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ABCD

22 July 2003

R Venkatraman, KPMG Consulting

Electricity Act 2003 Opportunities forInvestment & Growth

Transmission Issues


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Background

Indian Electric Transmission grid consists of

nearly 5.7 Million km of high-voltage transmission

lines.

In recent years, the number of transactions and

quantity of power flows on the transmission grid

has increased significantly.

At the same time, transmission investments have

been declining.


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1168MW500MW

166MW

100MW

100MW

1067MW

420MW

100MW

1180MW

1944MW

3187MW

3475MW

100MW 90MW

140MW

1500MW

150MW

1170MW330MW

135MW

450MW

80MW

100MW

Generation capacity addition is expected tocontinue at a brisk pace

State & private sector only.

Central Sector not included


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Generation capacity addition is expected tocontinue at a brisk pace

X Plan Target (2002-2007)

Central State Private Total

Thermal 12,790 6,676 5,951 25,417

Hydro 8,742 4,481 1,170 14,393

Nuclear 1,300 - - 1,300

Total 22,832 11,157 7,121 41,110

The transmission grid will need to transport all this

power to the consumer .


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Consequently, the impact on transmissionwill be significant

Massive new transmission capability needs to be

built to match the increase in generation capacity

Existing transmission infrastructure needs to be

significantly upgraded

Congestion management and system operations

will be key

Information availability will need to raise

dramatically Robust monitoring mechanisms must be

introduced


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And, there are some pre-requisites

Non discriminatory open access and a strong market are

pre-requisites for competition.

Return on Investment and depreciation mechanisms may

need to be reviewed to make it attractive for investors.

A strong and reliable transmission network widens the

market, making it more competitive by allowing more

entities to compete.

Savings to the customers are expected from competition in

generation sector.

- Unless competing generators can reach consumers

efficiently, competition in generation will not produce the

benefits expected.


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The Electricity Act seeks to address theseissues through .

Introduction of Open Access.

Creation of National Grid

Creating environment for private investments in

transmission

Technical up gradations

Introduction of market mechanisms

Better coordination and planning by NLDC, RLDC,

SLDC & DLDC(Discom/Area LDCs)

Grid discipline, open access and investment promotion

are critical action areas


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1. Grid Discipline2. Non Discriminatory Open Access

3. New Investment in Transmission


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The root causes of grid indiscipline

InadequateG enerationC apacity

G R I D I N D I SC I PL IN E

Low focus onEconomi c D ispatch& Unit Commitment

A bsence of Tools& Procedures

PoorPredictability

D e lib era te D e v ia t ion s In ad v e rt en t D ev ia tion s

Power system control priorities System security

Maintaining load / generation balance

Economic dispatch


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Grid discipline some issues

Grid discipline issues have resulted from

- Absence of tools and guidelines

- Lack of sufficient generation capacity

In ABT, adherence to drawal schedule may not solve the

frequency problem if grid constituents continue to overload

it.

After ABT, ground situation has not changed much as the

grid constituents in general have preferred to allow the

frequency to decline rather than to proactively shed load. ABT may not address frequency problem where CGS

contribution is low since impact of UI (Unscheduled

Interchange) charges on utility finances is low.


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Grid discipline - some suggestions

Frequency regulation needs to be monitored on real time

basis

- Through reliability rules and procedures and not merely by

relying on monetary incentive/ disincentive framework.

The Area Control Error (ACE) principle could be one methodto strengthen frequency control.

- ACE specifies responsibility on each constituent to bring

back the frequency to normative level, even if stated

schedules are being adhered to.

- ACE concepts could be incorporated within ABT to

supplement the price signals in ABT once the system

frequency drops below, say, 49 Hz.

However for this to be effective additional statutory powers

to the regulator and the load dispatcher may be necessary.


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Grid discipline - some suggestions

Utilities need to undertake extensive load research to

evaluate the magnitude and characteristics of current load

(both served and unserved), and future load addition.

Load research can not only increase accuracy of load

forecast, but also assist in formulation of demand sidemanagement measures.

A significant systemic tool like Energy Management System

(EMS), has features addressing short term unit commitment,

economic load dispatch and settlements.- Makes it suitable for current needs as well as future

requirements under arrangements like multi-buyer

markets.


