Consultation related to the
e-Highway2050 Governance aspects.
Feedback and answers TO BE RETURNED BEFORE FRIDAY 30th OF AUGUST
2013 to info@e-Highway2050.eu
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Stakeholder information
Expert Name
Organization
Contact
Date
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e-Highway2050 project
Modular Development Plan of the Pan-European Transmission System 2050.
Funded by the European Commission, the e-Highway2050 project aims to put forward a Modular
Development Plan at the 2050 time horizon, based on a long-term planning methodology able to
assess the coming restructuring and expansion operations of the European power transmission
system.
e-Highway2050 is a 40-month project which started in September 2012. It paves the way for an
integrated European electricity market as well as a pan-European grid that is able to absorb large
quantities of electricity from renewable energy sources and transport it over long distances. The
consortium includes transmission system operators, research institutions, universities, companies
and NGOs from Europe.
e-Highway2050 examines the framework conditions and, using various scenarios, develops approaches for planning the expansion of the European electricity grid by 2020, 2030, 2040 and 2050
respectively. Stakeholders from all over Europe are invited to discuss assumptions and intermediate
results and to assess the final results of the different work packages in different consultations and
workshops.
The overall objective is to support the planning of the Pan-European Transmission Network, focusing on 2020 to 2050, to result in a modular development plan for possible electricity highways,
based on various future power system options. Governance aspects are included by analyzing, describing and comparing various models along key topics such as design, ownership, financing, cost
& benefit allocation and technical & market operation. Target governance models will emerge per
(group of) grid architecture(s) per scenario as an objective for the 2050 horizon.
Further information at www.e-highway2050.eu
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This consultation document comprises two parts, each of it containing some general background
information as assistance to the specific questions for which your feedback is requested.
Part 1 proposes to define a Target Governance Model along five key-building blocks, which are the
key elements to describe a certain model.
Part 2 proposes eleven governance models that have been shortlisted to inspire the analysis in order to define the most appropriate Target Governance Models for e-Highways 2050.
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Building blocks of a Governance Model
It is proposed to define governance models into five building blocks which will make the reference
structure used to describe and assess them in the e-Highway2050 project. The five building blocks
identified are:
1) Transmission network expansion design;
2) Construction/Ownership of transmission reinforcements and support tools;
3) Financing of the corresponding investments;
4) Allocation of the cost of these reinforcements and remuneration scheme applied to them; and
5) (Technical & Market) Operation of the system network and related system services.
Below you will find a description of these building blocks, followed by two questions on the relevance and comprehensiveness of these building blocks. Some general questions are also asked at
the end of this part.
1.1
Transmission network expansion design
This concerns the whole process of identifying, proposing, selecting and approving (incl. obtaining
of permits) of network investments.
The framework and the criteria which guide this process will be analyzed. An interesting point will be
the (geographic and time) scope and status of the proposed investment projects (voluntary/mandatory). This will depend, among other things, on the nature/identity of the entity proposing
the reinforcement and the one approving it. Other arrangements to be made among parties may
concern the features of algorithms or methods applied by parties when being in charge of proposing
or approving network investments, like the scope of potential investments considered (including
which voltage levels, maybe also storage) and time horizon considered for the operation of new
network assets. Network reinforcements that are relevant for cross-border trade should result from
an integrated, region-wide, expansion planning process, while local reinforcements may be decided
by local authorities.
Questions:
- Do you consider this building block relevant for the description of a governance model?
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- Are there any further aspects that should be included, or others to be omitted, under this
building block?
1.2
Ownership of (new) assets
This relates to the responsibility for asset management and may also concern the identity of parties
owning IT (Information Technology) or support tools required to deploy new network architectures.
Whereas in many cases the party financing a grid reinforcement is also the owner, this is not necessarily always the case (recourse to debt and subsidies of different kinds may be common in some
types of projects), and definitely the one owning is not necessarily the one operating the grid.
Arrangements affecting the owner of a network asset relate to the time span over which ownership
applies; the relationship between the owner and the entity in charge of operating the network; as
well as that between the owner and equipment and knowledge providers, etc. The identity of the
owner of an asset has a large influence on sources of funds used for the construction of this asset
as well as on the allocation of the cost and benefits of this infrastructure. Other aspects to address
when characterizing the ownership structure of the network and related assets are the responsi bilities and obligations of the asset owner towards the regulatory authorities, especially if it is not a
regulated company; the mechanisms to be implemented or conditions imposed so that a level playing field in the market is achieved; and possible conflicts of this ownership structure with the unbundling principles of the European Union (FOU/ISO/ITO), etc.
