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Non-regulated Interconnectors NECA Seminar

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Title: Non-regulated Interconnectors NECA Seminar


1
Non-regulated InterconnectorsNECA Seminar
  • Tuesday 8 December 1998

2
Opening Remarks
  • Stephen Kelly
  • NECA

3
Introduction
  • Code provisions
  • programme
  • key issues

4
Obligations on promoter
  • establish connection agreements with NSPs
  • register as market participant
  • provide an access undertaking to ACCC
  • apply to NECA

5
Obligations on NECA
  • establish rules for market participation
  • within two years of market launch, develop
    provisions to address financial risk to promoter
    as a result of need for augmentation

6
Change in status
  • provision to switch from non-regulated to
    regulated link, subject to conditions
  • meets Code criteria and technical standards
  • passes net public benefit test

7
Programme
  • a role for entrepreneurial interconnectors?
  • a proponents perspective
  • introduction to working group proposals
  • market participation
  • structural and competition issues
  • extensions and alternatives
  • overall assessment
  • conclusions and next steps

8
Key issues
  • generator competitors or TNSP companions?
  • regulated and non-regulated links can they
    co-exist?
  • hermaphrodite links a freak of nature?
  • access, market power how light-handed can we
    be?
  • safe harbour provisions smothering at birth?

9
WHY NON-REGULATED INTERCONNECTORS ?An advocacy
statement ..
  • Stephen Orr
  • Hazelwood Power

10
A REGIONAL MARKET DESIGN
  • NEM is regionalised - conscious choice
  • Simplified version of full nodal pricing -
  • few intra-regional constraints (in real regions)
  • mechanism to redefine if constraints occur
  • Inter-regional constraints create heavy risks for
    participants market awakening 25 Nov 97

11
NEMMCO IRH PROCESS
  • Settlement Residue Auction (SRA) process
    developed as interim access to SR to underwrite
    inter-regional hedges and mitigate IR risk
  • Also developed view of the future, issues being
  • network performance drivers and standards
  • firm inter-regional access - leading to IRHs
  • regulatory risk for investing participant - hence
    non-regulated interconnectors

12
ISSUES FOR PARTICIPANTS
  • Particularly generators, but others too
  • Interconnectors look like wires, but ...
  • They perform like competitors, ie -
  • They introduce remote generation as new entrants
    into a region
  • Conversely they add remote load to a region
  • They also potentially redefine the region

13
INVESTMENT RISK
  • Investment criteria for regulated interconnectors
    dont match market criteria, eg
  • n-1 transmission reliability standard
  • Demand with 10 probability of exceedance
  • ACCC reviewing criteria for NEMMCO to approve
    regulated status for interconnectors

14
INVESTMENT RISK contd
  • Regulated interconnectors see little investment
    risk - if transmission planner sees the need,
    customers pay until next optimisation
  • Even if investment rules become
    market-commercial, regulated interconnector not
    at risk of failure
  • Hence, some propose higher discount rates for
    regulated interconnector assessments

15
REASONABLE INVESTMENT CERTAINTY
  • Regulated interconnectors threaten the price
    signals which underpin local generation and
    demand-side investment regulatory risk
  • Generation/demand investor confidence up if
    interconnector faces equivalent market risk
  • If you think its a good deal, you build
    it!If you dont, dont ask the market to
    underwrite your errors

16
NON-REGULATED INTERCONNECTORS
  • Are competitively neutral
  • Reduce the need for central intervention
  • Require a change in thinking away from
    conventional interconnector perspectives
  • Can be free-flowing and open like normal
    transmission lines, or alternatively
  • Can be actively traded in the market through
    price-differential/volume offers

17
NON-REGULATED INTERCONNECTORS
  • Potentially remove the need for regulated
    interconnectors at all, ie -
  • if regulated rules changed to achieve competitive
    neutrality, no for regulated
  • if commercial hurdles not met, governments and
    others can build NRIs, and take the risk