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EMS - a tool to a tool for efficient dispatch

Cost of procurement

Hydro generation

schedule

XA/21

Dispatch

schedule

Cost of procurement

Grid demand

Thermal & hydro

station availability

Water availability

Machine parameters

MS SQL Server

VB based front-end

Planning

Output

Annual Dispatch Planning


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Some of the pre-requisites for open accessare

Improved reliability of T & D network.

Reliable information systems.

Technical adequacy of transmission lines.

Knowledge on available capacity (measure

congestion).

Transparent energy accounting systems.

Balancing mechanisms


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Open access some issues

Transmission system development would become more

complex.

CTU & STUs need to strengthen/improve existing networks

to remove congestion & make a realistic plan for expansion.

The concern for stranded cost will increase.

Network operation/planning to take in to consideration of

minimising stranded costs.

Transaction costs have to be minimised so that they do not

off set the benefits of competition.

Regulatory control on transmission access and pricing

would be critical


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Open access some issues

Accuracy of determination of total & available transmission

Capacity is one of the requirements for operating under

open access.

Most utilities' current pricing schemes do not effectively

address the costs of transmission constraints. Nor do they

provide the proper signals concerning whether to remove

constraints through supply side generation, transmission

expansion or demand side measures.

When individual utilities schedule power flow over a singleregional grid, unexpected overloads can arise and become

barriers to competitive power trading.


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Transco

STU

SLDC

To ensure integrated operation of power system in

the state

Responsible for optimum scheduling and dispatch

Keep account of quantity of electricity transmitted

through state grid Real time operation of grid controls and dispatch

through secure and economic operation

Transmission of electricity through intra-statetransmission system

Planning and co-ordination Ensure development of intra-state transmission

lines. To provide non-discriminatory open access to its

transmission

To build, maintain and operate an efficient andeconomical inter-state or intra-state transmission

system. To comply with the directions of RLDC and SLDC

as the case may be.Lic

ens

ee

Trading

Bulk supply trading of all existing

Contracts

Transmission service

provider

System operator.

Bulk supplier/Trader

EarlierEarlier NowNow

The new structure is complex


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Business separation will be important

Separation of monopoly transmission businesses

from competitive or potentially competitive

activities.

Options range from full ownership separation tomanagement separation.

Europe has a mix of these:

- Ownership unbundling (UK, Finland, Spain, etc)

- Legal unbundling (Austria, Belgium, Denmark, etc)

- Management unbundling (France, Luxembourg)

Source: Ian Pope Associates


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In addition, monitoring regimes are requiredto ensure fairness

Separation and publication of accounts

Appointment of a compliance officer whose job

is to ensure that network access rules are applied

equally and fairly Establishment of a separate corporate identity for

the TSO

Ensuring that the TSO is not physically located in

the same building as an affiliate operating in the

competitive market

Source: Ian Pope Associates


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European experience .

Country Publishe daccounts

Complianceofficer

Separatecorporate ID

Separatelocations

Austria Yes No Yes Yes

Belgium Yes No Yes Yes

Denmark Yes Yes Yes Yes

Finland Yes Yes Yes Yes

France Yes Yes Yes Yes

Germany Yes No Yes Yes

Greece Not yet No Yes Yes

Ireland Yes Yes Yes No

Italy Yes No Yes Yes

Luxembourg Yes No No No

Netherlands Yes Yes Yes Yes

Portugal Yes No Yes Yes

Spain Yes Yes Yes Yes

Sweden Yes Yes Yes Yes

UK Yes Yes Yes YesSource: Ian Pope Associates


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Encouraging investments somesuggestions

Adequate returns (risk adjusted) on the investments andattractive depreciation norms.

Ensure separation of business & introduce monitoring

regime

Realistic transmission planning by CTU/STU based onscientific load research/load forecast & generation plan.

Regulatory certainty over a long period

Cost reflective retail tariffs

Establishment of effective/reliable communication networkand energy data collation system

Settlement systems

Addressing the stranded cost issue


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ABCD

Thank you

R Venkatraman, KPMG ConsultingEmail: [email protected]

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