Questions:
- Do you consider this building block as relevant for the description of a governance model?
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- Are there any further aspects that should be included, or others to be omitted, under this
building block?
1.3
Financing of network investments
This concerns the provision of funds by (in)direct parties to support the construction of approved
reinforcements. Sources of funds, or funders, will clearly depend on the identity of the party owning
network reinforced(including whether this party is active locally or regionally) and to a lesser extent
on the party operating or maintaining it. Given the identity of the owner and the funder of network
investments, several combinations of funding instruments can be used: debt and equity of the entity
building the network in the case of TSOs or private promoters, but also public budget, system revenues from electricity tariffs or public support are options that can be open.
Sources of funds should be tailored to the size of network investments to be carried out. If, as expected, the cost of required network reinforcements is very high, at least in the long term, funding
these projects may be challenging given that electricity infrastructure projects are competing for the
same financial resources among them, but also with non-electricity projects. There may be risk premiums to be paid by some projects, or a financial push for others, facilitating or hampering the undertaking of these projects or technologies. Then, there may be reasons for some projects to apply
for public funding (EU/regional/national – level).
Questions:
- Do you consider this building block as relevant for the description of a governance model?
- Are there any further aspects that should be included, or others to be omitted, under this
building block?
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1.4
Cost & Benefit allocation
This concerns the process of allocation of the cost and benefits of building and maintaining new
assets. The focus shall be on the identification of involved parties, and specifically on the interaction
between parties planning and operating an asset and the one deciding on the allocation of its cost.
It concerns, a.o. the remuneration scheme applied to each network reinforcement and the criteria
applied to determine the contribution of each party to the recovery of the regulated cost of this asset. Both will affect the net benefits for each stakeholder and country/area. Part of the network costs
(often the majority) may need to be recovered through regulated charges, i.e. transmission tariffs
(including costs allocated through Inter TSO Compensation schemes). Regulated transmission
charges do not cover that part of the cost of lines that can be recovered from the market (market
revenues of this asset), like congestion rents. Affecting administratively the allocation of benefits
resulting from market operation may be necessary to achieve the construction of some new infrastructures. Otherwise, some countries may be resistant to the construction of lines built in their territory that they are not benefiting substantially from (though these lines are clearly beneficial for the
system). Paying some side compensations to these countries may thus be justified in some specific
cases.
Questions:
- Do you consider this building block as relevant for the description of a governance model?
- Are there any further aspects that should be included, or others to be omitted, under this
building block?
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1.5 (Technical & Market) Operation
In our analysis, this concerns mainly the management of the security of the system and of network
congestion, for which a wide range of topics will be identified and the most relevant will be chosen to
analyze in-depth. Topics to look into related to system security may include the size of control zones
and the coordination among these zones, which depends on the local or regional nature of the relevant market; the roles of “supporting” institutions such as regional coordination service centers; the
identification of parties responsible for defining N-1 criteria, and how these are characterized; the
definition of the link between the development and operation of the grid ; the availability of sufficient
generation resources (adequacy); the possible implementation and design of a capacity market to
preserve system sufficiency, etc.
The analysis of security issues shall be complemented by market aspects such as e.g. the definition
of market models in the different time frames, including the level of space granularity of energy price
signals; the time scale considered for markets (short, medium and long term); and whether energy
and transmission capacity are allocated in an integrated manner. The scope of the market (local/regional) and the level of coordination that is feasible within this market may probably condition
the type of operation scheme that can be implemented.
Questions:
- Do you consider this building block as relevant for the description of a governance model?
- Are there any further aspects that should be included, or others to be omitted, under this
building block?
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General Questions:
- Do you consider that the above mentioned set of building blocks considers all aspects
needed to define (characterize) a governance model?
- Is there any other building block that you would like to add to this list? If yes, which one
and why?
- Would you split one or more of the abovementioned building blocks? Would you merge
some of them? If yes, which ones and why?
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Pre-Selection of governance models
The analysis of governance options will be inspired by investigating and comparing existing governance models throughout the world (along the building blocks of Part 1) in order to evaluate their
applicability to the e-Highway2050 grid architectures. The idea is to look not only into European
electricity models, but also at non-European electricity models, and even at non-electricity or nonenergy models.
We aim to analyze at a high level a maximum of eleven models. As a next step, three will be selected for further in-depth analysis. Each model to assess in depth in this second phase of the analysis
could be one of those originally described or a combination of several models, if this is deemed
suitable. Your feedback is requested to provide a score from 1 to 10 to each of the preliminary
identified models, with ten being the most relevant to analyze in the framework of the eHighway 2050 project. Additionally, you have the possibility to propose other models, replacing one
or several of the governance models we have put forward, as long as you justify why the latter is/are
superior to the former. Below you can find a description of each model in short.