18
TODAYS SESSION
  • Reflects the initial results of efforts of a
    diverse industry group to define the nature and
    operation of non-regulated interconnectors
  • The group has diverse views on some key issues,
    but sufficient consensus on the fundamentals to
    encourage others to join the debate

19
A Proponents Perspective
  • Tony Cook
  • TransÉnergie Australia

20
Outline
  • Code requirements
  • DirectLink
  • Transmission in a competitive market

21
National Electricity CodeObligations of
Proponents
  • Clause 5.6.6 (f) requires a connection applicant,
    in relation to a non-regulated interconnector,
    to
  • apply to NECA in accordance with clause 3.10 to
    determine the rules that will apply in terms of
    the connection applicants participation in the
    market as a market participant in relation to
    that interconnector.
  • TransEnergie Australia and NorthPower made
    application to NECA on 1 October 1998.

22
National Electricity CodeObligations of NECA
  • Clause 5.6.6 (g) provides that, if an application
    is made to NECA under clause 5.6.6 (f) (4), NECA
    must determine those rules within a reasonable
    time after receipt of the application.

23
DirectLink Features
  • 180 MVA capacity between Qld and NSW.
  • DC technology.
  • 1 January 2000 commissioning date.
  • Non-regulated interconnector
  • Recoup costs through trading in financial
    instruments tied to the interconnector capacity.

24
Geographic Location
25
Transmission in Competitive Markets
  • Objective
  • Provide sufficient transmission capacity to
    ensure a competitive energy market, while fairly
    and efficiently pricing the use of that capacity.
  • Outcomes
  • Facilitate competition in
  • generation,
  • transmission (as an alternative to local
    generation).

26
Transmission in Competitive Markets
  • Commercial framework for transmission expansion
  • Top Down projects for reliability and
    competition - determined by NEMMCO
  • Bottom Up projects in response to energy price
    differentials - proposed by developers.

27
Transmission in Competitive Markets
  • Top Down Projects
  • Competitive tendering e.g. Victoria
  • Bottom Up Projects
  • Entrepreneurial interconnectors.

28
Benefits to Consumers and Generators
  • Effective competition in generation.
  • Lower transmission costs.

29
Introduction to the Working Groups Proposals
  • John Howarth
  • VPX

30
WGs Terms of Reference
  • One of the groups terms of reference is -
  • recommend rules to govern the participation of
    entrepreneurial interconnectors in the national
    electricity market and advise on implications for
    other aspects of the market design such as
    network augmentation criteria.
  • this is a problem - how can you write rules for
    an unregulated interconnector?
  • need to define the boundary of acceptable
    behaviour without being prescriptive

31
WGs Terms of Reference
  • Addressed in three stages
  • identify safe harbour provisions
  • define the degree of discretion used in other
    approvals
  • define scope for future extensions and variations
    to the safe harbour provisions
  • This workshop is a result of the first stage and
    some progress has been made on the other stages
  • The work presented today is new and requires a
    change in thinking - there are still many
    challenges
  • inter-regional hedging
  • completion of other stages etc

32
Other Terms of Reference
  • Remaining Tasks
  • if possible recommend a practical and effective
    implementation path for introducing firm
    link-based inter-regional hedges, i.e.
    inter-regional hedges that are underwritten by
    settlements residues and are as firm as
    practicable against residual risks such as those
    associated with network availability.
  • advise on the scope and appropriateness of
    aligning the inter-regional and intra-regional
    hedging provisions with frameworks such as the
    transmission congestion contract concept and
    others. This should include identifying the
    implications for other aspects of the market
    design.

33
What are Safe Harbour Provisions
  • Safe harbour provisions.
  • A set of provisions conformance to which would
    ensure an applications approval. There is no
    implication that non-conforming applications
    would necessarily be rejected, although they
    would not be assured of receiving approval.
  • not code requirements but a set of criteria to
    judge automatic acceptability.
  • because we are naturally risk adverse the
    provisions are conservative.

