Global Insights: 3rd July 2018

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Global Insights: 3rd July 2018


AER to review bidding practices in the wholesale energy market

The Grattan Institute have released a report this week investigating the high prices of the National Electricity Market (NEM).  The report concludes that the high prices were caused by closure of old, low-cost, coal generators which caused a reduction in supply and pushed prices up; the rising cost of fuel i.e. black and brown coal and gas; and the ‘gaming’ of the electricity market by major electricity generators.  Gaming has been estimated to have cost customers as much as $800m in 2016-17.

The report has led the energy minister, Josh Frydenberg, to request that the Australian Energy Regulator (AER) complete an independent review.  The Australian Energy Council (AEC), who represent 21 major electricity and downstream natural gas businesses operating in competitive wholesale and retail energy markets, have denied the allegations.  The AEC state that there are strict rules in place which govern them and that re-bidding when generation capacity is not available is a legitimate market practice.

Renewables estimated to have a 33.3% power share by 2030

Figures published in the May Renewable Energy Index show that the National Electricity Market (NEM) could receive 33.3% of its power from renewables by 2030.  These figures are based on those wind and solar farms under construction and contracted plus estimated figures for rooftop solar assuming a stable installation level.  However, even with this amount of renewables reducing the emissions of the electricity industry, Australia is still not expected to reach its Paris emission reduction target over the whole economy.


Fuel Cost Sharing Order in Hawaii

The Hawaii Public Utilities Commission (PUC) last week rejected a $106 million rate increase proposed by Hawaiian Electric Co., signing off instead on a $600,000 rate decrease. In a 3-0 vote, the commission modified the utility’s automatic fuel cost surcharge to include a risk sharing element, so that not all of its fuel costs are passed on to customers. Environmentalists and pro sustainable energy advocates see this as landmark move to help increase renewables. The Hawaiian PSC launched a performance based regulation investigation in April 2018 – with the hope of encouraging more renewables. The fuel cost sharing order is seen as part of that.

US Energy and Employment Report 2018

According to a report produced by the National Association of State Energy Officials and the Energy Futures Initiative, there are more than twice as many solar power jobs in the US as coal industry jobs. Solar energy firms employed, in whole or in part, 350,000 individuals in 2017, with more than 250,000 of those employees spending the majority of their time on solar. Coal-fired generation employment held steady at 92,000 jobs. The Bureau of Labor Statistics pegged solar employment growth at 105%

NERC State of Reliability Report 2018

The North American Electric Reliability Corp. (NERC) released its State of Reliability 2018 report on Thursday, concluding grid resilience is improving in spite of natural disasters and growing cybersecurity threats. The assessment comes amid widespread changes to the United States’ generation mix and a debate about their impact on reliability. The report concluded that only one metric of reliability shows cause for concern: planning reserve margins.

FERC rejects PJM capacity market proposals

In a 3-2 decision that drew sharp dissent from two commissioners, the Federal Energy Regulatory Commission late Friday rejected both of PJM Interconnection’s proposals to address failures in its capacity markets due to state subsidies supporting preferred generation resources. Whether to add more renewable energy or to keep struggling emissions-free nuclear online, many states are increasingly supporting power plants that might not be economic but provide the clean energy needed to meet renewable portfolio standards and other policy goals. Policies that support these plants are intruding into wholesale markets, ultimately depressing capacity prices, opponents argue. But a solution has been hard to come by. In March, FERC approved capacity market reforms proposed by ISO-New England, setting the stage for contentious decisions over similar proposals from other grid operators in the months to come.

Historic Test Year versus Future Test Year

The way States in the US work out the rate base (analogous to a price control in Europe) is becoming contested. Those that look to a historic test year, and those that look to a future test year which brings in new services and ways of doing things. Any country which wants to move to a smart and flexible energy system will come up against these issues – although they are only marginally being addressed in Europe.

Solar gets a boost from the IRS

The Internal Revenue Service (IRS) issued guidance on Friday, establishing that solar developers who invest at least 5% of the total expected installation cost of a project by the end of 2019 will qualify for a 30% investment tax credit (ITC).

