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Power Market Reform
Yukari YamashitaThe Institute of Energy Economics, Japan (IEEJ)
30 October 2014Singapore International Energy Week 2014
Think tank Roundtable B
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Introduction
• Energy Situation in Asia
– Findings from “Asia/ World Energy Outlook 2014”
• Some background on Electricity Market Refor
• Today’s Discussion Points
2
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18
114
134
233
460
539
655
3,526
0 1,000 2,000 3,000 4,000
Oceania
North America
OECD Europe
FSU & Non-OECDEurope
Middle East
Africa
LatinAmerica
Asia
Mtoe
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1990 2000 2012 2020 2030 2040
Million tons of oil equivalent
2012
13.4 bil toe↓
2040
19.3 bil. toe(1.4-fold increase)
World
Asia
North AmericaOECD Europe
FSU & Non-OECD Europe Latin America
Middle EastAfrica
Oceania
5,268
8,794
Annual Average Growth rate(2012-2040)
1.8%
2.1%
2.0%
1.8%
0.6%
0.3%
0.2%
0.4%
Increase (2012-2040)
3Source: IEEJ, Asia/ World Energy Outlook 2014
Primary Energy Demand by Region (World)
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0
1000
2000
3000
4000
5000
6000
1990 2000 2012 2020 2030 2040
Mtoe
World Asia
0
500
1000
1500
2000
2500
3000
3500
4000
1990 2000 2012 2020 2030 2040
Mtoe
Oil
Coal
Natural gas
Other renewables
Nuclear Hydro
31%
29%
28%
24%
24%
24%
51%
41%
32%
24%
19%
29%
21%
25%
23%
10%
16%
16%11%
17%13%
12%11%
16%
5% 6%10%
2%6%10%
2% 2%2% 2%3%
Fossil share82%→79% (reference)
71% (Adv. Tech.)
Fossil share84%→81% (reference)
71% (Adv. Tech.)
4Source: IEEJ, Asia/ World Energy Outlook 2014
Primary Energy Demand by Energy
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▲0.2billion toe
(▲14%)
20120.7 billion toe
↓2040
Reference
1.5 billion toe
Adv. Tech. Scenario
1.3 billion toe
5
Electricity Demand by Country (Asia)ReferenceAdv. Tech.
AAGR China India Japan Korea Taiwan Singapore1980-2012 9.2% 7.3% 1.8% 8.8% 5.8% 6.7%
2012-2040 2.8% 5.1% 0.5% 1.7% 0.8% 1.8%
Indonesia Malaysia Philippines Thailand Vietnam Other Asia10.8% 8.6% 4.0% 8.2% 12.3% 5.0%
5.2% 3.7% 4.0% 3.2% 4.6% 2.8%
Source: IEEJ, Asia/ World Energy Outlook 2014
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AAGR
’80-’12 ’12-’40
Total 6.6% 2.7%
Coal 3.4% 1.6%
Oil -1.2% 0.1%
Gas 5.2% 2.9%
Oil-fired4%→1% [1%]
Coal-fired62%→54% [41%]
Gas-fired14%→18% [14%]
Nuclear4%→10% [18%]
Other Renewables4%→7% [15%]
Hydro14%→10% [14%]
6
Power Generation Mix by Source (Asia) Solid line: ReferenceDotted line: Adv. Tech.
Share2012→2040
Reference [Adv. Tech.]
Source: IEEJ, Asia/ World Energy Outlook 2014
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7
Power Generation Mix by Source (Asia)
Reference Scenario Adv. Tech. Scenario
54%
18%10%
7%1%
10%
1%
15%
18%
12%14%
39%
Source: IEEJ, Asia/ World Energy Outlook 2014
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59
283
496
748
996
1,765
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2005 2012 2020 2030 2040 2040
gW
Asia
EuropeOECD
North America
Adv.Tech
Africa
←Actual Forecast→
Electrical Power Plant Capacity by solar power and wind power generation (World)
2012283 GW
↓
2040In Ref. In Adv.Tech
996 GW 1,765GW(4 times) (6 times)
Wind PowerSolar Power
Wind Power
Solar PowerWorld Asia
World Asia
2012年98GW
↓
2040年In Ref. In Adv.Tech
471 GW 951GW(5times) (10times)
201217GW
↓
2040In Ref. In Adv.Tech
284 GW 588GW(17times)(35times)
201298GW
↓
2040In Ref. In Adv.Tech
622 GW 1,232GW(6 times) (13 times)
4 98
252
412
622
1,232
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2005 2012 2020 2030 2040 2040
gW
←Actual Forecast→
Asia
EuropeOECD
North America
Adv.Tech
Africa
Forecast→
Source: IEEJ, Asia/ World Energy Outlook 2014
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Renewable Power Generation (World)
Electric Power Capacity Electric Power Generation
9
429
1,915
2,394
5,170
0
1,000
2,000
3,000
4,000
5,000
6,000
Reference Reference Tech. Adv.