34
What are Safe Harbour Provisions
  • Obligations
  • Configuration limits
  • Must be scheduled
  • Must have controllable flow
  • Pay network service charges
  • Enter into connection agreements
  • Exposure to costs and benefits of interconnector
  • NEMMCO to have power to direct
  • Subject to competition
  • Sunset clause
  • Subject to market power provisions
  • Ring-fencing provisions
  • Must make an access undertaking

35
What are Safe Harbour Provisions
  • Rights
  • Entitled to the spot market revenue
  • Can enter into Reserve Trader contracts
  • Option to convert to regulated status
  • Having fulfilled the obligations, the
    entrepreneurial interconnector has access to spot
    market revenue

36
Status of Working Group Paper
  • The WG has not endorsed all the provisions
  • There are still differing views
  • However the WG has agreed that it is time for
    wider consultation and exposure of the proposal
  • WG may need to review provisions in the light of
    feedback from this workshop

37
Post - implementation Review
  • WG recommends post - implementation review
  • gt one application but,
  • lt 3 years
  • Needed due to keep pace with innovation!
  • Needed because the concepts are new and quite
    different from other approaches - therefore need
    to consider developments

38
Definitions
  • Interconnector. A network element that connects
    networks located in different regions of the
    National Electricity Market (NEM).
  • Entrepreneurial interconnector. An
    interconnector for which there is an entitlement
    to derive income through its participation in the
    spot market.
  • Non-regulated interconnector. An entrepreneurial
    interconnector for which there is no entitlement
    to recover any revenue through regulated network
    service charges.

39
Definitions contd
  • Regulated interconnector. An interconnector for
    which there is an entitlement to recover a
    determined level of revenue through the
    imposition of regulated network service charges.
    There is no entitlement to retain any additional
    revenues arising from the operation of the
    interconnector in the spot market.

40
Definitions contd
  • Hybrid interconnector. An entrepreneurial
    interconnector for which there is an entitlement
    to recover some revenue through the imposition of
    regulated network service charges. As with other
    entrepreneurial interconnectors, income may also
    be obtained through participation in the spot
    market.
  • A mix of regulated and non-regulated has been
    identified but further work required. This and
    general areas where the safe harbour provisions
    can be extended in the future will be the subject
    of Rod Ward and Dave Roberts talk at 215pm

41
NECA WORSHOP ON ENTREPRENEURIAL INTERCONNECTORS
  • Introduction - End User Perspectives
  • Roman Domanski
  • Executive Director
  • Energy Users Group
  • Sydney Airport Sheraton
  • 8 December 1998

42
Entrepreneurial Interconnectors
  • Supportive of Concept
  • Why?
  • virtual generator competition for generators
  • competition for TNSPs - right to provide
  • adds depth to NEM by strengthening links between
    regions
  • can help augmentation become more competitive
  • consistent with reform

43
Safe Harbours
44
Safe Harbors Concept
  • Could go without rules, but
  • Rules provide some certainty for a new concept
  • certainty for investors, owners customers
  • may improve chances of getting proposals up
  • Rules should not hinder proposals
  • Need to be flexible enough to foster change
  • but firm enough not to stop investment

45
Need for Debate
  • As rules are new and innovative, important to
    expose to broader debate and get feedback.
  • Need to be prepared to modify SHP to take
    account of informed comment.
  • Need to also consider links between this work and
    ACCC review of regulated interconnectors

46
Competition Issues
  • Market Power
  • considerable discussion about threshold market
    shares
  • Access
  • Ring Fencing
  • Hybrids
  • Conversion
  • These issues need broader input

47
The Future
  • Monitor and review
  • Adapt to practical experience NEM/reform
    goalse.g.
  • review requirement that flow must be
    independently controllable
  • perhaps move to calculating the price difference
    with and without interconnector
  • Should all future links be entrepreneurial
  • intra- inter-regional?

