power market reform yukari yamashita

禁無断転載(C) 2014 IEEJ, All rights reserved

Power Market Reform

Yukari YamashitaThe Institute of Energy Economics, Japan (IEEJ)

30 October 2014Singapore International Energy Week 2014

Think tank Roundtable B


Introduction

• Energy Situation in Asia

– Findings from “Asia/ World Energy Outlook 2014”

• Some background on Electricity Market Refor

• Today’s Discussion Points

2


18

114

134

233

460

539

655

3,526

0 1,000 2,000 3,000 4,000

Oceania

North America

OECD Europe

FSU & Non-OECDEurope

Middle East

Africa

LatinAmerica

Asia

Mtoe

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000

1990 2000 2012 2020 2030 2040

Million tons of oil equivalent

2012

13.4 bil toe↓

2040

19.3 bil. toe(1.4-fold increase)

World

Asia

North AmericaOECD Europe

FSU & Non-OECD Europe Latin America

Middle EastAfrica

Oceania

5,268

8,794

Annual Average Growth rate（2012-2040）

1.8%

2.1%

2.0%

1.8%

0.6%

0.3%

0.2%

0.4%

Increase (2012-2040)

3Source: IEEJ, Asia/ World Energy Outlook 2014

Primary Energy Demand by Region (World)


0

1000

2000

3000

4000

5000

6000

1990 2000 2012 2020 2030 2040

Mtoe

World Asia

0

500

1000

1500

2000

2500

3000

3500

4000

1990 2000 2012 2020 2030 2040

Mtoe

Oil

Coal

Natural gas

Other renewables

Nuclear Hydro

31%

29%

28%

24%

24%

24%

51%

41%

32%

24%

19%

29%

21%

25%

23%

10%

16%

16%11%

17%13%

12%11%

16%

5% 6%10%

2%6%10%

2% 2%2% 2%3%

Fossil share82%→79% (reference)

71% (Adv. Tech.)

Fossil share84%→81% (reference)

71% (Adv. Tech.)


Primary Energy Demand by Energy


▲0.2billion toe

(▲14％)

20120.7 billion toe

↓2040

Reference

1.5 billion toe

Adv. Tech. Scenario

1.3 billion toe

5

Electricity Demand by Country (Asia)ReferenceAdv. Tech.

AAGR China India Japan Korea Taiwan Singapore1980-2012 9.2% 7.3% 1.8% 8.8% 5.8% 6.7%

2012-2040 2.8% 5.1% 0.5% 1.7% 0.8% 1.8%

Indonesia Malaysia Philippines Thailand Vietnam Other Asia10.8% 8.6% 4.0% 8.2% 12.3% 5.0%

5.2% 3.7% 4.0% 3.2% 4.6% 2.8%

Source: IEEJ, Asia/ World Energy Outlook 2014


AAGR

’80-’12 ’12-’40

Total 6.6% 2.7%

Coal 3.4% 1.6%

Oil -1.2% 0.1%

Gas 5.2% 2.9%

Oil-fired4%→1% [1%]

Coal-fired62%→54% [41%]

Gas-fired14%→18% [14%]

Nuclear4%→10% [18%]

Other Renewables4%→7% [15%]

Hydro14%→10% [14%]

6

Power Generation Mix by Source (Asia) Solid line: ReferenceDotted line: Adv. Tech.

Share2012→2040

Reference [Adv. Tech.]



7

Power Generation Mix by Source (Asia)

Reference Scenario Adv. Tech. Scenario

54%

18%10%

7%1%

10%

1%

15%

18%

12%14%

39%



59

283

496

748

996

1,765

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2005 2012 2020 2030 2040 2040

gW

Asia

EuropeOECD

North America

Adv.Tech

Africa

←Actual Forecast→

Electrical Power Plant Capacity by solar power and wind power generation (World)

2012283 GW

↓

2040In Ref. In Adv.Tech

996 GW 1,765GW(4 times) (6 times)

Wind PowerSolar Power

Wind Power

Solar PowerWorld Asia

World Asia

2012年98GW

↓

2040年In Ref. In Adv.Tech

471 GW 951GW(5times) (10times)

201217GW

↓


284 GW 588GW(17times)(35times)

201298GW

↓


622 GW 1,232GW(6 times) (13 times)

4 98

252

412

622

1,232

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2005 2012 2020 2030 2040 2040

gW

←Actual Forecast→

Asia

EuropeOECD

North America

Adv.Tech

Africa

Forecast→



Renewable Power Generation (World)

Electric Power Capacity Electric Power Generation

9

429

1,915

2,394

5,170

0

1,000

2,000

3,000

4,000

5,000

6,000

Reference Reference Tech. Adv.

