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Riddles and Questions in the Economics of Water and Power!
When is a backstop not a backstop? • When it’s a frontstop. • When it’s cost is increasing • When it’s an intermediate “stop”
• Recycled water • When it’s a bridge to another resource
Dynamically Optimal Steady State Net recharge, growth rate
Head
MSY
hmax
DOSS (high discount rate)
DOSS (high or steep costs)
Coastal aquifer cross-section Rainfall
Recharge (R)
Head (h)
Groundwater
Saltwater
Caprock
Ocean
Extraction (q)
Leakage (L)
When it’s a frontstop
dp/dt=0 dh/dt=0
cb
p*
h*
Desalina8on is a front and backstop
dp/dt=0 dh/dt=0
cb
p*
hb* h*
The Pearce Equation
D
C0+MUC0
C1+MUC1
C2+MUC2
q0 q1 q2
p08
p15
p30
$
Extraction
When it’s a temporary backstop (costs of recycling eventually increase)
pH pA
p*
cr FMCgH
FMCgA
FMCrA
p*
cw
FMCg
FMCw
When it’s a watershed
Energy costs of desalina8on: Will the real backstop please stand up?
FMCb(0)
FMCg FMCb
FMCb(∞)
Technical Change in Desalination
Philippine Power Policy: Too many objectives? • EPIRA (RA 9136) – Unbundling • RE (RA 9513) – Promote renewable energy
• Sustainability • Self-sufficiency • Renewability • Security • Reliability • Affordability • Inclusivity • Efficiency
Mission Impossible => Rent-seeking
Pursue each as it promotes the general welfare • Facilitate and coordinate (incl. sensible infra) to increase consumer welfare, net of environmental costs
• Large subsidies shrink the economy.
Inclusive electrification
• Only to the extent that it promotes general welfare
• Most cost effective way to spend PhP 1 billion – Extend minigrids (outer islands and remote
locations) – New microgrids (e.g. sitio size) – New nanogrids (e.g. 1-3 homes)
• How much is poverty reduced? • Cost effectiveness vs. CCTs?
Sustainability ala Jack Johnson or as promotion of the general welfare?
• Non-economics version (chaos) • Reduce • Reuse • Recycle • Renew
• Economics version • Production function natural resource use • Intertemporal equity • Maximize intertemporal welfare
39%
27%
19%
6% 7%
1% 1%
Percentage Share of Energy Sources US Electricity Genera=on 2014
Coal
Natural gas
Nuclear
Hydropower
Other renewables (Biomass, Geothermal, Solar, Wind)
0
20
40
60
80
100
120
EU-2
8
Aus
tria
Swed
en
Port
ugal
Latv
ia
Den
mar
k
Cro
atia
Rom
ania
Spai
n
Slov
enia
Italy
Finl
and
Ger
man
y
Gre
ece
Irela
nd
Slov
akia
Bul
garia
Fran
ce
Uni
ted
Lith
uani
a
Esto
nia
Cze
ch
Bel
gium
Pola
nd
Net
herla
nds
Cyp
rus
Hun
gary
Luxe
mbo
urg
Mal
ta
Nor
way
Source: Eurostat (online data code: tsdcc330) "
22% in EU
13% share in US! (EIA)
Volunteering to play the sucker? Phils share of renewables =33%
Borenstein, von Kooten et al: High renewable subsidies
lower prices
• Philippines has highest energy prices in Asia (except Japan)
• Denmark, Germany, Spain, California, Hawaii
• High RE subsidies • High prices
Feed-in-Tariff (FIT)
Tied to be FIT
Pnondisc = 562.73
Pdisc = 530.85
Preg = 200 154 150
J
894.41
K
M P D
1659.59
$ / MW
MW
MSCNR
MCR
MCR
MW*
Current Situation • Two separate objectives
– Bring electricity rates down – Environmental goals
• Two contradicting instruments – EPIRA (RA 9136) – RE Law (RA 9513)
• Need to reconcile objectives in order to reform law
• Reduce costs of generation, transmission, retailing, distribution and COSTS OF POLLUTION.
Current Situation • Two separate objectives
– Bring electricity rates down – Environmental goals
• Two contradicting instruments – EPIRA (RA 9136) – RE Law (RA 9513)
• Need to reconcile objectives in order to reform law
• Reduce costs of generation, transmission, retailing, distribution and COSTS OF POLLUTION.
