14 chapters, as follows: I. Technology and Operation of Electric Power Systems; II. Power System Economics; III. Electricity Regulation: Principles and Institutions; IV. Monopoly Regulation; V. Electricity Distribution; VI. Electricity Transmission; VII. Electricity Generation and Wholesale Markets; VIII. Electricity Tariffs; IX. Electricity Retailing; X. Regional Markets; XI. Environmental Regulation; XII. Security of Generation Supply in Electricity Markets; XIII. Electricity and Gas; XIV. Challenges in Power Sector Regulation.

The first electromagnetic generator, invented by Michael Faraday in 1831.

The authors cover pretty much everything in terms of background in energy regulation, with a focus, but not exclusive, to European regulation and market design. The book reads as a manual and goes into detail in explaining why some regulatory decisions were taken. However, it does not push a message or contributes to the scholarly debate, it is more a stocktaking exercise.

The book makes the basis for the Regulation of the Power Sector course at the Florence School of Regulation, a 6-months intensive training for professionals in the area.

The authors are mostly academics and former regulators with plenty of practical examples. What is impressive is that they managed to have a very balanced approach in a highly divisive area.

The volume is not an easy read, some diagrams and formulas taking some time to digest, even for specialists. This is because the book encompasses a very wide range of fields, from formulas taken from the field physics to economic calculations.

For energy professionals, I commend the book, as a very comprehensive summary of energy regulation, theories and basics of the power system. It refreshes knowledge and fills some gaps, in a balanced way.

Sources of electricity – oil

Oil or petroleum was once a key player in the electricity sector, but now it is used only marginally, usually as back-up reserve in diesel generators for major consumers, such as factories, hospitals, airports or as an electricity source in islands (for example in Greece).

Oil lost its share because of price, it is far more expensive to burn oil than burning coal or gas.

Merits of oil include high energy density, easy to transport and very stable composition, remaining liquid in most climatic conditions. Drawbacks of oil are price are environmental concerns (Webber, 2014).

A few words about energy and electricity – differences

Energy is the basis for modern human civilization, because of the significant increase in productivity it brings. It is a vital part for most, if not all, of human activities: agriculture, communications, trade, manufacturing, mining, education, health etc. Consequently, there is a correlation between energy consumption and wealth (Webber, 2013).

According to the first law of thermodynamics, which says that energy of an isolated system is constant, humans are basically transforming energy that is already in the system into energy more convenient to use. For example, a windmill transformed wind energy into mechanical energy used to mill grain. Replacing human muscle with wind energy increased enormously the efficiency of the process. Repeating this idea for thousand and thousand of processes led to the highly efficient and also highly energy-transformative economy we have today.

For dawns of civilization the main energy source used by humans was wood, later followed by coal and now we live in an era dominated by oil.

There are many forms of energy – kinetic (motion), thermal, chemical, nuclear, radiant (light), gravitational, etc – electricity is just a form of energy, used according to our needs. Electrical conversion is basically a transformation of various energies already existing in the system. For example, thermal energy (heat – which is basically kinetic energy at molecular level) from burning coal; or kinetic energy from wind motion; or gravitational energy from waterfalls is converted into electrical energy.

Energy sources have several classifications. For example, the International Energy Agency manual for energy statisticians (IEA, 2005), which shares harmonized definitions, units and methodology with Eurostat, the statistical office of the European Union, and the United Nations Economic Commission for Europe, considers that energy sources (called “commodities”) can produce primary electricity through direct use of natural resources, such as hydro, wind, solar, tide and wave power or they can produce secondary electricity, using thermal energy as intermediate step, such as from nuclear fission of nuclear fuels, geothermal heat and solar thermal heat, or by burning coal, wood, natural gas, oil, etc.

US Energy Information Administration (EIA, 2015) makes the distinction between primary energy sources and secondary energy sources. Primary energy sources are those forms of energy, such as oil, natural gas, coal, uranium, biomass, wind, that are used to convert energy into energy carriers. Energy carriers, called secondary energy sources, such as electricity and hydrogen, transport energy, which is later converted into other forms of energy that are useful for humans. Electricity is used because it is easy to transport and can be quickly transformed in other forms of energy we need (kinetic, e.g. for coffee maker, thermal, e.g. for light bulbs).

Other several classifications, more or less scientific are used. Conventional energy is used mainly to nominate energy production from fossil fuels, while alternative energy is basically any source other than fossil fuels. Renewable energy is energy derived from processes with a replenishment rate higher than consumption. Eurostat, however, considers biofuels and municipal waste as renewables. Green energy is any form of energy with small environmental impact at its end-use (IEA, 2015; Webber, 2013). However, all energy sources have an environmental impact (Webber, 2014, Sheldon 2014, Mayfield, 2015).

Energy is not the same as power, although similar in meaning. Energy is power over time. For example, a refrigerator has a power of 225 Watts, and in an hour it uses 225 Wh (energy.gov, 2015), which is a measure of energy.

From a long term energy strategy standpoint, the second law of thermodynamics, which says that entropy always increases or remains the same in a close system, is relevant. This means that Earth-based highly-ordered forms of energy, such as fossil fuels, will always have conversion loses, because Earth is a closed system (Sheldon, 2013; Webber, 2013). For example, overall efficiency for converting primary energy to light using a light bulb is just 1.6% (Tester et al, 2005, p.58). However sun radiance can be used at will, because Earth is not a closed system regarding this type of energy (Webber, 2013; Sheldon, 2013).

In other words, there is a lot of space for progress in energy production.