48
Market Participation
  • Stephen Wallace
  • Snowy Mountains Hydro-Electric Authority
  • Michael Green
  • Transend Networks Pty Ltd

49
Overview
  • Market issues
  • bidding, dispatch and pricing
  • spot market revenues
  • system security
  • contracting
  • Network issues
  • configuration and controllability
  • connection agreements and network pricing

50
Spot Market Participation
  • Networks characterised by
  • economies of scale
  • short run marginal costs are insufficient to
    cover costs of optimally sized interconnector
  • Three models for interconnector operation
  • passive participation
  • bids capacity
  • bids price differential (above marginal losses)

51
Interconnector Market Model
  • Passive participation - due to economies of scale
    is likely to encourage undersized links
  • Bids capacity - subset of price differential
    model
  • a capacity bid is equivalent to bidding two
    prices, 0 and VoLL, with the MWs bid at 0 the
    same as capacity offered
  • Bids price differential - best model

52
Bidding Rebidding Price Differentials
  • Similar to generators or customers
  • 10 prices for each direction (monotonically
    increasing)
  • For each price MWs of capacity offered for each
    half hour
  • Total capacity offered each half hour is equal to
    link capacity
  • Obliged to follow dispatch instructions and
    provide PASA information

53
Dispatch Pricing (SPD)
  • Bidding model can be incorporated easily into SPD
    framework
  • Objective function is maximise
  • value of supply (demand bids dispatched)
  • - cost of supply (gen offers dispatched)
  • - cost of interconnector (link offers dispatched)
  • - cost of ancillary services

54
Dispatch Pricing (Ctd)
  • Link energy balance
  • export import link losses
  • (this brings in dynamic marginal losses for flows
    over link)
  • SPD essentially the same as now but current
    interconnector violation penalties approach is
    extended to transport capacity bids

55
Spot Revenue (energy)
  • Similar to other participants
  • Metering at each terminal
  • Prices at each terminal determined much the same
    as for other participants
  • Since flows may change direction or be highly
    variable there is an issue concerning choice of
    marginal loss factors

56
Spot Revenue (energy)
  • export
  • Buys F1 energy in region 1 at spot price adjusted
    for marginal losses, SP1 x MLF1
  • import
  • Sells F2 energy in region 2 at spot price
    adjusted for marginal losses, SP2 x MLF2
  • revenue import - export
  • Rev F2 x SP2 x MLF2 - F1 x SP1 x MLF1
  • Note There are problems with flows and prices
    on 5 minute dispatch interval vs half hour
    averages

57
Marginal Loss Factors (Prices for Energy at
Connection Points)
  • Many possible models for marginal loss factors
    (MLFs)
  • fixed
  • variable with time of day/day of week/season etc
  • variable with direction of flow and 1 or 2 above
  • dynamic
  • nodal pricing of connection point (dynamic
    intra regional constraints)

58
Ancillary services
  • Co-optimisation approach allocates interconnector
    capacity between energy and ancillary services
  • Interconnector receives spot market and ancillary
    services income like other participants
  • Interconnector pays for ancillary services
  • If optimal SPD will schedule ancillary services
    to enhance flow

59
System Security
  • Same as for generators other participants
  • NEMMCO has power to direct for system security
    reasons
  • When directed interconnector is compensated in
    the same way as for other participants (fair
    market value -ACCC)
  • May be involved in Reserve Trader contracts

60
Contracting
  • Actively operates in contract market
  • Offers inter-regional hedges (IRHs)
  • May have firm access compensation arrangements
  • Basically like any other participant

61
Conclusion
  • Market operation is much like a generator
  • bidding
  • requirement to be scheduled and provide
    information
  • spot market revenue
  • ancillary service income and charges
  • subject to direction etc
  • What about network connection, TUOS etc?
  • Mike Green will reveal all

