martes, diciembre 19, 2006

Playing With Fire and Collapse Part 9

Reference: Playing With Fire and Collapse Part 8

Arvid, thanks for your humble response about the mental model related to the wikepedia quote about EDF Finances. It is clear from your response that it is a vertical integration controlled market mental model. As you can infer from my writing something else is emerging to solve the efficiency of electric power markets.

Uncertainty is a very complex issue. I accept that nuclear power could be part of any scenario, but it should compete with other technologies. Energy efficiency should be in all scenarios – as a predetermined element. Market rules should eliminate the barriers to the resources of the demand side to allow for the full competitive development of energy efficiency, demand response, energy storage, distributed generation, etc.

Electric power monopolies - vertical integration – have become increasingly inefficient since the 70s. Physical risk management on vertical integration was done with supply side - generation and transmission reserves for system coordination. The emerging market changes iron system coordination to bits system coordination, as information and control transaction costs that were prohibitive years ago are getting cheaper and cheaper as time goes on.

Deregulation was sold by people that apparently didn't know about electricity (maybe knew a lot) but knew a lot about making money. The “decade old debate” was about vertical integration versus a flawed reform paradigm that is more inefficient than vertical integration for the majority of the customers. Please read about electricity without price controls starting with The Future Utility Customer Service Model to understand the third way. Go as deep as possible into the links until you feel satified.

The European Union agreed to liberalize electricity and gas for all customers on July 1st, 2007. France, Germany, and Spain are being pressured to unbundled retail and other changes. However, the problem is that the market design and architecture is the flawed one. The third way was not considered at all. Unbundling and other changes, although required, are insufficient to develop a true competitive market.


José Antonio

Playing With Fire and Collapse Part 8

Refeence: Playing With Fire and Collapse Part 7

Hi to all of you, as the second phase of the generative dialogue is developing around nuclear energy and the emerging market design and architecture.

If I understand correctly, Len is suggesting extending EWPC to Utilities Without Price Controls (UWPC). Both water and gas end-user needs seem to be fine for such extension. That is a good suggestion for the generative dialogue. That is in synchronicity with Jamie Wimberly’s article The Future Utility Customer Service Model closure, in which he endorses systemic approach and the revolution away from the continuity scenario.

The water suggestion reminds me that central power stations extension development is a large user of water, leading to the important problem of the limits of water ecosystems services; namely cooling water requirements of power stations. According to the source Water requirements of nuclear power stations are 20 to 83 per cent more than for other power stations. Water ecosystem services are an issue that may impose a growth limit to power system development.

Keeping for the moment on EWPC market design and architecture, I like to add to Len’s impression that I am not sure what he means by “a pure market electricity strategy such as EWPC.” EWPC is a combination – the third way missing in the decade old debate - of a controlled market and a free market.”

Transmission tightly integrated with distribution and system planning, operation and control involve a controlled, monopoly, market which is different from open transmission access controlled by RTOs and “native” loads. Generation and retail marketing belong to a non-real time free market, so it is ["not" is replaced by "a"] straightforward market extension to other utilities. Generation monopolies are not advised and should compete with the demand side, where CANDU technology can compete freely with other technologies on the short and long run.

The interface between long run system adequacy and short run smooth real-time operation and control of a power system is based on demand side and supply side unit commitments from retailers and generators. That is needed to ensure that Fred Schweppe’s engineering criteria is met. Water and gas systems requirements will not interfere with power system operation and control, leading to the potential and sound design feasibility of Len’s suggestion on the economies of scope of UWPC, as the engineering criteria of gas and water systems don’t interfere either.

Playing With Fire and Collapse Part 7

Reference: Playing With Fire and Collapse Part 6

Len and Paul: the supply oriented, vertical integration, central station, mechanistic thinking, continuity paradigm is just one scenario. The 28 billion euros "is far from being sufficient." The surcharge depends on what it costs consumers the electricity, no just what the electricity bill amounts to. The difference is customer's outage costs, which rise as end use devices become sophisticated.

Under mechanistic thinking Andy’s article infers the need of forecasting. Under systemic thinking Forrester’s explains why forecasting is a losing game. Instead of forecasting, the use of scenarios comes to the fore, together with what I suggest to call Energy Dynamics. Forrester wrote about Industrial Dynamics, and John D. Sterman wrote Business Dynamics.