2011 2040 2050
GW
Wind
PV
CSPOcean
Biomass Power
463
1,937
2,611
5,164
0
1,000
2,000
3,000
4,000
5,000
6,000
Reference Reference Tech. Adv.
2012 2040 2050
GW
Geothermal
Ocean
Biomass power
Wind
PV
CSP
1,128
3,825
4,902
8,388
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Reference Reference Tech. Adv.
2012 2040 2050
TWh
Geothermal
Ocean Biomass power
Wind
PV
CSP
Source: IEEJ, Asia/ World Energy Outlook 2014
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503
449
385 326
690
642
568 545
548 520 500
479
455
300
350
400
450
500
550
600
650
700
750
1971
1980
1990
2000
2012
2015
2020
2030
2040
Reference
g-CO2/kWh
Adv. Tech.
623
553
487
418
642 645
623
664 696
644
618 597
567
300
350
400
450
500
550
600
650
700
750
1971
1980
1990
2000
2012
2015
2020
2030
2040
Reference
g-CO2/kWh
Adv. Tech.
World Asia
*480g-CO2/kWh **350g-CO2/kWh
Japan(2012)*
Japan(1998)**
Carbon Intensity of Electricity (CO2 Emissions per kWh)
Growth of Nuclear and
Gas-fired
10Source: IEEJ, Asia/ World Energy Outlook 2014
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5.0
7.0
14.3
16.6
20.1
23.0
25.4
15.316.5 16.9 16.3
0
5
10
15
20
25
30
1990 2000 2012 2020 2030 2040 2050
GtCO2
Energy saving
Biofuel
Wind, Solar, etc
Nuclear
Fuel switching
Reference
Adv.Tech.
CO2 Emissions Reduction by Technology (Asia) ReferenceAdv. Tech.
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※Data excludes CCS
Source: IEEJ, Asia/ World Energy Outlook 2014
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CO2 Emissions Reduction by Technology (World)Reference[Adv. Tech.]+CCS
CCS
33%
Energy Saving
37%
Fuel Switching
30%
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Total 22.8Gt49% reduction
21.2
23.6
35.8
40.1
43.7
47.0
32.6
32.9
30.2
26.9
24.2
20
25
30
35
40
45
50
1990 2000 2012 2020 2030 2040 2050
GtCO2
Energy Saving
Biofuel
Wind, solar, etc
Nuclear
Fuel switching
CCS
Reference
Advanced
technology+CCS
G t-CO 2 Share
Energy saving 8.5 37%
Biofuel 0.2 1%Solar, w ind, etc 3.1 14%Nuclear 2.0 9%Fuel sw itching 1.5 7%CCS 7.4 33%
計 22.8 100%
Source: IEEJ, Asia/ World Energy Outlook 2014
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-20
-10
0
10
20
30
40
50
60
2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
GtCO2
550ppm category
500ppm category450ppm category
Advanced Technology & CCS
Range of Cancun pledges
ReferenceScenario
13
Source: IEEJ, Asia/ World Energy Outlook 2014
CO2 Emissions Paths by GHG Concentration Categories
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We need electricity
• Access to energy often means access to electricity.– The problem lies between ``keeping the lights on``(developed) and ``turning
the lights on``(developing).
• Youth’s lifestyles require electricity supply which they do not care from which power station or source it is generated…
• Social systems & economic activities : production lines,hospitals, offices, households, entertainment and comforts…. These services are supplied by electricity.
• New social infrastructures utilizing ICTs and ITs use electricity• Sudden blackout means…
no train, no traffic lights, no medical equipment, no lightings, no A/C, no elevators, no water, etc.
