Electricity Act 2003 Opportunities for Investment & Growth

Transmission Issues

ABCD

22 July 2003 R Venkatraman, KPMG Consulting

Background

Indian Electric Transmission grid consists of nearly 5.7 Million km of high-voltage transmission lines. In recent years, the number of transactions and quantity of power flows on the transmission grid has increased significantly. At the same time, transmission investments have been declining.

ABCD

Generation capacity addition is expected to continue at a brisk pace

450MW 166MW 1168MW 150MW 500MW 140MW 1500MW 1067MW 100MW 135MW 100MW 1180MW 330MW 80MW 1170MW 420MW 100MW

1944MW 3187MW 3475MW

State & private sector only. Central Sector not included

100MW 100MW 90MW

ABCD

Generation capacity addition is expected to continue at a brisk pace

X Plan Target (2002-2007)

Central Thermal Hydro Nuclear Total 12,790 8,742 1,300 22,832 State 6,676 4,481 11,157 Private 5,951 1,170 7,121 Total 25,417 14,393 1,300 41,110

ABCD

The transmission grid will need to transport all this power to the consumer .

Consequently, the impact on transmission will be significant

Massive new transmission capability needs to be built to match the increase in generation capacity Existing transmission infrastructure needs to be significantly upgraded Congestion management and system operations will be key Information availability will need to raise dramatically Robust monitoring mechanisms must be introduced

ABCD

And, there are some pre-requisites

Non discriminatory open access and a strong market are pre-requisites for competition. Return on Investment and depreciation mechanisms may need to be reviewed to make it attractive for investors. A strong and reliable transmission network widens the market, making it more competitive by allowing more entities to compete. Savings to the customers are expected from competition in generation sector.

- Unless competing generators can reach consumers efficiently, competition in generation will not produce the benefits expected.
ABCD

The Electricity Act seeks to address these issues through .

Introduction of Open Access. Creation of National Grid Creating environment for private investments in transmission Technical up gradations Introduction of market mechanisms Better coordination and planning by NLDC, RLDC, SLDC & DLDC(Discom/Area LDCs)

ABCD

Grid discipline, open access and investment promotion are critical action areas

1. Grid Discipline 2. Non Discriminatory Open Access 3. New Investment in Transmission

ABCD

The root causes of grid indiscipline

Low focus on Inadequate A bsence of T ools Poor G enerati on Economi c D ispatch& Procedures Predi ctability C apacity & U nit C ommitment

D elib era te D e viat ions

G R I D IN D ISC I PL IN E

In ad v ert en t D evia tion s

Power system control priorities System security Maintaining load / generation balance Economic dispatch
ABCD

Grid discipline some issues

Grid discipline issues have resulted from

- Absence of tools and guidelines - Lack of sufficient generation capacity

In ABT, adherence to drawal schedule may not solve the frequency problem if grid constituents continue to overload it. After ABT, ground situation has not changed much as the grid constituents in general have preferred to allow the frequency to decline rather than to proactively shed load. ABT may not address frequency problem where CGS contribution is low since impact of UI (Unscheduled Interchange) charges on utility finances is low.

ABCD

Grid discipline - some suggestions

Frequency regulation needs to be monitored on real time basis - Through reliability rules and procedures and not merely by relying on monetary incentive/ disincentive framework.

The Area Control Error (ACE) principle could be one method to strengthen frequency control. - ACE specifies responsibility on each constituent to bring back the frequency to normative level, even if stated schedules are being adhered to. - ACE concepts could be incorporated within ABT to supplement the price signals in ABT once the system frequency drops below, say, 49 Hz.

However for this to be effective additional statutory powers to the regulator and the load dispatcher may be necessary.

ABCD

Grid discipline - some suggestions

Utilities need to undertake extensive load research to evaluate the magnitude and characteristics of current load (both served and unserved), and future load addition. Load research can not only increase accuracy of load forecast, but also assist in formulation of demand side management measures. A significant systemic tool like Energy Management System (EMS), has features addressing short term unit commitment, economic load dispatch and settlements.