Decision making under scenarios is centered on intelligent conversations and finding flaws on mental models to find decisions which are robust under every scenario. Those are the predetermined elements.

I strongly believe, Energy Efficiency (EE) and Demand Response (DR) are predetermined elements which give EWPC an edge. To develop the resources on the demand side in EWPC, the old mental model of cherry picking, as Andy suggests in “Improved energy efficiency, particularly in the commercial sector, is the quickest and most cost effective way to begin closing the energy supply gap in a meaningful way in a short period of time” should change. As I posted on April 12, 2006, under the article What a surprise: Prices move both ways this is what Electric Power Research Institute (EPRI) had said then:

--- Energy efficiency (EE) and demand response (DR) can be cost-effective alternatives to adding new capacity
--- Programmatic approaches to EE and DR have been successful, but have only “scratched-the-surface” of what’s possible
--- Huge opportunity to utilize technology, innovation, and markets to drive EE, DR, and overall electricity utilization

Such an approach, based on simulations with Energy Dynamics and scenario building, will allow the development of a trusted market design and architecture where long run and short run risk management is under control. EWPC is one healthy candidate for the approach.

In “Poised for change: hopeful signs for the power industry (see Time to Innovate…),” Charles W. Gellings, vice president of innovation at the EPRI, adds that:

Assumption: The end-use efficiency of energy utilization has stagnated.

Fact: The U.S. is improving its end-use energy efficiency at a rate of about 1 percent per year. However, there is a potential for reducing the consumption of electricity by between 24 and 44 percent — if all existing technologies and those under development were deployed.

Going for a nuclear silver bullet strategy, without considering the emerging market reform paradigm, is playing with fire.

Playing With Fire and Collapse Part 6

Reference: Playing With Fire and Collapse Part 5

Hi Arvid,

"It is Time To Innovate - Energy Utilities Face Unprecedented Challenge, Opportunity. A new paradigm of electric power is emerging which will replace vertical integration and under either ("Tough Times" or "Rising Expectations") very plausible “non-continuity” scenario, will allow a large market share of distributed resources, as explained under the article The Future Utility Customer Service Model.

Notice please that a third way was missed in the decade old debate, which I consider to be electricity without price controls (EWPC). Notice also that under systemic thinking we should be changing from debate to a generative dialogue to answer the question posed by Andy “And perhaps most critically, how can we instill the sense of urgency needed for a comprehensive energy strategy to be put in place?” A lot of uncertainty will not allow imposing a highly risky silver bullet anymore.

Given a “non-continuity” – systemic thinking - expansion scenario, to be simulated using Energy Dynamics against the nuclear silver bullet – mechanistic thinking - expansion “continuity” scenario, please describe the mental model behind the proposal explaining the following about EDF Finances (Source Wikipedia).

For a long time, EDF suffered from very low profits for a group benefiting from such monopoly, especially since in the weakness of its results on the domestic market, were added the poor performances of its foreign subsidiaries. Nevertheless, its balance sheet is very fragile, because of its international development, of its tariff policy in France and rapid deterioration of its profitability.

From 2001 till 2003, EDF was forced to reduce its equity capital due to untoward deviations of conversion in South America and write-down of its assets in Germany, Italy and in Brazil for a total of €6.4 billion total. However, according to the report of the Roulet Commission, international development, although costly, must be followed, because if EDF spent €15 billion euro on acquisitions, its rivals would spend €70 billion. The commission recommends a European strategy, an international presence, albeit focussed, and a larger drive to supply gas.

The most significant problem (in May, 2004) was the rocking of the balance sheet between equity capitals of €19 billion and a €24.5 billion debt (November, 2004), for which it is necessary to add:

--- about €30 billion to meet its commitments to retirement of its workers in the electrical and gas industries (retirement at 55 years, favourable pension rates, etc), which will be met over time by the new tax payable tariff by consumers.

--- €6.4 billion for financial commitments in Italy and in Germany, a sum which could come to more than €10 billion, from 2005.

--- and a huge sum to continue establishing reserves to finance the future dismantling of 58 nuclear power stations. A theoretical reserve currently valued at €28 billion was made, but it is far from being sufficient and it is used in fact to a greater extent for international development.


José Antonio (not just José)