UCL ESPO/IAG/POMS Perspectives on Benchmarking Central Grids Prof. Per AGRELL CORE/IAG School of Management Université Catholique de Louvain BELGIUM

Stockholm Presentation

Stockholm Outline Three central questions on benchmarking: Why? Whom? What?

Stockholm The European Electricity Market regulator transmission operator GENERATORS DISTRIBUTORS GENERATORS CUSTOMERS GENERATORS TRADERS LEGISLATOR INVESTORS GENERATORS OTHER TSO

Stockholm Key challenges for the regulator How to provide the transmission service operator with Motivation incentives – Cost efficiency Coordination incentives – Technical efficiency

Stockholm Possible approaches Laissez-faire – Monopolies under competition law (D) Light-handed regulation – Selective intervention (S) Relative norms – Pseudo-market arrangements (N, NL) Absolute norms – Technical (ES) and ad hoc revenue caps (UK)

Stockholm Scope of the analysis National – Sunk costs and PSO etc. can ultimately be paid by final demand. International – Social obligations, past inefficiency and sunk costs may distort market effectiveness.

Stockholm Transmission is the key to the electricity market The physical grid defines – the market place for supply and demand The congestion management defines – market liquidity, reliability and – market power The access pricing defines – market entry and future capacity

Stockholm Why benchmarking? The TSOs are the backbone of the electricity market – their incentives and costs directly affect social welfare The regulators are responsible for the implementation – they need to coordinate incentives and signals to achieve a coherent cooperation – national comparisons do not make sense Benchmarking provides feasible and relevant estimates.

Stockholm TSO Benchmarking Three central questions on benchmarking: Why? Whom? What?

Stockholm The TSO is multi-tasking Open access scheduling Ensuring supply reliability Congestion management Real-time dispatching services Grid planning Ancillary services Information provision Financial settlements (administration, billing,..) Clearing energy markets ….

Stockholm Central grid services Grid owner/leaser Transmission services Grid maintainer Grid constructor System operator Market facilitator Grid planner

Stockholm Function and organization Grid maintainer Systems operator Grid planner Market facilitator Grid owner/leaser examples: ISO Transelec (Chile) Independent system operator Grid constructor Statnett (N) Transmission company TO PJM (US) Wire company WO ? Hybrid

Stockholm Institutional compromise TSO ControllabilityEfficiency ExternalitiesIndependence

Stockholm Independence Access rights Capacity investments Operations Supply/demand implications Independence requirement favors tight public control

Stockholm Efficiency Information and motivation problems in – Public enterprises – Large structures – Organizations with unclear objectives – Market power Allocative and productive efficiency favors privatization

Stockholm Task interdependency

Stockholm Externalities Information Investment reviews Non-transmission options Externalities favor integrated TSOs

Stockholm Controllability Information asymmetry Scope of operations Comparability Complexity of control Controllability increases with unbundling

Stockholm New solutions for ISO/TO

Stockholm Whom to benchmark? TSOs are heterogenous, integrated multi-output firms – they are constrained, empowered and incentivized in different ways. – externalites between tasks give different options Benchmarking needs to – focus on a selected set of « TSO roles » to inform – acknowledge its partial information Benchmark selected dimensions, but keep the big picture!

Stockholm TSO Benchmarking Three central questions on benchmarking: Why? Whom? What?

Stockholm Budget and impact Grid maintainer Systems operator Grid planner Facilitator Grid owner/leaser Grid constructor Share of TSO budgetSocial welfare impact

Stockholm Benchmarking scope Input (unobserved/exogenous output) Output (fixed/sunk input) Process (complex system) – Procedures (ISO9000, control systems) – Incentive systems (int/ext contracts) – Competence (profile, training) – Cooperation (int. organizations, regulators)

Stockholm Benchmarking Grid maintainer Systems operator Grid planner Market facilitator Grid owner/leaser Grid constructor ECOM Construction and maintenance ECOM

Stockholm What to benchmark? ECOM is a spotlight on construction and maintenance – the two roles are less complex. ECOM will be complemented – models to address other activities ECOM gives one service dimension, together we will address some other

Stockholm Finally Regulators and TSOs share the responsibility – A common goal – Different roles Benchmarking is a strong incentive to aim for excellence. Benchmarking is looking forward to find good local solutions to global challenges.