Energy Market Reform

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Some renewables will leapfrog past conventional generation in locations which lack access to commercial energy. For the most part, however, renewables will be integrated into physical systems and management systems which have not been designed for this type of distributed generation.

The fuel market is the first area we should examine from this viewpoint. The market for fuels may require only modest adaptation to accommodate renewable energy sources, since most renewable fuels will provide a direct substitute. For example bio-diesel can operate in place of conventional or blended diesel, or biomass pellets in place of coal for co-firing in a coal power station. However, fuels that are not direct replacements — such as ethanol — will require consideration with respect to the market to ensure they are properly accommodated. This is of special concern because of the dominant position that vertically integrated fossil fuel companies have in the fuel supply sector.

A second important aspect of market reform is electricity systems. They differ widely between nations, from fully state-owned monopolies, to fully unbundled7 and deregulated markets which have only private sector participants. Whatever the policy framework, it is likely that it has been built on, or derives from, a system of large centralized power generation. The small, modular, distributed nature of renewables requires major changes to the philosophy of such systems.

The following subsections will concentrate on electricity, but where appropriate we may refer to fuels.

Are the certification or licensing requirements appropriate for renewables?

Pricing, requirements and responsibilities must reflect the small but modular nature of the renewable generation plants. Renewable project sizes may vary from several hundred megawatts down to a few megawatts or even a few hundred watts of rooftop PV. Therefore, licensing intended for coal power stations or any other type of large, centralized generation is clearly not suitable. Similarly, fuels such as bio-diesel which are derived from crops may be more appropriately made and distributed at a local level, rendering unviable national certification or licensing designed for multinational oil companies.

In the longer term whatever replaces the existing system should take the form of a new licensing system rather than ad hoc waivers, while being mindful of the need for stability. Waivers imply interim fixes and occur at the whim of government, and there are business people who would consider some governments to be very whimsical indeed. Therefore the solutions must be long term and properly integrated into the existing licensing regime.

Is access to commodity markets affordable and guaranteed?

Renewable plants either produce electricity or fuels as their commodities. If markets are found beyond the home or farm, access to them needs to be both physical and legal. Producers must be able to get their commodity to buyers without hindrance, for example, through power lines, and they must have the ability to legally sell the commodity in the market place.

Access to distribution is primarily an issue for renewable electricity (assuming here that fuel producers have the greater ability to control their own distribution).

As the case studies in this book illustrate, access to grid hardware and systems has proved to be a huge stumbling block for renewable generation in almost every new market, and must therefore be examined very carefully.

Problems normally occur when the entities responsible for connecting renewable generators have too much discretion or inadequate guidance regarding the cost and hardware requirements for connection. They may also have conflicts of interest through equity holdings in competitors or potentially displaced generating assets.

By access to electricity systems, I am referring to issues such as licensing, connection contracts and fees, system requirements for safe integration of the power supplied, costs for moving electricity through the network, and taxes and fees. A final issue is fair recompense for renewable plants that reduce costs for the distribution company through reduced importation of energy into the local network or by offsetting the need for network upgrades. This is not as relevant for intermittent supplies where the transmission back-up is still required, but is more applicable to constant or dispatchable renewables such as small hydroelectric facilities or biomass plants.

The distributed nature of renewables means that the large production volumes are in fact amassed from many small projects. This makes access negotiated on a case-by-case basis inefficient and inappropriate. Although a one-off negotiation might be appropriate for a large power station, for renewables the access for many small, similar projects must be standardized and streamlined. Repeated negotiation for access creates unnecessary work and causes excessive transaction costs for small projects, and this results in competitive distortions between developers with different access costs.

Is there prioritized dispatch for renewables that cannot control their production times or volumes?

Some renewable energy projects, such as hydro schemes and biomass plants, can control when they dispatch energy or have quite stable production levels. Others, such as wind and solar, produce energy as it is provided by the natural forces harnessed. This poses special challenges for renewables like grid-connected wind and solar unless there is utility-scale power storage.

Those renewable projects that are able to control their delivery can maximize the value of their energy by delivering during peak demands and at peak prices in the system. Those unable to choose when they dispatch require a system to ensure their production always has take-up in the grid and is not denied access. This is somewhat similar to the needs and control issues of large thermal stations such as coal and nuclear plants, in that they cannot change their output as rapidly as demands change.

