Investment and Efficiency under Incentive Regulation: The Case of the Norwegian Electricity Distribution Networks

Following the liberalisation of the electricity industry since the early 1990s, many sector regulators have recognised the potential for cost efficiency improvement in the networks through incentive regulation aided by benchmarking and productivity analysis. This approach has often resulted in cost efficiency and quality of service improvement. However, there remains a growing concern as to whether the utilities invest sufficiently and efficiently in maintaining and modernising the networks to ensure long term reliability and also to meet future challenges of the grid. This paper analyses the relationship between investments and cost efficiency in the context of incentive regulation with ex-post regulatory treatment of investments using a panel dataset of 126 Norwegian distribution companies from 2004 to 2010. We introduce the concept of 'no impact efficiency' as a revenue-neutral efficiency effect of investment under incentive regulation which makes a firm 'investment efficient' in cost benchmarking practice. Also, we estimate the observed efficiency effect of investments in order to compare with no impact efficiency and discuss the implication of cost benchmarking for investment behaviour of network companies

Electricity Supply Interruptions: Sectoral Interdependencies and the Cost of Energy Not Served for the Scottish Economy

The power sector has a central role in modern economies and other interdependent infrastructures rely heavily upon secure electricity supplies. Due to interdependencies, major electricity supply interruptions result in cascading effects in other sectors of the economy. This paper investigates the economic effects of large power supply disruptions taking such interdependencies into account. We apply a dynamic inoperability input–output model (DIIM) to 101 sectors (including households) of the Scottish economy in 2009 in order to explore direct, indirect, and induced effects of electricity supply interruptions. We then estimate the societal cost of energy not supplied (SCENS) due to interruption, in the presence of interdependency among the sectors. The results show that the most economically affected industries, following an outage, can be different from the most inoperable ones. The results also indicate that SCENS varies with duration of a power cut, ranging from around £4300/MWh for a one-minute outage to around £8100/MWh for a three hour (and higher) interruption. The economic impact of estimates can be used to design policies for contingencies such as roll-out priorities as well as preventive investments in the sector

Distributed Generation, Storage, Demand Response, and Energy Efficiency as Alternatives to Grid Capacity Enhancement

The need for investment in capital intensive electricity networks is on the rise in many countries. A major advantage of distributed resources is their potential for deferring investments in distribution network capacity. However, utilizing the full benefits of these resources requires addressing several technical, economic and regulatory challenges. A significant barrier pertains to the lack of an efficient market mechanism that enables this concept and also is consistent with business model of distribution companies under an unbundled power sector paradigm. This paper proposes a market-oriented approach termed as “contract for deferral scheme” (CDS). The scheme outlines how an economically efficient portfolio of distributed generation, storage, demand response and energy efficiency can be integrated as network resources to reduce the need for grid capacity and defer demand driven network investments

Dynamic Efficiency and Incentive Regulation: An Application to Electricity Distribution Networks

Efficiency and productivity analysis is a central concept in incentive-based regulation of network utilities. However, the efficiency measures obtained from benchmarking predominantly reflect short term performance and hence, provide only a snapshot of the firm's path towards its long run equilibrium. On the other hand, the factors affecting the short run behaviour of firms may not be adjusted instantaneously when firms undertake investment. In these instances, short run inefficiency caused by investments will be transmitted to subsequent periods. This effect, which arises from costs associated with the adjustment of capital stock or production capacity, is problematic under incentive regulation with ex-post regulatory treatment of capital expenditure. This is because it adversely affects the firms' short term efficiency and, consequently, regulated revenue. This paper analyses the dynamic behaviour of inefficiency for a balanced panel of 128 Norwegian electricity distribution companies from 2004 to 2010. We show that, in a given period, inefficiency is a combination of period-specific effects (shocks) plus a carry-over component from previous periods due to adjustment costs. Also, we estimate these two components of inefficiency along with the rate of inefficiency transmission between periods

Title:Distributed Generation Storage, Demand Response, and Energy Efficiency as Alternatives to Grid Capacity Enhancement

The need for investment in capital intensive electricity networks is on the rise in many countries. A major advantage of distributed resources is their potential for deferring investments in distribution network capacity. However, utilizing the full benefits of these resources requires addressing several technical, economics and regulatory challenges. A significant barrier pertains to the lack of an efficient market mechanism that enables this concept and also is consistent with business model of distribution companies under an unbundled power sector paradigm. This paper proposes a market-oriented approach termed as "contract for deferral scheme" (CDS). The scheme outlines how an economically efficient portfolio of distributed generation, storage, demand response and energy efficiency can be integrated as network resources to reduce the need for grid capacity and defer demand driven network investments