62
(No Transcript)
63
  • TRANSEND NETWORKS PTY LTD
  • MICHAEL GREEN

64
CONFIGURATION NO. 1
Existing Interconnection
Region 2
Region 1
Proposed Interconnector
65
  • CONFIGURATION NO. 2
  • Two Terminal Between Regions
  • Regional Definitions
  • Network Service Charges
  • Bidding Scheduling

66
  • CONFIGURATION NO. 3
  • 30MVA Minimum Capability
  • In Line with Scheduled Generator, Clause
    2.2.2
  • Cross Zonal Boundary Windfalls
  • Regulator Shopping

67
  • NEED FOR CONTROLLABILITY
  • Follow Dispatch Instructions
  • Avoid Adverse Impacts on other Network
    Elements
  • Forms a Clear Basis for Settlements

68
  • FREE FLOWING
  • Interconnector Actual Flows Depend Upon
  • Generator Dispatch
  • Customer Demands
  • Network Characteristics

69
  • ISSUES IF NOT CONTROLLABLE
  • Safe Harbour Does NOT Preclude This Option
  • Need to Develop Basis of Settlements
  • Need to Develop Basis of Compensation

70
  • CONNECTION AGREEMENTS
  • Service Levels
  • Connection Fees
  • Arrangements Subject to Negotiation

71
  • CONNECTION AGREEMENTS
  • CONNECTION FEES
  • Dedicated Entry/Exit Assets - Payable by
    Proponent
  • Attributable Agreed Deep Augmentation -
    Payable by Proponent
  • Transmission Use of System - Matter for
    Resolution

72
  • CONNECTION AGREEMENTS
  • ISSUES NO. 1
  • Is there a need for a level playing field
    between
  • regulated non-regulated
    interconnectors?
  • Regulated Face Stringent Regulatory Tests
  • Non-regulated Face Connection Fees?
  • Must Provide for Efficient Investment
  • Interface with NECA Incidence Allocation
    Review

73
  • CONNECTION AGREEMENTS
  • ISSUES NO. 2
  • See Appropriate Forward Looking Costs
  • See Appropriate Forward Looking Benefits
  • Difficulty With Identifying
  • Magnitudes of Costs/Benefits
  • Duration of Costs/Benefits
  • Funding of Benefit Rebates

74
  • CONNECTION AGREEMENTS
  • ISSUES NO. 3
  • Should non-regulated interconnectors result
    in
  • financial transfers between Network
    Service Providers?
  • Many Factors Drive Financial Transfers.

75
  • SUMMARY
  • MARKET ISSUES
  • Spot Market Revenue
  • Ancillary Services Revenue
  • Required To Be Scheduled
  • Able To Offer Into Market
  • Subject To NEMMCO Direction

76
  • SUMMARY
  • NETWORK ISSUES
  • Configuration
  • Controllable Flow
  • Must Enter Into Connection Agreements
  • Subject to Efficient Network Connection Fees

77
STRUCTURAL AND COMPETITION ISSUESConversion to
Regulated Status, Sunset Clause, Market Power
Issues
  • Stephen Orr
  • Hazelwood Power

78
CONVERSION TO REGULATED STATUS
  • Safe harbour should allow interconnector owner to
    apply for conversion to regulated status at any
    time
  • Revenue entitlement assessed at the time
  • Recognises uncertainty regarding non-regulated
    design at present - hence may encourage investment

79
CONVERSION TO REGULATED STATUS
  • Also supports utilising economies of scale, eg
    hybrid converts to fully regulated when justified
  • Proponent must not be shielded from commercial
    risks, eg mis-assessment of demand or price
  • Hence apply rules at the time
  • No scope for strategic alternation

80
CONVERSION TO REGULATED STATUS
  • Note -
  • If rules for regulated interconnector investment
    change to match commercial conditions,
  • Then why would the non-regulated interconnector
    owner want the change to regulated status?

