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UCL ESPO/IAG/POMS Perspectives on Benchmarking Central Grids Prof. Per AGRELL CORE/IAG School of Management Université Catholique de Louvain BELGIUM
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Stockholm 09.04.2002 Presentation
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Stockholm 09.04.2002 Outline Three central questions on benchmarking: Why? Whom? What?
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Stockholm 09.04.2002 The European Electricity Market regulator transmission operator GENERATORS DISTRIBUTORS GENERATORS CUSTOMERS GENERATORS TRADERS LEGISLATOR INVESTORS GENERATORS OTHER TSO
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Stockholm 09.04.2002 Key challenges for the regulator How to provide the transmission service operator with Motivation incentives – Cost efficiency Coordination incentives – Technical efficiency
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Stockholm 09.04.2002 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)
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Stockholm 09.04.2002 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.
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Stockholm 09.04.2002 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
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Stockholm 09.04.2002 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.
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Stockholm 09.04.2002 TSO Benchmarking Three central questions on benchmarking: Why? Whom? What?
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Stockholm 09.04.2002 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 ….
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Stockholm 09.04.2002 Central grid services Grid owner/leaser Transmission services Grid maintainer Grid constructor System operator Market facilitator Grid planner
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Stockholm 09.04.2002 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
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Stockholm 09.04.2002 Institutional compromise TSO ControllabilityEfficiency ExternalitiesIndependence
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Stockholm 09.04.2002 Independence Access rights Capacity investments Operations Supply/demand implications Independence requirement favors tight public control
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Stockholm 09.04.2002 Efficiency Information and motivation problems in – Public enterprises – Large structures – Organizations with unclear objectives – Market power Allocative and productive efficiency favors privatization
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Stockholm 09.04.2002 Task interdependency
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Stockholm 09.04.2002 Externalities Information Investment reviews Non-transmission options Externalities favor integrated TSOs
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Stockholm 09.04.2002 Controllability Information asymmetry Scope of operations Comparability Complexity of control Controllability increases with unbundling
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Stockholm 09.04.2002 New solutions for ISO/TO
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Stockholm 09.04.2002 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!
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Stockholm 09.04.2002 TSO Benchmarking Three central questions on benchmarking: Why? Whom? What?
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Stockholm 09.04.2002 Budget and impact Grid maintainer Systems operator Grid planner Facilitator Grid owner/leaser Grid constructor Share of TSO budgetSocial welfare impact
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Stockholm 09.04.2002 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)
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Stockholm 09.04.2002 Benchmarking Grid maintainer Systems operator Grid planner Market facilitator Grid owner/leaser Grid constructor ECOM Construction and maintenance ECOM
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Stockholm 09.04.2002 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
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Stockholm 09.04.2002 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.
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