Suggestive results/questions
• Coal: Transport and transmission costs dominate econ-of-scale.
• Hydro
– Adequate water: baseload – Seasonal water: specialize in peak
• Gas has comparative advantage in peak periods.
But Gas-Gen Used as Baseload!
-‐
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1 3 5 7 9 11 13 15 17 19 21 23
Megaw
aV
Hour
Luzon -‐ Coal
Coal Total Gen
-‐
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1 3 5 7 9 11 13 15 17 19 21 23
Hour
Luzon -‐ Comb. Hydro, Diesel, etc.
Total Gen Others
-‐
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
1 3 5 7 9 11 13 15 17 19 21 23
Hour
Luzon -‐ Natural Gas
Natural Gas Total Gen
Visayas Typical Load Curve – Dry Season
-‐
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
1 3 5 7 9 11 13 15 17 19 21 23
Megaw
aV
Hour
Visayas -‐ Geothermal
Geo Total Gen
-‐
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
1 3 5 7 9 11 13 15 17 19 21 23
Hour
Visayas -‐ Coal
Coal Total Gen
-‐
200.00
400.00
600.00
800.00
1,000.00
1,200.00
1,400.00
1,600.00
1,800.00
1 3 5 7 9 11 13 15 17 19 21 23
Hour
Visayas -‐ Diesel, Hydro, etc.
Total Gen Others
Current Situation • Two separate objectives
– Bring electricity rates down – Environmental goals
• Two contradicting instruments – EPIRA (RA 9136) – RE Law (RA 9513)
• Need to reconcile objectives in order to reform law
• Reduce costs of generation, transmission, retailing, distribution and COSTS OF POLLUTION.
Renewable Location • Wind and solar in far north (avoided
transmission cost) • Only solar in far southern portion of the
grid • Wind vs. Solar
– Mg cost of wind is lower – But mg benefits (avoided cost) also lower
• Wind dominated by solar in South – More sun, less wind – Higher differential between peak and off-peak
Renewables: What Size?
Burgos exports: Rational or
Rope-a-Dope?
Export Solar?
• Import solar: MB = LACE + TC = LCOE • Export Solar: MB = Smaller LACE =
LCOE + TC
Possible reforms and directions
• Failure to exploit mg cost pricing – Volumetric rates include fixed cost of
infrastructure – Two-part tariff for transmission? – Time of day charges will increase net benefits
thru demand side conservation including intertemporal substitution (e.g. price responsive thermostats)
– Result: partial convergence of peak and off-peak rates may increase comparative advantage of coal, even including emission charges.
• Possible that gas should be conserved for future.
To do:
• Build analytical and numerical models capable of delivering these results, albeit w/ demand functions instead of exogenous “loads.”
• Add uncertainty about demand and equipment failure.
• Results from econ model still must be validated in EE model.
Maraming Salamat and Mahalo!
Tel. Nos. +63 (2) 9279686 loc. 239 Telefax Nos. +63 (2) 9205465
Website: www.upecon.org.ph/epdp Email: [email protected]
Comparison of Power Rates
Del Mundo (2014), Understanding and Reducing Power Rates in the Phils.
RENEWABLE SUBSIDIES SHRINK THE ECONOMY!
To do:
• Build analytical model capable of delivering these results, albeit w/ demand functions instead of “loads.”
• Build operational model along similar lines. Google Fripp the SWITCH.
• Then add uncertainty about demand and equipment failure.
• Results from econ model still must be validated in EE model.
Feed-in-Tariff (FIT)
Progeria in the economy
Philippines South Korea Thailand Indonesia Malaysia 1965 763 1,285 437 279 1,173 2012 1,501 23,303 3,390 1,732 6,790
-‐
5,000
10,000
15,000
20,000
25,000
GDP per capita in 2005 USD, 1965 vs. 2012
Source: WDI.
Great improvements in GDP p.c. in Phl.’s neighbors associated with increased industrializa8on and manufacturing.
Progeria in manufacturing
Philippines South Korea Thailand Indonesia Malaysia 1965 23.6 14.3 14.2 8.4 9.5 2012 20.5 31.0 34.0 24.0 24.2 P.p. change (%) -‐3.1 16.7 19.8 15.6 14.8
-‐5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
Manufacturing share to GDP, 1965 vs. 2012 (%)
Source: WDI.
