introduction to transmission network assessment...

Introduction to transmission network assessment

methodology:

the ENTSO-E CBA methodology and the PCI selection

process

Péter Kaderják

SEERMAP training

March 7, 2017

Athens, Greece

Overview

• The policy context

• Cost Benefit Analysis basics

• The ENSTO-E methodology

• Discussion

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The policy context

• EU internal electricity market integration components

• Market rules (3rd package 2009 and follow up grid codes)

• Market integration (especially with large share of intermittent

RES-E) calls for abundant (cross-border) transmission capacity

• Problems with infrastructure (missing; counter-incentives)

• Better utilizing existing infrastructure (addressed by DA market

coupling)

• Missing infrastructure: weak incentives due to cost-based

remuneration and lengthy licensing; strategic underinvestment

• EU response

• Regulation 347/2013 to develop trans-European energy

infrastructure

• ENTSOE 10 years network development plans (TYNDP)

• Connecting Europe Facility (Bn 5.35 EUR for 2014-20)

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EU priority energy corridors

4

Priorities beyond 2020

Electric

‘highways’

CO2

transmission

system

TYNDPs

• https://www.entsoe.eu/Documents/TYNDP%20documents/TYNDP%202014/141031_

TYNDP_2014_Projects_of_European_relevance_MT_2014-2018.pdf

• https://www.entsoe.eu/Documents/TYNDP%20documents/TYNDP%202014/141031_

TYNDP_2014_Projects_of_European_relevance_LT_2019-2030.pdf

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Main characteristics of Regulation

347/2013

• Project of Common Interest (PCI): a project contributing to creating

priority energy corridors or to end energy islands

• Project promoter(s) put forward a proposal for a PCI (electricity, gas,

oil, CO2)

• Regional groups review proposals, Commission decides about the

PCI list

• Project valuation is based on a social Cost-Benefit Analysis

• PCI „rewards”:

• Simplified and fast licensing (one-stop shop with max 3 years duration); priority

status at MS level; part of TYNDP

• Financial incentives:

• Connecting Europe Facility (studies; limited contribution to work) – Bn

5.35 EUR (2014-20)

• Structural funds (smart grids)

• Costs acknowledged by national regulators in transmission tariffs

• http://ec.europa.eu/energy/infrastructure/transparency_platform/map-

viewer/ 6

Criteria for electricity PCIs

• General

• necessary for at least one of the energy infrastructure

priority corridors

• potential overall benefits outweight costs

• significant cross border impact

• Specific for electricity projects: significantly

contribute to

• market integration (lifting isolation, reducing

congestion, improving competition)

• sustainability (RES-E integration)

• security of supply

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PCI lists and CEF decisions to date

• First PCI list published in 2013; updated bi-

annually

• 195 PCIs on the present (2015) list

• CEF funding: ~ 100 projects to date

• 2014: EUR 647m, 34 proposals. Addressing security

issues in Baltics

• 2015: EUR 366m, 35 PCIs (15 electricity). Bulk of

support for CSEE

• 2016: EUR 707m, 27 PCIs (11 electricity).

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Monitoring scheme for PCI project

implementation

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REGIONAL GROUPS

E&G: MS, NRAs, TSOs,

project promoters,

Commission,, ACER,

ENTSO

Oil&CO2: MS, project

promoters, Commission

+ other invited

stakeholders

ACER

Decesion right over PCI

cost allocation and

remuneration through

national tariffs (Cross

Border Cost Allocation)

Project promoters prepare application

(including CBA)

Annual Report on implementation

In case of significant delay EU inspector

might be nominated

Kérheti a

megvalósulást segítő

intézkedést

Overview




• Discussion

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CBA: principal idea

Monetary assessment

of project impacts…

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…over a pre-defined

project timeline…

…and compared to a

pre-defined reference…

…and discounted to present by a

„social discount rate”

Alternative decision criteria:

Social NPV (> 0)

B/C ratio (> 1)

Scope of CBA (THINK report)

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Advantages:

• Consistent assessment of

costs and benefits

• Possibility of ranking by

monetary results

Challenge:

• Monetization of some

benefits might be

challenging

Key issues to address

• Project definition – clustering?