Title:Distributed Generation Storage, Demand Response, and Energy Efficiency as Alternatives to Grid Capacity Enhancement

The need for investment in capital intensive electricity networks is on the rise in many countries. A major advantage of distributed resources is their potential for deferring investments in distribution network capacity. However, utilizing the full benefits of these resources requires addressing several technical, economics and regulatory challenges. A significant barrier pertains to the lack of an efficient market mechanism that enables this concept and also is consistent with business model of distribution companies under an unbundled power sector paradigm. This paper proposes a market-oriented approach termed as "contract for deferral scheme" (CDS). The scheme outlines how an economically efficient portfolio of distributed generation, storage, demand response and energy efficiency can be integrated as network resources to reduce the need for grid capacity and defer demand driven network investments

Distributed Optimal Power Flow for Unbalanced Radial Systems with Time-varying Communication

This paper proposes a distributed multi-period optimal power flow (OPF) formulation for unbalanced three-phase radial distribution systems over time-varying communication networks. To this end, we model the three-phase unbalanced network, distributed generators (DG), and electric vehicles’ (EV) behaviour with inter-temporal constraints. Moreover, we represent the objectives of the distribution system operator and those of prosumers, e.g., who wish to minimise the cost of DG or the degradation cost of the EV batteries. We first formulate the centralised OPF that requires knowledge of DG costs; EV information in terms of desired energy, departure and arrival times that prosumers are reluctant in providing. Moreover, the computational effort required to solve the centralised OPF in cases of numerous DGs and EVs is very intensive. As such, we propose a distributed solution of the OPF over a time-varying communication network. We illustrate the proposed framework through a 33-bus distribution feeder

Investigation of scaling effect on power factor of permanent magnet Vernier machines for wind power application

This study investigates the scaling effect on power factor of surface mounted permanent magnet Vernier (SPM-V) machines with power ratings ranging from 3 kW, 500 kW, 3 MW to 10 MW. For each power rating, different slot/pole number combinations have been considered to study the influence of key parameters including inter-pole magnet leakage and stator slot leakage on power factor. A detailed analytical modelling, incorporating these key parameters, is presented and validated with two-dimensional finite-element analysis for different power ratings and slot/pole number combinations. The study has revealed that with scaling (increasing power level), significant increase in electrical loading combined with the increased leakage fluxes, i.e. (i) magnet leakage flux due to large coil pitch to rotor pole pitch ratio, (ii) magnet inter-pole leakage flux and (iii) stator slot leakage flux, reduces the ratio of armature flux linkage to permanent magnet flux linkage and thereby has a detrimental effect on the power factor. Therefore, unlike conventional SPM machines, the power factor of SPM-V machines is found to be significantly reduced at high power ratings

Plug-in Hybrid Electric Vehicles in the Smart Grid Environment: An Economic Model of Load Management by Demand Response

Environmental concern regarding the consumption of fossil fuels is among the most serious challenges facing the world. As a result, utilisation of more renewable resources and promotion of a clean transport system such as the use of Plug in Hybrid Electric Vehicles (PHEVs) became the forefront of the new energy policies. However, the breakthrough of PHEVs in the automotive fleet increases concerns around the stability of power system and in particular, the power network. This research simulates the aggregate load profile of the UK with presence of PHEVs based upon different price scenarios. The results show that under the fixed rate and time of use programmes in the current grid, the extra load of the electric vehicles intensifies the consumption profile and also creates new critical points. Thus, there should always be excess standby capacity to satisfy peak demand even for a short period of time. On the other hand, when the consumers do not pay the price based on the actual cost of supply, those who consume less in peak hours subsidise the ones who consume more and this cross subsidy raises a regulatory issue. On the contrary, a smart grid can accommodate PHEVs without creating technical and regulatory problems. This positive consequence is the result of demand response to the real time pricing. From a technical point of view, the biggest chunk of PHEVs' load will be shifted to the late evening and the hours of minimum demand. Besides, from a welfare analysis standpoint, real time pricing creates no deadweight losses and corresponding demand response will limit the ability of suppliers to increase the spot market clearing price above its equilibrium level