2.1
European Electricity experiences
2.1.1 German TSO collaboration
In Germany, four TSOs own and operate the high voltage transmission grid. Due to the physical
configuration of the system and the European and national legal and regulatory framework in place,
the four TSOs share a large number of interfaces and common interests. The cartel law defines the
framework for cooperation among the German TSOs. Cooperation comprises, among other issues,
the use of Control power within the German Grid (Grid Control Cooperation) and decisions on the
development of transmission reinforcements affecting several TSOs. The energy dispatch is computed through an implicit auction comprising the German, French and Benelux markets. Congestion
within Germany is managed through redispatch. Control areas in Germany share information to
achieve an efficient redispatch of generation. The TSOs have established a multilayer structure for
the governance of the interaction among them, where high level layers deal with strategic decisions
while low level ones deal with more specific issues informing decisions made at high level. The activities are coordinated by the so called “virtual” bureau.
- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
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2.1.2 Great Britain
The regulatory regime for Electricity transmission is founded on a licensing system. Transmission
assets are owned by three licensed Transmission Owners (TOs) with National Grid owning the
transmission grid in England and Wales while SP and SSE own the Scottish electricity network.
Concerning operation, National Grid has a license to operate entire Great-Britain and acts as an
independent system operator (ISO). Transmission licenses are issued and monitored by Ofgem, the
national regulator, and provide the framework for developing, maintaining and operating efficient
networks in which the transmission companies can develop their grid and implement tariffs. The grid
development methodology is intimately linked to the remuneration scheme, which involves applying
price control efficiency signals combined with innovation incentives. Construction and operation of
offshore transmission assets is governed by the Offshore Transmission Owners (OFTOs), again
working under licenses issued by Ofgem. Similarly, ownership and operation of interconnectors are
a licensed activity. Part of these interconnectors may be studied in detail in the Merchant Option.
- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
2.1.3 Nordic model
Four different TSOs and national regulators (Denmark, Norway, Sweden and Finland) have together
formed the Nordic market. Market design features aim to achieve a compromise among the conditions and ownership structures in place in these countries. The regulation affecting some aspects of
system functioning, like system operation and the regulation power market, is common, while that
for other aspects, such as income frames (maximum network fees) and fee structure, is specific to
each country. In all Nordic countries the allowed network income is based on the regulated asset
value. The common Nordic day-ahead market divides the region into different bidding zones, which
is also beneficial to network investment efficiency. Each TSO has the responsibility to finance its
own network investments, however, common cost benefit analyses are performed to allocate the
cost of lines according to the benefits each render to the system. In addition Sweden and Norway
have common market based subsidy schemes for renewables. The Nordic market is a paradigmatic
case of deregulation.
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- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
2.1.4 Small & local case study
European power systems face an increasing penetration of distributed energy resources at distribution level. Solar PV and wind farms are often connected to the distribution level, while new applications providing potential energy services are integrated in the grid. CHP installation, heat pumps,
consumer flexibility, and potentially storage or electrical vehicles, provide several opportunities affecting the operation of the grid, also at transmission level. Distributed energy resources may provide services to the TSO, meanwhile impacting the power flows in the system through their effect on
the net demand in the distribution grid. This is expected to reshape the current market model resulting in additional actors and roles. Several national studies and demonstration projects assess these
issues (e.g. Linear in Belgium, Cell Concept in Denmark) and will be compared under this option.
- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
2.2
Non-European Electricity experiences
2.2.1 USA model
The USA regional market actually is not a single market, but a collection of regional markets (p.e.
PJM, ERCOT or NYISO) developing in parallel, with limited interaction among them. The design of
all these markets should comply with some general guidelines provided by the federal regulator
FERC, which has jurisdiction over inter-state trade, while state authorities rule over local matters.
Regional markets are created and grow through consolidation of local systems, which no longer
exist once they become part of the former. There is an interesting interaction between t he FERC
and the states, based on their respective competences. It is the FERC who approves network expansion plans at regional level, proposed by regional market operators/ISOs, while the recovery of
the cost of the network and local transmission charges are a matter of the states. For the latter
however, regional system operators can propose charges to be levied on network users related to
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regional network upgrades (upgrades affecting consumers in several states across a regional market) that should be approved by the FERC.
- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
2.2.2 Brazil
Brazil is, with an installed capacity of 120 GW of which 75% is hydroelectricity generation, a special
case, implying a.o. that there are no price bids, but that short-run marginal costs, related to the opportunity cost of water are used as “spot prices”. It is also the ISO which centrally determines the
production schedule of each plant. Only in the last decade, 40.000 km of transmission lines have
been built, most of them were above 230 kV and some running over very long distances (>1000km).
Network expansion is centrally planned, with auctions for the construction and operation of the facilities, including strong private participation. Finally, there is an interesting institutional structure with
different roles for the regulatory agency (ANEEL), the Ministry of Mines and Energy (MME) and the
National Council for Energy Policy (CNPE).
- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
2.2.3 Argentina: Associations of beneficiaries
Argentina features a single TSO for the 500 kV grid, six regional companies operating the distribution grids, and some independent transmission companies that operate under technical licences of
one of the above companies. The generation activity is largely fragmented (58 companies for a total
installed capacity of 31 GW). The interaction between the administrator of the wholesale electricity
market (CAMMESA) and laws stipulating tariff implications is of interest. Regulated network investments coexist with a system named ‘public contest’ whereby investment proposals made by groups
of network users potentially benefiting from these investments undergo a quasi-judicial process,
where allegations for and against these reinforcements are made and their approval is voted by
those agents that would be affected by them, which are identified through the so -called “areas of
influence” method. Once a network reinforcement is approved, it is paid by beneficiaries and its
construction assigned through a competitive tender.
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- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
2.2.4 Central America: Development and operation of a common network infrastructure within a regional market.
Six countries in the region agreed to provide their national market agents with an additional, larger,
market where they can freely engage in commercial transactions with the agents of the other countries. There are several regional institutions involved, i.e. a regulatory body of regional scope
(CRIE), another concerned with the technical coordination of the regional interconnected system
and the commercial administration of the regional market (EOR), and the owner of the main infrastructure connecting the six countries in the region (EPR). A regional economic dispatch is computed from bids sent by National System Operators resulting from the dispatch in each national system
and specific regional bids made by agents. Any agent automatically gains access to the regional
transmission grid by paying the corresponding regional transmission charge, which is computed
according to specific regional tariff schemes. The regional system operator is in charge of computing
an indicative expansion plan for transmission and generation in the region. Once an investment in
the regional grid is proposed by the EOR, and its construction is approved by the CRIE, national
authorities cannot oppose the project.
- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
2.3
Worldwide Electricity experiences
2.3.1 Merchant option
Merchant network investments have occurred both within Europe and in other regions like the US or
Australia. Merchant transmission investments (MTI) normally refer to profit-oriented investments on
interconnections and other usually congested network links. MTI revenues result from the sale of
the capacity of the corresponding links in the market, both in the long and the short term, which is
believed to facilitate market driven competitive transmission investment. Merchant investment can
be used as a means to bridge the financial gap of some network investment projects. There are
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several well documented successful and failed merchant investment cases within and outside Europe. We would analyze some of the most representative reinforcements within these.
- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
2.4
Other Energy Infrastructure experiences
2.4.1 Gas sector
The gas sector is a network industry sharing several characteristics with the electricity one. Both
have faced a liberalization and unbundling process. Furthermore, the gas sector also faces operational complexities such as balancing and congestion issues while undergoing a European market
integration process. However, there are also fundamental differences among these two sectors, p.e.
regarding the regulation of network cost allocation, network design, and the security of supply for
sources outside Europe, which has an impact on the governance structure, but also relate s to the
technical features of both commodities, since gas can be stored. Part of the analysis could be devoted to international gas transmission projects such as Nabucco, North & South Stream, TAP, etc.
- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
2.5
Non-Energy Experiences
2.5.1 Aviation/Telecom/Rail?
The electricity sector is characterized as a network industry, and may share certain characteristics
with other sectors such as telecom, railway or aviation. In some countries, these sectors may already have undergone liberalization and unbundling, or are in the process of it. Therefore, it may be
interesting to take a look at the governance model applied in each sector and study which elements
of it can be applied to the electricity sector. This would involve conducting a brief analysis of the
most relevant non-energy network industries and identifying solutions related to each of the building
blocks of a governance model that may be of interest for the electricity sector. Potentially relevant
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sectors include railway (for instance the liberalized US freight transport), aviation (operation of congestion by national traffic control) or telecom (tariffs and cost allocation).
- Relevance score (on a 0-10 scale, 10 being the highest):
- Comment:
General question:
- Which other model could be analyzed (and why)?
- Which model within the ones proposed should be replaced by the additional one you are
advocating to analyze?
THANK YOU FOR YOUR CONTRIBUTION!
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Consortium.
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