© oecd/iea 2010 russian annual meeting of energy regulators moscow, 1-2 april 2010 investment in...
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© OECD/IEA 2010
Russian Annual Meeting of Energy Regulators Russian Annual Meeting of Energy Regulators Moscow, 1-2 April 2010Moscow, 1-2 April 2010
Investment in the power sector and regulatory challenges and practices:
An IEA Perspective
Mr. Mr. Didier HOUSSIN Didier HOUSSIN Director, Energy Markets and SecurityDirector, Energy Markets and Security
International Energy AgencyInternational Energy Agency
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Electricity Demand Outlook – Average Annual Rates of Growth 2007-2030
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World electricity generation by fuel in the Reference Scenario
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Capacity additions by region, 2008-2030 (WEO 2009 Reference Scenario)
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Cumulative energy investments in Cumulative energy investments in Reference Scenario (2008-2030) Reference Scenario (2008-2030)
Just over half of all energy-investment needs to 2030 are needed in the power sector, mainly in non-OECD countries
Biofuels$0.2 trillion
1% Upstream
Refining
TransportShipping & ports
Mining$5.9 trillion
23%
$5.1 trillion20%Electricity
$13.7 trillion53%
Generation
Transmission
Distribution
Upstream
T&D
LNG
52%
15%
33%
58%
9%
33%
79%
17%4%
86%
14%
Total investment = $25.6 trillion (in year-2008 dollars)
Gas
Oil
Coal$0.7 trillion
3%
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Projected cumulative investments ($ 2008) in the power sector – 2008-2030
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Global asset investment needs in renewable and other generation sources
Total annual investments in renewable power assets need to significantly ramp up
in order to achieve the 450 policy scenario objectives
Source: WEO 20090
1 000
2 000
3 000
4 000
5 000
6 000
2010-2020 2021-2030
Bill
ion
dolla
rs (2
008) Fossil fuels without
CCSOther Renewables
Hydro
CCS
Nuclear
* Including PV in buildings
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Russia energy-related CO2 emissions abatement
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Russia power generation capacity in the 450 scenario
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Demand uncertainty: How strong will be the economic recovery?
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Electricity supply trend – OECD
806
192 15587
26
-26
-226
1015
-400
-200
0
200
400
600
800
1000
1200
Gas Coal Wind Other renewables
Nuclear Hydro Oil Total
Incr
em
en
tal G
row
th [T
Wh
]
Gas - Main contributor to the 2000-08 growth in OECD electricity generation
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Main Conclusions: Median Case- Sensitivity to Cost of Financing
No technology has a clear overall advantage globally or even regionally.
0
20
40
60
80
100
120
140
160
Nuclear Coal Coal w. CCS Gas Wind
Le
ve
lise
d C
os
t O
f E
lec
tric
ity,
LC
OE
($
/MW
h)
59 $/MWh
99 $/MWh
137 $/MWh
92 $/MWh90 $/MWh
80 $/MWh97 $/MWh
86 $/MWh
62 $/MWh65 $/MWh
OECD Countries
LCOE 10%
LCOE 5%
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0
20
40
60
80
100
120
140
160
Nuclear Coal Coal w. CCS Gas Wind
Le
ve
lis
ed
Co
st
of
Ele
ctr
icit
y,
LC
OE
5%
an
d 1
0%
($
/MW
h)
OECD 30 $/t CO2 OECD 60 $/t CO2
Main Conclusions: Median Case- Sensitivity to CO2 cost
LCOE 5%
LCOE 10%
To bolster competitiveness of low-carbon technologies such as nuclear, renewables and CCS, we need strong government action to
lower the cost of financing and a significant CO2 price signal to be internalised in power
markets.
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Fundamental changes in electricity markets …
Electricity supply Increasing share of renewable electricity More distributed and variable generation, often remotely located Increased need to deploy low-CO2 emitting generation technologies, with higher
costs …
Transmission is key to renewable development
Structural changes in demand Technology deployment and customer pricing expected to foster demand responses Demand in some countries becoming “peakier” due to air-conditioning loads Residential expected to grow faster than industrial demand
Electricity networks need to cope with larger fluctuations in both supply and demand Transmission should be seen as part of the solution Smart grids seen as tool to manage increasingly more complex power systems
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Establishing frameworks for competitive electricity markets Unbundling
Competitive generation/wholesale marketsTruly independent system operation Retail competition
Independent energy regulator Transparent market rules enabling fair, open and non-discriminatory
access to all market playersClarity, stability and predictability in regulatory approaches Regulator should be seen as a market facilitator Need for regulators and have adequate competencies and resources Importance of market monitoring and oversight
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Generation – Importance of cost reflective prices
Cost reflective prices are:Pre-condition for successful introduction of market reformsCorner stone of efficient market responseEssential for efficient and timely operational and investment
decisions in competitive electricity markets In Russia, considerable progress has been made to make electricity
tariffs more cost reflective and to remove cross subsidies Government keeping to its plan to raise domestic natural gas pricesBut, considerable challenge remainsTariff levels remain relatively low by international standards and
compared to the returns that are needed to attract new investmentTariff levels remain relatively low to stimulate energy efficiency
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Generation – Ensuring market efficiency and adequate investments
Refrain from price caps and market interventions Energy–only markets (e.g. Canada, Australia) have delivered good
investments Capacity measures should be last resorts Promote competition through
Transparent market rules enabling fair, open and non-discriminatory access to all market players
Reducing the dominant role of incumbent utilities Eliminate barriers to market entry to facilitate IPPs Mitigate risks of market power through market monitoring and oversight
Putting a price on CO2 guides investments towards cleaner generation options
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Transmission – Achieving transmission adequacy
Transmission has generally lagged growth of generation and demand in IEA countries
Large integration of renewable require more network investments, including smart grids, and increased flexibility of power systems
Markets need coordinated generation and transmission planning Regulatory approval process should be streamlined to avoid costly
delays while allowing for early public participation Cost recovery may be facilitated by incentive rates of return Incentive rates of return make may be necessary to enable higher risks
projects Regulatory harmonisation is essential for regional markets and cross-
border investments
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Consumer protection
Retail competition protects and brings the benefits to the consumer through competitive prices, customer choice and innovation
Demand response to price adds real resources to the system
Transparent prices improve framework for energy efficiency
Issue of fuel poverty/vulnerable consumers would be better addressed by social programs - not by cross –subsidization nor regulated prices
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Key messages (1)
Electricity market reform has delivered benefits to liberalised markets
Effective competition requires independent system operation and transparency
Cost reflective prices provide fair signals for investment choice and consumer response
Markets need an improved framework to empower consumers to participate
Need institutional arrangements for market monitoring and coordinated planning
No “one-size-fits-all” market model
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Key Messages (2) Huge investment needs in the power sector for the coming years
De-carbonisation of electricity generation is essential to the transition to a sustainable energy future
Investments face challenges associated with uncertainty in demand, climate change targets and energy security
No technology has a clear overall advantage globally or even regionally
For energy security and climate change mitigation, investment in low carbon technologies is key CCS, renewables, nuclear and energy efficiency must all be embraced
The regulator plays a key role in ensuring timely, sufficient and cost effective investments in generation and transmission Better regulation requires coordinated planning, co-operation and
harmonisation