81
SUNSET CLAUSE
  • Conversion to regulated status offers protection
    to the non-regulated interconnector investor
  • The sunset clause approach protects the market as
    a whole from unexpected outcomes
  • Suggest 15 years minimum reasonable approval for
    long life, high cost interconnectors
  • ACCC Code authorisation may limit approval period
    to 2010

82
MARKET POWER ISSUES
  • Active trading models create potential for
    exercise of market power
  • Economies of scale, easements etc may limit scope
    for competitive interconnectors
  • Cross ownership potential
  • Hence we have considered control to maximum of
    35 of either interconnected areas as limit for
    safe harbour

83
MARKET POWER ISSUES
  • Concentration of control could be limited by
    divesting rights to the revenue stream, if
    operational control ring-fenced
  • Cross-ownership with regulated interconnector
    should be OK, provided ring-fencing in place

84
MARKET POWER ISSUES
  • However this proposal is arbitrary
  • It excludes, for example, Delta and Macgen
    immediately
  • There is a serious question whether the market
    rules should endeavour to anticipate and
    constrain market power
  • Perhaps safe harbour provisions should not be
    specific - let ACCC decide case-by-case?

85
EXPOSURE TO COMPETITION
  • No restriction on entry of competing regulated
    and non-regulated interconnectors
  • Providing they meet the criteria at the time
  • This assumes level playing field through the
    rules governing approval of regulated
    interconnectors

86
Entrepreneurial Interconnectors
Hugh Gleeson (United Energy) Ken Brunette
(Integral Energy)
87
Exposure to competition
  • No restrictions on the entry of competing
    inter-connectors (regulated or unregulated)
  • Aim to achieve a level playing field to ensure
    comfort of consistency in regulation
  • Various views
  • (Generators) desire to force regulated
    augmentations to be based on the same investment
    criteria as unregulated.
  • (Retailers) preference to see a stable playing
    field, not restrict regulated decision making.
  • (Customers) desire to see most efficient (lowest
    cost) generation used first irrespective of
    geographic location in NEM.

88
Sunset clause
  • Initial approval to operate as a non-regulated
    inter-connector and actively participate in the
    market may be limited to a specific interval
  • safeguard against undesirable unforeseen
    outcomes.
  • proposed right to apply to convert to regulated
    status and receive regulated revenue assessed on
    the deprival value upon reaching the sunset
    date.
  • fifteen year minimum approval proposed (by some
    of group) as appropriate to match level of
    investment.
  • May in practice be shorter horizon as the ACCC
    Code authorisation expires in 2010.
  • No protection from effect of Code changes
    intended by this clause

89
Ring fencing
  • Isolation from the operations of any co-owned
    regulated network business
  • Ensure the operation is not influenced by
    consequential profit or loss from the
    non-regulated business.
  • Concern regarding potential to influence timing
    of outages (by related regulated network
    business) for unreasonable financial advantage.

90
Submission of an access undertaking
  • Access undertaking to be in the form specified in
    the Code
  • Must be available in accordance with the Code.
  • Applicable Code provisions will likely differ
    from standard (as exist for regulated assets).
  • Right to trade (as determined) in the spot market
  • No right to receive regulated revenues (Chapter
    6)
  • ACCC acceptance of access undertaking to protect
    the asset from declaration under the Trade
    Practices Act.

91
Beyond the Safe-Harbour
  • Rod Ward - Delta Electricity

92
Beyond the Safe Harbour - Overview
  • Purpose of Safe Harbour Provisions
  • Key Limitations of the Safe Harbour Provisions?
  • Trading non-controlled interconnectors
  • The Way Forward?