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The market is not the same, any more
• The electricity sector in most developing economies was owned and operated within the public domain, through vertically integrated entities to perform the functions of generation, transmission and distribution (as well as infrastructure creation).
• Vertically integrated monopolies, based on economies of scale argument, were initially deemed to be the best way to deliver electricity to the majority, lacking access to it.
• We are no longer at the turn of the 20th century where huge initial investments were required financed by governments.
• Deregulation and liberalization of the market are required for more efficient power supply and reduction of electricity prices.
• We are in the 21st century and size of investments are varied with many different and new players in the market.
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Investments are always at the core of the discussions for reforms.Electricity is unquestionably a part of our lives!!
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Technologies have evolved
• Initial installation of big-scale plants and grids
– thermal power plants, nuclear power plants, national grids …..
• More quick to install technologies became available:
– gas turbines, roof-top PVs, Fuel cells ……..
• System integration is required connecting different sectors, businesses, customers, technologies, appliances and balancing supply-demand.
– Smart cities, HEMs, BEMs, TEMs, ZEB ……….
Smart community
HEMS
BEMS
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Illustration of Evolution of Electricity Market<In the past, say 1980’s to 90’s>
• Investments by governments in the order of billions of $$$ required.
National grid, nuclear, thermal plants…
<Since the 1990’s…>
• Investments by industries in the order of millions of $$
Gas turbines, wind mills…
<Nowadays…>
• Investments by individuals in the order of thousands of $
-Scales are different but more players there!
Markets are changing and it calls for changes in business models, technologies, price schemes, policies and others!!
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What is Market Reform?
• To unbundle vertically integrated monopolies to address inefficiencies and infuse transparency in the operations of state-owned enterprises
• To liberalize retail market, create competition and lower electricity prices …… fundamental rule
• But concerns for supply security caused setbacks:– California (2000 summer, 2001 winter), Italy (2003), Scandinavia south (2003),
North America Grid (2003),
Many varied styles of “Market Reform” depending on national circumstances and requirements!!
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State of Texas, USA• 60% of the electricity consumption is supplied by new marketers
(middleman).• Competitive retail market with no leading supplier. • Increasing concern for insufficient future investment to supply increasing
power demand needed by growing economy (Shale).• Low reserve margin is expected by 2020 (down to 4%) and policy
intervention is being considered.
Source: NERC,“2013 Long-Term Reliability Assessment”, December 2013 19
Reserve Margin
Recommended Margin
Potential Margin
Expected Margin
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Many Reasons Why we need Market Reform• To lower the cost and retail prices at the competitive level with sufficient
electricity supply relative to demand • To ensure “nation-wide supply-demand balance” (Japan)• To transform the power systems into more efficient ones (UK)• To unify the energy market (liberalize retails, create ISO, ITO: EU)• To introduce “competitive market” (USA)• To accommodate “renewables” and address “climate change”• To introduce more flexibility for consumers• To involve customers through “demand response” to induce “peak shift”.
and many more….
Many varied reasons why we want “Market Reform” depending on national circumstances and requirements!!
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Some Merits and Demerits of Market ReformMerits:
– More efficient management– Lower electricity price introduced by new players and efficiency– Diversification of service menu
Demerits:
– Lower reserve margin induced by insufficient investment– Higher risks of blackouts
supply security concern capacity market
– Difficulties in promoting low-carbon power generation CfD (Feed-in-Tariff with Contracts for Difference :UK)
The paradox..• Electricity prices in a liberalized market are set according to the system marginal cost (i.e. the short-term
marginal cost of the last plant required in order to meet demand). Wind has high capital costs but a zero marginal cost of generation.
• In order to encourage investments required in wind (or other renewables), government must offer support schemes (FIT) or subsidies which essentially undermine the role of the liberalized market in setting prices and motivating investments.
• The requirements for investments should be called for through the price signals rather than externally imposed standards or policy objectives.
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Some Points for Today’s Discussion
a) What is the aim of “Electricity Market Reform”? b) How do we plan to reform the market and/or
what have we done and what are the differences and similarities among our ways of market reform?
d) What are the implications of the market reform to the business sector and what business opportunities and challenges are there for them?
e) Is unbundling inconsistent with the introduction of smart grids and more renewables?
e) What are the market design issues in the presence of low carbon technologies?
f) How to balance between “reform” and “control”?g) What are the keys to a successful & functional electricity sector?
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