Locational Signals for Generation and Transmission investment

• Transmission Investment:

“the knottiest problem in the (energy) deregulation process”

Steven Stoft

1ACCC Regulation Conference 2010- Steve Edwell

Locational Signals for Generation and Transmission investment

• The aim is to avoid:

– Wrongly located generation– Crowding out efficient generation by transmission

overbuild– Delay in efficient transmission augmentation

2ACCC Regulation Conference 2010- Steve Edwell

Locational Signals for Generation and Transmission investment

• Transmission investment is lumpy• A “chicken and egg dilemma”• Outdated transmission flow analysis• Generation tends to happen first

3ACCC Regulation Conference 2010- Steve Edwell

Chart 1

A B

Low Cost Generators High Cost Generators

Small Loads Large Loads

4ACCC Regulation Conference 2010- Steve Edwell

Chart 2(a)Low Cost Generators High Cost Generators

Small Loads Large Loads

A B

New Generator

5ACCC Regulation Conference 2010- Steve Edwell

Chart 2(b)Low Cost Generators High Cost Generators

Small Loads Large Loads

A BX

New Generator

6ACCC Regulation Conference 2010- Steve Edwell

Chart 3Low Cost Generators High Cost Generators

Small Loads Large Loads

XA B

New GeneratorPrice Region 1 Price Region 2

7ACCC Regulation Conference 2010- Steve Edwell

Chart 4Low Cost Generators High Cost Generators

Small Loads Large Loads

XA B

New GeneratorPrice Region 1

8ACCC Regulation Conference 2010- Steve Edwell

Locational Signals for Generation and Transmission investment

• Question:

Do we need better regulatory incentives for TNSP’s, some exposure to transmission costs by generators, or a return to some form of central planning; or perhaps a mix of these?

9ACCC Regulation Conference 2010- Steve Edwell

Locational Signals for Generation and Transmission investment

• NEM Framework:

– Generators pay direct connection costs and loss factor location signals

– But these signals are weak– No location price signals– Mis-pricing/disorderly bidding

10ACCC Regulation Conference 2010- Steve Edwell

Output of Kogan Creek and imports into Qld across QNI (1)

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Kogan Creek's output (MW)

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Chart 5

11ACCC Regulation Conference 2010- Steve Edwell

Output of Kogan Creek and imports into Qld across QNI (2)

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Kogan Creek's output (MW)

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Chart 5a

12ACCC Regulation Conference 2010- Steve Edwell

Locational Signals for Generation and Transmission investment

• Recent NEM policy initiatives in response to remote generation:– Remote generation zones (Scale efficient network

extensions – SENEs)– Individual generators will pay only their own

efficient network connection costs– Users will assume the risk of non arrival– Regulatory oversight of SENEs costs by AER.

13ACCC Regulation Conference 2010- Steve Edwell

Locational Signals for Generation and Transmission investment

• Recent NEM policy initiatives in response to remote generation (con’t):

Further recommendations:

– Introduce a transmission charge– Pockets of material/transitory congestion should

be priced

14ACCC Regulation Conference 2010- Steve Edwell

Locational Signals for Generation and Transmission investment

• The Western Australian WEM:– Generators pay connection and costs of deep

network impacts– Potential for recompensation– Quantifiable net market benefits of the

connection can be offset

15ACCC Regulation Conference 2010- Steve Edwell

Locational Signals for Generation and Transmission investment

• Concluding Points:

1. We can’t rely on a market solution2. Is better price signals part of the solution?3. Better incentives for TNSP’s?4. A role for (proactive) planning

16ACCC Regulation Conference 2010- Steve Edwell