Dockless scooter schemes get going in the US.

Dockless scooter-sharing business Bird has released about 60 devices in parts of Baltimore, and has previously released scooters in Salt Lake City, UT and Dallas. Bird and Lime are the two main competitors so far in the market. Many other cities are yet to work out regulations with Denver issuing a cease and desist order to both Lime and Bird.

Blockchain and Energy

Pöyry have undertaken a survey of blockchain based energy companies.  It indicates that today in the US there are 122 organizations involved in blockchain technology and 40 deployed projects. Between Q2 2017 and Q1 2018, over $300 million was invested in blockchain in the energy industry.


Blockchain backlash?

European electricity body Eurelectric has just brought out a report on blockchain which, while acknowledging the emergence of the new distributed register approach, argues that its future in electricity is still uncertain. The report says that blockchain as a technology class is ‘burdened by high costs, slow transactions speeds and other limitations and risks’. Similar arguments are made in a recent piece by GreenTech Media. The Eurelectric report also makes the argument that even if blockchain technologies scale up successfully, the electricity industry will not be threatened because assets and networks will still be needed. However, Marious Buchmann argues that while blockchain does indeed not necessarily threaten ownership in the sector, it will potentially have an impact on the way that assets and networks are operated, especially in markets for ancillary services, and distribution companies should start to engage seriously with the technology.

Baltic nations switch from Russian to EU grid

Despite over a decade of EU membership, The Baltic states of Lithuania, Latvia and Estonia, along with Poland, all have electricity systems that are synchronised with the Belorussian-Russian BRELL system, a legacy of the pre-1989 Soviet era. These counties have now agreed on a plan with the European Commission to synchronise with the EU network, which will include the construction of a new undersea cable linking Lithuania with Poland (subject to ENTSO-E approval). 


BNEF Published New Energy Outlook

Bloomberg New Energy Finance have published their annual New Energy Outlook.  This, unsurprisingly, assumes a massive growth in renewables, particularly solar and wind and forecasts that by 2050, wind and solar technology will provide 48% of total global electricity. This contrasts with the IEA’s World Energy Outlook, which in its New Policy Scenario assumes 14% of power from non-hydro renewable and 29% in the 2-degree scenario by 2040.  The BNEF report also notes that the benchmark for global Levelized Cost of Electricity (LCOE) for onshore wind is now $55/MWh, PV $70/MWh and offshore wind is $118/MWh.

The report also highlights the expected changes in the storage sector, with the price of a battery pack for stationary storage expected to be $70/kWh, down 67% from today and by 2030 manufacturing capacity is assumed to go from 131 GWh per year in 2017 to 400 GWh by 2021.  Asia is expected to dominate the global market with 41% of investment in batteries to 2050, with $223 billion equally split between utility scale and behind the meter storage, while in Europe there is expected to be $168 billion, – three quarters on the utility scale.

Electric Vehicle sales are expected to increase from 1.1 million in 2017 to 30 million by 2030. By 2050 55% of new sales of passenger vehicle are assumed to be EVs and therefore they could make up as much as 24% of total electricity demand.

India Extends its already Impressive Renewable Energy Target

India already has an ambitious renewable energy target, that requires the installation of 175 GW of renewable energy by 2022.  However, in June the Government announced that it was extending this to 227 GW also by 2022.   Despite, only 70 GW currently installed, R K Singh, Union Minister of State for Power and New & Renewable Energy, stated that “we have new schemes like offshore wind, floating solar, which will help us over-achieve the current target.”  The new target would entail an investment of $50 billion over the next couple of years but with $42 billion and 10 million days’ employment invested in renewables in India since 2014 it is seen as plausible.

To meet the 2022 target and longer-term objectives the Government has announced that it will auction 40 GW of renewable projects each year for the next 10 years, 30 GW of solar and 10 GW of wind.  It is hoped that this will be an important signal of intent to reassure domestic manufactures on the pace and extent of the change.  The government has said that it would like to see 350 GW of solar by 2030, including 100 GW by 2022.

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