2011 2040 2050

GW

Wind

PV

CSPOcean

Biomass Power

463

1,937

2,611

5,164

0

1,000

2,000

3,000

4,000

5,000

6,000


2012 2040 2050

GW

Geothermal

Ocean

Biomass power

Wind

PV

CSP

1,128

3,825

4,902

8,388

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000


2012 2040 2050

TWh

Geothermal

Ocean Biomass power

Wind

PV

CSP



503

449

385 326

690

642

568 545

548 520 500

479

455

300

350

400

450

500

550

600

650

700

750

1971

1980

1990

2000

2012

2015

2020

2030

2040

Reference

g-CO2/kWh

Adv. Tech.

623

553

487

418

642 645

623

664 696

644

618 597

567

300

350

400

450

500

550

600

650

700

750

1971

1980

1990

2000

2012

2015

2020

2030

2040

Reference

g-CO2/kWh

Adv. Tech.

World Asia

*480g-CO2/kWh **350g-CO2/kWh

Japan(2012)*

Japan(1998)**

Carbon Intensity of Electricity (CO2 Emissions per kWh)

Growth of Nuclear and

Gas-fired



5.0

7.0

14.3

16.6

20.1

23.0

25.4

15.316.5 16.9 16.3

0

5

10

15

20

25

30

1990 2000 2012 2020 2030 2040 2050

GtCO2

Energy saving

Biofuel

Wind, Solar, etc

Nuclear

Fuel switching

Reference

Adv.Tech.

CO2 Emissions Reduction by Technology (Asia) ReferenceAdv. Tech.

11

※Data excludes CCS



CO2 Emissions Reduction by Technology (World)Reference[Adv. Tech.]+CCS

CCS

33%

Energy Saving

37%

Fuel Switching

30%

12

Total 22.8Gt49% reduction

21.2

23.6

35.8

40.1

43.7

47.0

32.6

32.9

30.2

26.9

24.2

20

25

30

35

40

45

50

1990 2000 2012 2020 2030 2040 2050

GtCO2

Energy Saving

Biofuel

Wind, solar, etc

Nuclear

Fuel switching

CCS

Reference

Advanced

technology+CCS

G t-CO 2 Share

Energy saving 8.5 37%

Biofuel 0.2 1%Solar, w ind, etc 3.1 14%Nuclear 2.0 9%Fuel sw itching 1.5 7%CCS 7.4 33%

計 22.8 100%



-20

-10

0

10

20

30

40

50

60

2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

GtCO2

550ppm category

500ppm category450ppm category

Advanced Technology & CCS

Range of Cancun pledges

ReferenceScenario

13


CO2 Emissions Paths by GHG Concentration Categories


We need electricity

• Access to energy often means access to electricity.– The problem lies between ``keeping the lights on``(developed) and ``turning

the lights on``(developing).

• Youth’s lifestyles require electricity supply which they do not care from which power station or source it is generated…

• Social systems & economic activities : production lines,hospitals, offices, households, entertainment and comforts…. These services are supplied by electricity.

• New social infrastructures utilizing ICTs and ITs use electricity• Sudden blackout means…

no train, no traffic lights, no medical equipment, no lightings, no A/C, no elevators, no water, etc.

14


The market is not the same, any more

• The electricity sector in most developing economies was owned and operated within the public domain, through vertically integrated entities to perform the functions of generation, transmission and distribution (as well as infrastructure creation).

• Vertically integrated monopolies, based on economies of scale argument, were initially deemed to be the best way to deliver electricity to the majority, lacking access to it.

• We are no longer at the turn of the 20th century where huge initial investments were required financed by governments.

