Introduction to Electricity

1
Introduction to Electricity

• Part II The Changing Electricity Industry

2
The Electricity Industry

• Electricity systems worldwide are changing for
  one or more reasons
• Technological advances
• Financial/management crisis/inadequate investment
• Public opposition
• Consumer demand for lower costs, better service
• Political cronyism. . .

3
Vertically Integrated Model
Energy Finance Ministry
UTILITY Generation
UTILITY Transmission
UTILITY Distribution
Industrial
Commercial
Residential
4
The Changing Industry Structure

• Vertically Integrated Model generation,
  transmission and distribution controlled by one
  or several utilities (usually state owned).
• Government grants utility monopoly power
• Regulated by government
• Centralized planning, operation
• Government-guaranteed investment/regulator
  ensures cost recovery from consumers
• Captive consumers/ratepayers
• Key problems high cost AND/OR low quality
  service

5
Single Buyer Model
Government Regulator
UTILITY National Transmission System Owner/Opera
tor
State Owned Power Plants
UTILITY Distribution Municipal or Provincial
Private Independent Power Producers IPP
Industrial/Rural Cogeneration
Consumers/ Small Producers
Small/Renewable Power Producers
6
The Changing Electric Industry Structure

• Single Buyer Model
• Private and state producers selling to central
  utility/no competition
• Centralized planning, operation
• Transmission centrally owned/operated by central
  utility
• Large industrial consumers can buy electricity
  from central utility or direct from private power
  producers or self-generate
• Key Problems
• Small consumers still captive/no choice
• Government still conflicted as owner/regulator
• Central utility can shut out competitors
• NOTE World Bank promotes this model in China,
  Thailand, Vietnam but its own experts admit it
  encourages over-investment, corruption, high-cost
  power purchase deals, poor regulation.

7
The Changing Electricity Industry

• Market-Oriented Restructuring
• Privatization and unbundling of Generation,
  Transmission, Distribution
• New competitive procedures for power producers
• New forms of regulation

8
Restructuring Theory/Objectives

• To raise capital
• To improve regulation
• To eliminate government/investor conflict of
  interest
• To boost economic efficiency
• To lower rates and improve service
• To give producers and consumers competitive
  choices.

9
General components of market-oriented
restructuring

• WHICH ONES CAN YOU IDENTIFY IN YOUR COUNTRY?
• CAN YOU SAY WHICH TRENDS ARE POSITIVE FOR
  CONSUMERS? WHY?
• 1. Unbundling of generation, transmission, and
  distribution into separate businesses.
• 2. Open transmission access.
• 3. Operation of the transmission system assigned
  to a few distinct organizations.
• 4. Creation of a new class of non-regulated
  generators.
• 5. Formation of new organizations for dispatch of
  all generation.
• 6 Competition in power production with dispatch
  based on quoted prices.
• 7Construction of many gas-fired plants by
  independent owners.
• 8. Payments for some power production based on
  market clearing price, which is the highest of
  any accepted bid prices.
• 9. Retail wheeling increasing in stages to
  smaller and smaller size customers (unsuccessful
  in many places).
• 11. No central planning, no government guarantees
  to purchasers.
• 12. Hedging contracts to guarantee prices to
  power purchasers in a volatile market.

10
Competitive Market Model
Policy Laws Regs
Industry Regulatory Authority ENFORCEMENT COMPETI
TION TD Rates
Investors
CONSUMERs CHOOSE SUPPLIERs
POWER PRODUCERs State/Private
DISPATCH Independent System Operator
BUY/SELL Electricity Market Operator
TRANSMISSION PROVIDERs State/Private
DISTRIBUTION Companies/ Rural
Energy Cooperatives
11
Multiple producers

• Rice husk cogeneration
• Industrial cogeneration
• Reduced demand on central grid

12
Distribution companies

• Can buy power from supplier of their choice or
  from market exchange
• Consumers can sell direct to distribution
  companies

13
Old vs New utility regulation

• Old regulated utilities make money building new
  power supply projects, biggermore revenue/profit
• New regulated utilities help customers save
  energy help customers buy less of utility
  product electricity!

14
New utility regulation

• Utilities earn a return for investment in saving
  energy that is equivalent to what they earn from
  investments in new power supply capacity.
• More state funding for energy efficiency
  improvements across sectors
• Governments allow utilities to collect money from
  ratepayers to pay for energy efficiency projects
• State-led emission reduction targets

15
Examples

• California Pacific Gas Electric Co. helping
  Subway (30,000 restaurants) install
  energy-efficient breadbaking ovens
• Working with wineries 2,600 wineries consume
  one-third of energy consumed by food processors
• In California, state law requires utilities to
  meet new supply needs first through energy
  efficiency then renewables, then building new
  (conventional) power plants
• Utilities in California rate structure rewards
  them for cutting electricity use, not for pushing
  energy sales

16
New Utility Business - Conservation

• Iowa Power Light advising pig farmers on
  energy-efficient lighting and ventilation
  energy-efficient lighting can save 10,000 a year
  in electricity cost
• Pinnacle West Capital Arizona utility is
  working with district school board to install new
  efficient heating and cooling systems in schools,
  adding solar to school rooftops

17
(No Transcript)
18
Consumers as Producers

• Homeowners install 10kW solar system
• Send surplus to the grid and get paid by utility
• Utilities (Sacramento Municipal Utility) willing
  to pay retail rate because solar systems produce
  power during peak (mid-day) hours, improve
  performance and reliability of grid.
• 19 states give homeowners credit to reduce their
  bill, but not cash
• 10 states require utilities to pay homeowners
  wholesale rate for surplus solar

19
Which policy leads to most solar at lower cost?

• Still too early to tell
• Critics say solar homeowners are getting a free
  ride
• They get a cash rebate for installing system,
  which comes from ratepayers
• They get credit at retail rate even though they
  dont pay any transmission maintenance charge
• Interconnection charge is waived while other
  producers have to pay gtgt critics say unfair
  subsidy
• Critics say paying people for surplus will
  encourage larger-than-necessary systems (See Thai
  solar producers)

20
Examples

• Duke Energy (North Carolina) helping Budweiser
  make its beer chillers more efficient, saving Bud
  big
• Duke looking to regulator to get special
  incentives to expand energy efficiency business

21
Electricity Reform in the Mekong Region
22
Whats the Future of Big Hydro?
23
Whats the Future of Coal and Nuclear Power?
24
What role environmental/community advocates in
the Mekong region?

• System is changing, for better or worse
• Know your power
• Bright ideas vs dim bulb policies
• Define public interest
• Transparency
• Accountability
• Participation
• Democratize the grid!

25
END Introduction to Electricity

• Part 2 The Changing Electricity Industry