It is important to clarify here that the needs of one individual renewable project should not be seen to limit the entire industry or resource. Wind power may be considered a fluctuating resource, but total wind production across entire, large grids provides much steadier supply and in fact approaches base-load characteristics. Although production in one locale may vary, total production over many locations aggregates into something much more stable. This is because while one

Source: Coates (2003)

Figure 3.14 Example of smoother mean total output when multiple, geographically diverse wind sources are combined

Source: Coates (2003)

Figure 3.14 Example of smoother mean total output when multiple, geographically diverse wind sources are combined wind farm may experience a lull, it is highly unlikely that distant wind farms are also experiencing a lull. In fact, the physics of the atmosphere pretty much preclude this. This tendency of production from widely distributed wind farms to show smoothed characteristics is illustrated in Figure 3.14.

Obviously each renewable has its own set of operating conditions. Solar energy is produced only during the day, but an advantage is found in hot countries where solar PV output closely matches demand peaks caused by use of air-conditioning. Biomass is dispatchable and storable, but may tend to be quite seasonal in terms of production volumes. Small hydro will be seasonal and vary with precipitation levels from year to year, but can sometimes be stored for several hours to allow for response to daily peaks. Wind is intermittent with pressure fronts, can be diurnal but can also exhibit stable patterns such as found with trade winds. Geother-mal can provide stable base-load power and its supply can also be increased or decreased for limited periods, although this leads to a loss of efficiency.

Is there transparent pricing throughout the grid to allow fair prices for renewables?

Large renewable installations are typically located in rural areas where the cost of delivering electricity is expensive and transmission losses are substantial. Users in these areas often have their electricity prices cross-subsidized by urban users.

Renewable energy can reduce these costs by putting energy production closer to where it is used and thus deferring network upgrades and reducing transmission losses. To actually allow this to happen, the relative costs of electricity throughout the grid need to be known. These costs will include the price of generation, the cost of infrastructure to get the power there, the cost of losses, and any additional taxation.

Once this price is published for all areas, the offset costs of embedded generation can be quantified. These are the savings produced by the locally established

Wind 15

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Note: While some renewable energy sources are intermittent, this does not mean they are unpredictable. Forecasting technology that advises approximate production a day in advance provides ample guidance for many markets. GH = Garrad Hassan Source: White (2004)

Figure 3.15 Wind forecasting twelve hours in advance versus actual wind and actual output of a wind farm renewable generation facility, savings which can then be fairly transferred from the distribution company to the generator. This transfer not only increases the viability of renewable energy projects, it also leads to more efficient outcomes for the distribution company and network planners. It is a potential win—win situation for everyone — provided that it is made to happen.

Does the framework provide supportive cost distributions for infrastructure changes or upgrades?

Major changes to national energy infrastructure can unlock vast renewable resources, but how are these costs managed? Such infrastructure changes should not be left to the free market or a handful of developers. This infrastructural evolution reflects a strategic pathway to unlock national resources and must be treated accordingly.

The precedents set by thermal generation are appropriate here too. The approach of distributing cost over the entire consumer base may be quite applicable to renewables, just as it is typical for large conventional plants in many countries. The new transmission is then considered a national infrastructure asset. To ask renewable developers to pay for major new infrastructure when existing thermal generators have had all such costs defrayed by consumers or taxpayers would be anti-competitive and create a significant market distortion.

The infrastructure upgrades required can range from the very local, such as increasing the capacity of line to a few farms, to the very large such as laying cables out to wind farm locations in the North Sea. There are perhaps two equitable ways to distribute this cost. The first is to spread the cost across the full consumer base, as is done for large infrastructure upgrades for power stations. The other is to have the taxpayer absorb the investment through an enabling programme.

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Solar Panel Basics

Solar Panel Basics

Global warming is a huge problem which will significantly affect every country in the world. Many people all over the world are trying to do whatever they can to help combat the effects of global warming. One of the ways that people can fight global warming is to reduce their dependence on non-renewable energy sources like oil and petroleum based products.

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