• Baseline / reference definition

• Quantifying the impacts of new infrastructures on several

policy related measures compared to reference

• market and network modelling

• Calculation of net social benefits - consider full

monetization!

• discounting

• Understanding distributional impacts of projects

• by stakeholders; by member states

• Uncertainty representation – scenario analyses

• Ranking

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Overview




• Discussion

14

ENTSO-E approach to the CBA

methodology

• EU Regulation 347/2013 requests ENTSO-E to establish a

“methodology, including on network and market modelling, for

a harmonised energy system-wide cost-benefit analysis at

Union-wide level for projects of common interest” (Art. 11)

• CBA is applied in the framework of Regional planning and in

the EU-wide TYNDP process as well as in evaluating

proposed PCIs

• The goal of project assessment is to characterise the impact

of transmission projects, both in terms of added value for

society (increase of capacity for trading of energy and

balancing services between bidding areas, RES integration,

increased security of supply, …) as well as in terms of costs

• ENTSO-E has been using a combination of CBA methodology

with multi-criteria assessment in the recent TYNDPs

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Project valuation in the context of future

scenarios based on 4 visions

• Projects with significant cross border impact

• Top-down Reference and Sensitivity Scenarios

• Compares the contribution of a project to different indicators on a consistent

basis / reference

16ENTSO-E electricity sector future visions

CBA issues - project identification

• Project identification

• Projects vs clusters

• Independent – separate evaluation

• Complementary – to consider as a single project

• Competitive – individual benefits with comparison to

benefits if both are built

• Regulation requires individual evaluation

• Minimum capacity requirements as eligibility criteria

• Incentive to present groups of projects as a single one:

eligibility check

• Grouping of investments should only be allowed

when strong synergies are present

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CBA issues – assessment is combined cost

benefit and multi-criteria framework

• Not all monetized, but some measured in physical units!

• No weighting scheme of the various items ⇒ no final ranking of projects

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CBA - Main benefit categories (1)

• B1:Security of Supply: • DEF: provision of secure supply of electricity in normal

conditions

• Method: Expected Energy Not Supplied (EENS) or Loss of Load Expectancy (LOLE) calculation by network/market models

• Monetization: Only EENS (VOLL - Value of Lost Load –calculation is difficult)

• B2: Socio-Economic Welfare• DEF: Increase trading opportunity by increased GTC and

reduced total system cost

• Method: Calculating consumer and producer surplus and congestion rents by market models; alternative: generationcost approach

• Monetization: Market models already provide monetary values

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The concepts of VOLL, LOLP and EENS

• Major variables to define the economic value of improved system

security (e.g. by a new transmission line):

• Loss of Load Probability (LOLP)

• System load at t

• Economic value of lost load (VOLL)

• The economic value of lost load (VOLL);

• Loss in value to the customer resulting from a sudden interruption of

electricity supply. Measured in €/kWh

• Which of them can be affected by new infrastructure?

• The expected unit cost of a disruption: LOLP * VOLL (€/MWh)

• EENS: LOLP*system load (MWh)

• Economic value of improved system security:

dLOLP*system load *VOLL (€)

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Estimating VOLL

• Since there is no market for load shedding (1st best method), we can estimate it by different methods.

• Proxy methods• GDP/consumed electricity

• Price of electricity (typical: VOLL >> price)

• Wage

• Revealed preference methods• Interruptible consumer contracts

• Balancing market prices

• Stated preference methods• Direct costing

• Contingent valuation surveys

• Case studies

Socio-economic welfare components

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How these components change due to a wholesale price change

induced by the implementation of a new infrastructure?