Philippines South Korea Thailand Indonesia Malaysia 1965 31.1 21.3 22.9 12.6 27.5 2012 31.1 38.1 43.6 46.8 40.8 P.p. change (%) 0.0 16.8 20.7 34.2 13.4
-‐5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
45.0
50.0
Percen
tage point cha
nge (%
)
Industry share to GDP, 1965 vs. 2012 (%)
Great improvements in GDP p.c. in Phl.’s neighbors associated with increased industrialization and manufacturing.
Source: WDI.
Sec 4. Renewable Portfolio Standards
Optimal generation and transmission
• Levelized Cost of Electricity (LCOE) – But cost depends on spatial and temporal use patterns
and other resource availabilities – Supply not independent of demand
• Levelized Avoided Cost of Electricity (LACE) – Compare avoided cost benefit w/ levelized cost – Still somewhat ad hoc. You don’t know what resources
you will use when until you do the optimization. (But could iterate.)
• Electrical engineering practice: minimize total LCOE plus subject to exogenous “loads,” transmission losses and constraints.
• Ideal: endogenize transmission as well as generation given somewhat elastic demand functions, not exogenous loads.
Source: Southeast Asia Energy Outlook September 2013 "
Philippines ahead of Thailand and Malaysia in RE generation!
DISTRIBUTION!TRANSMISSION!POWER !PLANTS!& IPPs!
END!USERS!
END!USERS!
SYSTEMS!OPERATIONS!
NATIONAL POWER CORPORATION!
• 18 PRIVATE ! UTILITIES!• 2 LOCAL ! GOVERNMENT! UNITS!• 120 ELECTRIC! COOPERATIVES!
OTHER IPPs!
Source: ERC Restructuring the EPIRA Powerpoint Presentation"
Before the reforms…
R.A. 9513 Renewable Energy Act of 2008
§ On-Grid Renewable Energy Development!§ Renewable Portfolio Standards (RPS)!§ Feed-In Tariff System!§ Renewable Energy Market!§ Green Energy Option!§ Net-metering for Renewable Energy!
§ Off-Grid Renewable Energy Development!§ Minimum RE generation capacities!
Source: ERC FIT Powerpoint Presentation"
Sec. 7, R.A. 9513"For emerging renewable energy resources to be used in compliance with the Renewable Portfolio Standard, to wit:"
q Wind"q Solar"q Ocean"q Run-of-river Hydro"q Biomass"
Feed-In Tariff System!
Source: ERC FIT Powerpoint Presentation"
Geothermal excluded!
After the reforms…!
DISTRIBUTION!TRANSMISSION
POWER !PLANTS!& IPPs!
END!USERS!
END!USERS!
SYSTEMS OPERATIONS
NATIONAL!TRANSMISSION!CORPORATION!
• 18 PRIVATE ! UTILITIES!• 2 LOCAL ! GOVERNMENT! UNITS!• 120 ELECTRIC! COOPERATIVES!
OTHER IPPs!
OTHER IPPs!
MARKET !OPERATOR!
SUPPLY!
GENERATION! SUPPLY!DISTRIBUTION!TRANSMISSION!
Source: ERC Restructuring the EPIRA Powerpoint Presentation"
OPEN!ACCESS &
RETAIL COMPETITION!
R.A. 9136 (EPIRA)!The BLUEPRINT of
the electricity industry.!
RESTRUCTURING!
PRIVATIZATION!
Objective of EPIRA!
Source: ERC Restructuring the EPIRA Powerpoint Presentation"
Phl. manufacturing and GDP p.c. stagnated with respect to its neighbors
(note: 1965=100).
RESTRUCTURING!
Performance!Based!Regulation!!Benchmarking!
Competition at the wholesale & retail level!
Source: ERC Restructuring the EPIRA Powerpoint Presentation"
Too many objectives => rent-seeking … unless we interpret each acc to its contribution to “common good” (public welfare).
• Sustainability • Self-sufficiency • Renewability • Security • Reliability • Affordability • Inclusivity Efficiency
Household electricity consumption
Del Mundo (2014), Understanding and Reducing Power Rates in the Phils.