93
Purpose of Safe Harbour
  • Conformance to safe harbour provisions should
    guarantee approval.
  • There is no implication that non-conforming
    applications would necessarily be rejected

94
Beyond the Safe Harbour
  • Further work required to
  • explore the scope for further extensions and
    variations
  • define the degree of discretion for other
    applications (within and beyond safe harbour)

95
Key Limitations of the Safe Harbour Provisions -
case examples
  • The provisions do not cover
  • intra-regional interconnectors
  • non-transmission interconnector capacity upgrade
  • free flowing AC links - loop and parallel flows
  • participant or an interconnector controlling more
    than 35 of the capacity in either of the supply
    regions
  • hybrid of regulated and non regulated
    interconnection

96
Key Limitations of the Safe Harbour Provisions -
case examples
  • The provisions do not cover
  • intra-regional interconnectors
  • non-transmission interconnector capacity upgrade
  • free flowing AC links - loop and parallel flows
  • participant or an interconnector controlling more
    than 35 of the capacity in either of the supply
    regions
  • hybrid of regulated and non regulated
    interconnection

definition of capacity and access to the
market (if controllable or switchable could be
considered)
97
Key Limitations of the Safe Harbour Provisions -
case examples
  • The provisions do not cover
  • intra-regional interconnectors
  • non-transmission interconnector capacity upgrade
  • free flowing AC links - loop and parallel flows
  • participant or an interconnector controlling more
    than 35 of the capacity in either of the supply
    regions
  • hybrid of regulated and non regulated
    interconnection

Impact on the capacity of incumbents and
competitive trading solutions
98
Interconnector Trading
  • energy supplied to a region does not have to be
    delivered by that interconnector -
    inter-regional capacity can be shared
  • an interconnector flow does not have to be
    controlled - inter-regional transfers is
    controlled by generator loading in merit order

99
Concept of Notional Capacity
  • Parallel interconnectors treated as a single
    notional interconnector
  • revenues are split according to relative
    capabilities and bids (notional dispatch)
  • However, complexities arise when the capacity of
    an incumbent is affected or loop flows occur.

100
Concept of Notional CapacityBidding
  • Similar to generators
  • 10 prices for each direction (monotonically
    increasing)
  • for each price MWs of capacity offered in each
    half hour (total capacity equal to the link)
  • Any regulated capacity bid at zero
  • dispatch algorithm will dispatch lowest merit
    order bids up to the notional capacity of all
    interconnection capacity
  • However, residual capacity could be constrained
    off

101
Concept of Notional CapacityCase Study -
Capacity rights affected
  • Examples
  • New interconnector impacts the capacity of
    another remote interconnector e.g the capacity of
    SA/NSW interconnector is limited by flows on the
    NSW/VIC interconnector.
  • Total capacity of two parallel interconnectors
    less than sum of individual capacity.
  • Issues
  • Prior capacity rights - incremental capacity only
    recognised?
  • No prior capacity rights - full competitive
    bidding and residual capacity effectively
    constrained off?
  • Technical prerequisites?
  • Firm access to network?

102
Loop Flows
  • Example
  • Additional complexity on parallel interconnectors
    where a connection to a region at two remote
    points create loop flows.
  • Issues
  • current regional model inadequate - more regions
    or progression to nodal model approach
  • prior rights to capacity become increasing
    complex
  • complexities of notional capacity allocations
    would have to be modelled, continuous assessed
    and resolved in dispatch

loop flows could resolve to parallel flows
103
Key Limitations of the Safe Harbour Provisions -
case examples
  • The provisions do not cover
  • intra-regional interconnectors
  • non-transmission interconnector capacity upgrade
  • free flowing AC links - loop and parallel flows
  • participant or an interconnector controlling more
    than 35 of the capacity in either of the supply
    regions
  • hybrid of regulated and non regulated
    interconnection

anti-competitive conduct, control, timing of
problem
104
Market Power
  • Why is an interconnector different to generation?
  • When is it likely to be material?
  • Is it ownership, control or cross-subsidy between
    competitive businesses?
  • Does it safe harbour anti-competitive behaviour
    of a substantial interconnector - ACCC issue
  • Possible Solutions
  • provisions of the TPA appropriate to apply to all
    owners of interconnectors
  • Transition requirement
  • assets ring-fenced with separate reporting
    requirements
  • defined reasonable level of capacity contracts in
    the market
  • Alternative - safe harbour applies to small
    interconnectors only, regardless of ownership