• B3. RES Integration:

• DEF: measures reduction in RES curtailment and increased RES

generation connectability

• Method: avoided curtailment and network modelling on possible

increase in RES generation connection

• monetization: not monetized, savings in avoided curtailment

included in generation cost saving (B2)

• B4. Variation in Losses (Energy Efficiency)

• DEF: savings arising from reduced thermal losses

• Method: network and market simulation tools estimate saving in

losses that reduces production requirements

• Monetization: market study gives value of loss (e.g. market

value/price)

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• B5. variation in CO2 emissions

• DEF: changing in CO2 emissions due to the changing

trade and production patterns

• Method: using market and network models and

accounting for standard emission rates socio-

economic welfare category (B2) includes it already

• B6. Technical Resilience/System Safety Margin

• DEF: Contribution to system security during extreme

situations

• Method: scoring key performance indicators (e.g.

Steady state, voltage collapse criteria)

• Monetization: No

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• B7. Robustness/Flexibility

• DEF: ability of the system to meet future scenarios

that are different form present projections

• Method: probabilistic approach of future scenarios and

scoring key performance indicators

• Monetization: No

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CBA – Costs, Social Impacts, GTC

• C1: Total Project Expenditure

• DEF: Total investment cost + maintenance costs

• Method: accounting for the entire lifetime of

equipments

• Social impacts

• S1. Environmental impacts: assessment of local

impacts, e.g. length of line run through

environmentally sensitive areas

• S2. Social impacts: assessment of local impacts, e.g.

length of line run through socially sensitive areas

• GTC assessment

• Network modelling26

Additional valuation issues

• Geographic scope: EU

• Time frame: analysis period starts with

commissioning date; combine mid-term and

long-term analyses

• Discount rate: 4% real for 25 years lifetime and

no residual value

• Benefit analysis options:

• Take Out One at the Time (TOOT)

• Put IN one at the Time (PINT)

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Summary table…

• Serves to highlight all benefits, costs and social

assessment according to the multi-criteria

framework applied

• But: no weighting scheme is applied presently ⇒

No ultimate ranking of projects!

• Source: ENTSO-E 2013

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… or summary figure

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CBA and Cross Border Cost Allocation

• Benefit distribution unequal

• How to share the cost of building PCI projects?

• Cross Border Cost Allocation scheme

• What cost allocation rule would you propose?

• Role of ACER30

Net

consumer

surplus

Producer

(incl. LNG)

surplus

Storage

operation

profit

Net profit from

long-term

contracts

TSO auction

revenues

Total social

welfare

GR -76,8 41 0 43,9 114,9 122,9

BG 60,3 -8,2 0 -46,7 103,8 109,2

RO 94,8 -98,8 0 -24,5 -7,5 -35,9

HU 1,7 -0,4 0 -1,2 -7,6 -7,5

MK 3,2 0 0 -2,6 0 0,6

SI 0 0 0 0 -0,1 -0,1

AT 0 0 0 0 -0,1 -0,1

HR 0,6 -0,4 0 -0,2 -0,1 0

SB 0,3 -0,1 0 -0,2 0 0

BA 0,1 0 0 0 0 0

Total 84,2 -66,9 0 -31,5 203,3 189,1

GR-BG interconnection: project cost: € 160 m; annual net welfare impact: € 190m

ENTSO-E CBA 2.0 consultation ongoing

• Combined multi-criteria and CBA method kept

• No full monetization

• Maturity if the projects considered (eligibility,

clustering)

• SoS criteria re-defined: B1, B6 and B7 combined

into B1 and B2: adequacy and system stability

• Adequacy: value of transmission is related to avoided

investment into generation

• Other benefit and social impact criteria kept largely

unchanged

• TOOT and PINT in GTC calculation

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Overview




• Discussion

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Discussion

• Monetization vs multi-criteria approach

• Ranking

• Transparency of applied market and network

models

• ENTSO-E will carry out regional and EU-wide

resource adequacy assessment (winter package)

• CBCA – sufficient to generate financing?

• …?

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THANK YOU FOR YOUR ATTENTION!

[email protected]

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