• Deregulation and liberalization of the market are required for more efficient power supply and reduction of electricity prices.

• We are in the 21st century and size of investments are varied with many different and new players in the market.

15

Investments are always at the core of the discussions for reforms.Electricity is unquestionably a part of our lives!!


Technologies have evolved

• Initial installation of big-scale plants and grids

– thermal power plants, nuclear power plants, national grids …..

• More quick to install technologies became available:

– gas turbines, roof-top PVs, Fuel cells ……..

• System integration is required connecting different sectors, businesses, customers, technologies, appliances and balancing supply-demand.

– Smart cities, HEMs, BEMs, TEMs, ZEB ……….

Smart community

HEMS

BEMS

16

http://kaden.watch.impress.co.jp/cda/parts/image_for_link/11605-804-7-1.html

http://kaden.watch.impress.co.jp/cda/parts/image_for_link/11605-804-7-1.html


Illustration of Evolution of Electricity Market<In the past, say 1980’s to 90’s>

• Investments by governments in the order of billions of $$$ required.

National grid, nuclear, thermal plants…

<Since the 1990’s…>

• Investments by industries in the order of millions of $$

Gas turbines, wind mills…

<Nowadays…>

• Investments by individuals in the order of thousands of $

-Scales are different but more players there!

Markets are changing and it calls for changes in business models, technologies, price schemes, policies and others!!

17


What is Market Reform?

• To unbundle vertically integrated monopolies to address inefficiencies and infuse transparency in the operations of state-owned enterprises

• To liberalize retail market, create competition and lower electricity prices …… fundamental rule

• But concerns for supply security caused setbacks:– California (2000 summer, 2001 winter), Italy (2003), Scandinavia south (2003),

North America Grid (2003),

Many varied styles of “Market Reform” depending on national circumstances and requirements!!

18


State of Texas, USA• 60% of the electricity consumption is supplied by new marketers

(middleman).• Competitive retail market with no leading supplier. • Increasing concern for insufficient future investment to supply increasing

power demand needed by growing economy (Shale).• Low reserve margin is expected by 2020 (down to 4%) and policy

intervention is being considered.

Source: NERC,“2013 Long-Term Reliability Assessment”, December 2013 19

Reserve Margin

Recommended Margin

Potential Margin

Expected Margin


Many Reasons Why we need Market Reform• To lower the cost and retail prices at the competitive level with sufficient

electricity supply relative to demand • To ensure “nation-wide supply-demand balance” (Japan)• To transform the power systems into more efficient ones (UK)• To unify the energy market (liberalize retails, create ISO, ITO: EU)• To introduce “competitive market” (USA)• To accommodate “renewables” and address “climate change”• To introduce more flexibility for consumers• To involve customers through “demand response” to induce “peak shift”.

and many more….

Many varied reasons why we want “Market Reform” depending on national circumstances and requirements!!

20


Some Merits and Demerits of Market ReformMerits:

– More efficient management– Lower electricity price introduced by new players and efficiency– Diversification of service menu

Demerits:

– Lower reserve margin induced by insufficient investment– Higher risks of blackouts

supply security concern capacity market

– Difficulties in promoting low-carbon power generation CfD (Feed-in-Tariff with Contracts for Difference :UK)

The paradox..• Electricity prices in a liberalized market are set according to the system marginal cost (i.e. the short-term

marginal cost of the last plant required in order to meet demand). Wind has high capital costs but a zero marginal cost of generation.

• In order to encourage investments required in wind (or other renewables), government must offer support schemes (FIT) or subsidies which essentially undermine the role of the liberalized market in setting prices and motivating investments.

• The requirements for investments should be called for through the price signals rather than externally imposed standards or policy objectives.

21


Some Points for Today’s Discussion

a) What is the aim of “Electricity Market Reform”? b) How do we plan to reform the market and/or

what have we done and what are the differences and similarities among our ways of market reform?

d) What are the implications of the market reform to the business sector and what business opportunities and challenges are there for them?

e) Is unbundling inconsistent with the introduction of smart grids and more renewables?

e) What are the market design issues in the presence of low carbon technologies?

f) How to balance between “reform” and “control”?g) What are the keys to a successful & functional electricity sector?

22

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