- Makes it suitable for current needs as well as future requirements under arrangements like multi-buyer markets.
ABCD

EMS - a tool to a tool for efficient dispatch

Cost of procurement Hydro generation schedule

Dispatch schedule

XA/21
Grid demand Thermal & hydro station availability Water availability Cost of procurement Machine parameters
VB based front-end

MS SQL Server

Planning Output

Annual Dispatch Planning

ABCD

1. Grid Discipline 2. Non Discriminatory Open Access 3. New Investment in Transmission

ABCD

Some of the pre-requisites for open access are

Improved reliability of T & D network. Reliable information systems. Technical adequacy of transmission lines. Knowledge on available capacity (measure congestion). Transparent energy accounting systems. Balancing mechanisms

ABCD

Open access some issues

Transmission system development would become more complex. CTU & STUs need to strengthen/improve existing networks to remove congestion & make a realistic plan for expansion. The concern for stranded cost will increase. Network operation/planning to take in to consideration of minimising stranded costs. Transaction costs have to be minimised so that they do not off set the benefits of competition. Regulatory control on transmission access and pricing would be critical

ABCD

Open access some issues

Accuracy of determination of total & available transmission Capacity is one of the requirements for operating under open access. Most utilities' current pricing schemes do not effectively address the costs of transmission constraints. Nor do they provide the proper signals concerning whether to remove constraints through supply side generation, transmission expansion or demand side measures. When individual utilities schedule power flow over a single regional grid, unexpected overloads can arise and become barriers to competitive power trading.

ABCD

1. Grid Discipline 2. Non Discriminatory Open Access 3. New Investment in Transmission

ABCD

The new structure is complex

Earlier Now
Transmission service provider
Transmission of electricity through intra-state transmission system Planning and co-ordination Ensure development of intra-state transmission lines. To provide non-discriminatory open access to its transmission To build, maintain and operate an efficient and economical inter-state or intra-state transmission system. To comply with the directions of RLDC and SLDC as the case may be. To ensure integrated operation of power system in the state Responsible for optimum scheduling and dispatch Keep account of quantity of electricity transmitted through state grid Real time operation of grid controls and dispatch through secure and economic operation Bulk supply trading of all existing Contracts

Transco

System operator.

Bulk supplier/Trader
ABCD

Trading

SLDC

Licensee

STU

Business separation will be important

Separation of monopoly transmission businesses from competitive or potentially competitive activities. Options range from full ownership separation to management separation. Europe has a mix of these:
- Ownership unbundling (UK, Finland, Spain, etc) - Legal unbundling (Austria, Belgium, Denmark, etc) - Management unbundling (France, Luxembourg)

ABCD

Source: Ian Pope Associates

In addition, monitoring regimes are required to ensure fairness

Separation and publication of accounts Appointment of a compliance officer whose job is to ensure that network access rules are applied equally and fairly Establishment of a separate corporate identity for the TSO Ensuring that the TSO is not physically located in the same building as an affiliate operating in the competitive market

ABCD

Source: Ian Pope Associates

European experience .
Country Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg Netherlands Portugal Spain Sweden UK Publis he d accounts Yes Yes Yes Yes Yes Yes Not yet Yes Yes Yes Yes Yes Yes Yes Yes Compliance Se parate office r corporate ID No Yes No Yes Yes Yes Yes Yes Yes Yes No Yes No Yes Yes Yes No Yes No No Yes Yes No Yes Yes Yes Yes Yes Yes Yes Se parate locations Yes Yes Yes Yes Yes Yes Yes No Yes No Yes Yes Yes Yes Yes
Source: Ian Pope Associates

ABCD

Encouraging investments some suggestions

Adequate returns (risk adjusted) on the investments and attractive depreciation norms. Ensure separation of business & introduce monitoring regime Realistic transmission planning by CTU/STU based on scientific load research/load forecast & generation plan. Regulatory certainty over a long period Cost reflective retail tariffs Establishment of effective/reliable communication network and energy data collation system Settlement systems Addressing the stranded cost issue

ABCD

Thank you
R Venkatraman, KPMG Consulting
Email: vr@kpmg.com

ABCD