POWER SYSTEM TRANSFORMATION

The 3GF session on power system transformation and green growth will focus on the public/private aspects of an intergovernmental initiative launched by the Clean Energy Ministerial (CEM) – the 21st Century Power Partnership (21CPP) - and will pursue the following objectives:

• Identify the key market failures / barriers for further addressing power system transformation • Discuss the private sector role in achieving a reliable, clean, and flexible power sector • Consider how 3GF2012 can help support the strong participation and private sector leadership in

the wider 21CPP. OPPORTUNITIES AND CHALLENGES TO A GREEN POWER SECTOR Transforming the power system is a key objective in achieving green growth. Parallel deployment of renewable energy and energy efficiency will constitute 65% avoided emissions by 2035 (IEA WEO, 2011). Globally, effective deployment of smarter grids could reduce carbon emissions by 2 Gt by 2050, through greater energy efficiency and integration of renewable energy (IEA, 2010). Cumulative global investment in the power sector could reach $16.9 trillion (2010 dollars) between 2011 and 2035, an average of $675 billion per year (IEA WEO, 2011) split between new generation capacity and new transmission and distribution (T&D) networks. The bulk of this investment will take place in non-OECD countries, reinforcing the need for global partnerships to accelerate green growth in the power sector. Furthermore, these aggressive targets will require targeted investments in grid modernization and seamless collaboration between utilities, grid operators, and equipment manufacturers. While the nature of power system transformation varies regionally --- critical issues such as public acceptance of clean energy, engrained patterns of energy efficiency, and barriers to financing all have strong regional characteristics --- smart policy and regulation will be critical to enabling this transformation in all settings. Aspirations for power system transformation are only achievable through a holistic approach to planning, technology, and policy in concert with the private sector. Barriers Some of the barriers to power system transformation can be readily identified:

• Electricity delivery normally operates under some form of regulation around the world – ensuring that regulatory practices are well aligned with system transformation is key.

• In many contexts utilities face incentives to sell as much electricity as possible, limiting investments in energy efficiency.

• Strategic investments in long-lived generation and T&D infrastructure are difficult under policy uncertainty.

• Existing power markets are not often designed to effectively operate under either large shares of variable renewable energy or demand response. Still, improved market design is needed, with or without high penetration of variable renewable energy.

• Much research on electricity markets is heavily polarized as proponents and opponents have battled over this subject for more than two decades.

These and other barriers may stall investment or result in misallocated capital investment in the power sector, which have lasting impacts on the environment, security, and economics. This is where we see a need for input from private sector partners:

• What policies and regulation will incentivize private investments in energy efficiency, grid modernization, and clean energy?

• Will current energy system business models result in a green power sector? If not, what types of business model innovation will be necessary?

• What types of power markets (e.g., energy-only, capacity, and reliability services) will allow for reliable system operation and long-term investment in clean and smart grids?

• What types of planning tools (e.g., cost-benefit analysis, capacity expansion) will support effective system transformation? What are the gaps in the modeling tool-set?

• How can investment risk be minimized or made clearer? There is an urgent need for multilateral public-private information sharing and exchange of best-practice green-growth solutions. Specifically there is a need to bring together utilities, grid operators, and other private sector market participants facing similar challenges to encourage shared approaches to system transformation. THE PUBLIC/PRIVATE INTERFACE: VISION, ORGANIZATION, AND STRATEGY Vision statement The overall vision for the 21CPP initiative is to identify key market failures and policy / regulatory barriers, and to organize and share best practice power system solutions. A key aspect of this work is catalyzing the investment and innovation acumen of the private sector. The 21CPP will establish and sustain a public-private platform for coordinating engagement with private sector stakeholders from across the electricity sector. Organization The National Renewable Energy Laboratory (NREL) is the Operating Agent of the 21st Century Power Partnership initiative. With support from Global Green Growth Forum (3GF), Global Green Growth Initiative (3GI), and others, it will help lead the initial development of the public-private partnership. As an official stakeholder body of the 21CPP leadership structure, this Public-Private Leadership Forum (PPLF) will serve as the platform for ongoing coordination of private sector input to 21CPP activities. Milestones and Progress Indicators

• To identify and compile existing policies, regulations, and business models that can accelerate the transition to 21st century power systems.

• Identify key policy barriers for advancing integrated power sector solutions – and propose policy recommendations to national (and sub-national) governments as well as regional organizations.

• Conceive of the specific organization and workplan of the power system PPP. • Identify new, committed partners for the PPLF. • Review the power system PPP work program at the 2013 3GF.

Milestones and Progress Indicators Planned Completion Date

(bold indicates key milestone) 3GF  session:  “Power  System  Transformation:  Key  Roles  for  Public-­‐Private  Partnerships”  

October  2012  

Inaugural   21CPP   Public-­‐Private   Leadership   Forum  (PPLF)  meeting  

January   2013   (in   tandem   with   CEM4   preparatory  Meeting)  

PPLF  review  and  comments  on  2013  21CPP  program  of  work  

January  2013  

Joint   meeting   of   PPLF   and   21CPP   Government  Steering  Group  

January  2013  

Elaborate  PPLF  committee  structure,  leadership,  and  programmatic  deliverables  

January  2013  

Review  of  PPLF  platform     March   2013   (in   conjunction   with   3GF   Preparatory  Meetings)  

PPLF  side  meetings  at  CEM4   April  2013  

PPLF  programmatic  deliverables,  first  draft   July  2013  PPLF   review   and   presentation   of   programmatic  deliverables  

October  2013  (at  2013  3GF)  

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