105
The Way Forward
  • Determine the principles to define capacity and
    the market trading mechanisms for non-controlled
    interconnectors
  • Understand the application and merit of capacity
    rights and develop firm access where one
    interconnector affects the operation of another
  • Better appreciate the market power implications
    of interconnectors without unnecessarily
    restricting their development

106
Key Limitations of the Safe Harbour Provisions -
case examples
  • The provisions do not cover
  • intra-regional interconnectors
  • non-transmission interconnector capacity upgrade
  • free flowing AC links - loop and parallel flows
  • participant or an interconnector controlling more
    than 35 of the capacity in either of the supply
    regions
  • hybrid of regulated and non regulated
    interconnection

David Roberts Presentation to follow
107
Hybrid Interconnectors
  • David Roberts
  • Basslink Development Board

108
Purpose
  • Endorsement for the Concept
  • Highlight Issues to be Resolved
  • Commitment to Progress

109
Outline
  • Reasons for Hybrid Interconnectors
  • Relevant Situations
  • Examples
  • Principles
  • Issues to Resolve
  • The Way Forward
  • Summary

110
Reasons for
  • Economies of Scale
  • Increase in Load Demand does not Automatically
    Increase Value
  • Beneficiaries not Necessarily Obvious
  • Approval of Regulated
  • Transition between Non Regulated and Regulated

111
Relevant Situations
  • Initial Trading may be Limited
  • Most Trading is One Way
  • No Market History to Support Non Regulated
  • Regulated Asset Owner unwilling to Develop
  • Non Regulated applies to become Regulated

112
Examples
  • X Regulated Y Non Regulated
  • Enhancement to Existing Interconnectors
  • Regulated One Way Non Regulated the Other
  • Regulated at Certain Times Non Regulated at
    Others
  • Combinations

113
Principles
  • Regulated Portion of an Interconnector can be
    Defined
  • Regulated Portion Subject to Rules for Regulated
    Interconnectors (Including Approval,
    Availability, Dispatch, Network Pricing
    Revenues, Settlements Residues IRHs etc)
  • Remainder Subject to Rules for Non Regulated

114
Issues to Resolve
  • Who Defines Regulated Portion and How
  • Which takes Precedence
  • Partial Outage
  • Dispatch at Zero Price
  • Ring Fencing
  • Required for Network Businesses
  • Some Complexity with Hedge Contracts

115
Issues to Resolve
  • Non Linear Allocations
  • Adjustment of Settlements Residue for Allocation
    of Losses
  • Required if Regulated and Non Regulated contracts
    treated differently
  • Network Charges/Revenues
  • Regulated Portion
  • Non Regulated Portion

116
Issues to Resolve
  • Approval Criteria
  • Look Ahead or Based on Market Results
  • Who bears the Market Risk
  • Review of Regulated Portion
  • Discretion for Adjusting up or Down

117
The Way Forward
  • Depends on Arrangements for Regulated
    Interconnectors (Approval, Settlements Residue
    and Hedging)
  • Also Dependent on the Rules for Non Regulated
    Interconnectors
  • Common Factors Needed

118
Summary
  • Hybrid Interconnectors needed as a Bridge between
    Regulated and Non Regulated Interconnectors
  • Simple Arrangements should be Possible which
    could be Adapted to Different Situations
  • Commitment to Progress Arrangements

119
Next Steps
  • Stephen Kelly
  • NECA

120
Next steps
  • working group supplementary comments
  • transmission and distribution pricing review

121
Review timetable
  • publication of draft report Jan / Feb 1999
  • consultation with key stakeholders Feb/March
    1999
  • publication of final report end-March 1999
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