Locational Signals for Generation and Transmission investment

1. Locational Signals for Generation and Transmission investment • Transmission Investment: “the knottiest problem in the (energy) deregulation process” Steven Stoft ACCC Regulation Conference 2010- Steve Edwell

2. 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 ACCC Regulation Conference 2010- Steve Edwell

3. 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Signals for Generation and Transmission investment • Transmission investment is lumpy • A “chicken and egg dilemma” • Outdated transmission flow analysis • Generation tends to happen first ACCC Regulation Conference 2010- Steve Edwell

4. Chart 1 High Cost Generators Low Cost Generators Small Loads Large Loads A B ACCC Regulation Conference 2010- Steve Edwell

5. Chart 2(a) High Cost Generators Low Cost Generators Small Loads Large Loads A B New Generator ACCC Regulation Conference 2010- Steve Edwell

6. Chart 2(b) High Cost Generators Low Cost Generators Small Loads Large Loads A B X New Generator ACCC Regulation Conference 2010- Steve Edwell

7. Chart 3 High Cost Generators Low Cost Generators Price Region 1 Price Region 2 Small Loads Large Loads A B X New Generator ACCC Regulation Conference 2010- Steve Edwell

8. Chart 4 High Cost Generators Low Cost Generators Price Region 1 Small Loads Large Loads A B X New Generator ACCC Regulation Conference 2010- Steve Edwell

9. 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? ACCC Regulation Conference 2010- Steve Edwell

10. 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 ACCC Regulation Conference 2010- Steve Edwell

11. Output of Kogan Creek and imports into Qld across QNI (1) Chart 5 ACCC Regulation Conference 2010- Steve Edwell

12. Output of Kogan Creek and imports into Qld across QNI (2) Chart 5a ACCC Regulation Conference 2010- Steve Edwell

13. 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. ACCC Regulation Conference 2010- Steve Edwell

14. 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 ACCC Regulation Conference 2010- Steve Edwell

15. 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 ACCC Regulation Conference 2010- Steve Edwell

16. Locational Signals for Generation and Transmission investment • Concluding Points: • We can’t rely on a market solution • Is better price signals part of the solution? • Better incentives for TNSP’s? • A role for (proactive) planning ACCC Regulation Conference 2010- Steve Edwell