This is the summary of the important discovery: instead of “retail competition for electric generation” as the Working Paper reads in page 3, what is needed in the third industrial revolution to reduce the risks in the power industry is Retail Competition and Active Demand (to get Demand Integration), under Ultraquality Transportation, which in turns are the three essential requirements of EWPC.
Another EWPC Discovery
By José Antonio Vanderhorst-Silverio, Ph.D.
Systemic Consultant: Electricity
First posted in the GMH Blog, on March 8th, 2008. Updated on March 9th, 2008.
Copyright © 2008 José Antonio Vanderhorst-Silverio. All rights reserved. No part of this article may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying and recording, without written permission from José Antonio Vanderhorst-Silverio. This article is an unedited, an uncorrected, draft material of The EWPC Textbook. Please write to javs@ieee.org to contact the author for any kind of engagement.
Thanks to Don Giegler for helping me inquire further into the essential elements that are generating uncertainty in the power industry, and that are fueling higher than necessary risks as a consequence of the restructuring experiments implemented. A new and important EWPC finding is the result.
The vertical integration paradigm mindset had a large negative impact on restructuring, which we can now be reversed by making a shift to the EWPC paradigm mindset. The abstract of the Working Paper CEIC-08-03, starts with “Restructuring of the electricity industry was expected to improve the operating efficiency of electric power generators, leading to lower production costs and retail prices.” That is a great statement for the gone days of the second industrial revolution, but not for the third industrial revolution that we are experimenting.
I have written earlier that power generation should no longer be at center stage in the industry anymore. The finding help stress, very clearly indeed, that under EWPC center stage shifts to the regulated transportation utility, which will concentrate on both system adequacy and system security to enable maximum social welfare in the open retail and wholesale markets.
Under EWPC, the transportation (transmission and distribution) utility will operate in a very stable regulatory environment, with a guaranteed rate of return in the traditional sense, letting the transportation expansion plans to be developed at least costs for the whole power system (not just for transportation). Wall Street should be very happy with those companies’ investments on the smart grid. Uncertainty gone for transportation investments!
Demand Integration should be in the long run the most important source of lower costs, and/or higher value, to customers, as transaction costs of retail operations decrease, helping increase the efficiency of the whole system. It is Demand Integration coupled with higher levels of coordination in operation that will help available base load central station generation operate at higher load factors, while leading to more stable market prices. That way, Wall Street will be pleased on those investments as they operate in a relatively more certain environment.
This is the summary of the important discovery: instead of “retail competition for electric generation” as the Working Paper reads in page 3, what is needed in the third industrial revolution to reduce the risks in the power industry is Retail Competition and Active Demand (to get Demand Integration), under Ultraquality Transportation, which in turns are the three essential requirements of EWPC.
Reference and context:
EWPC article Power Markets Essential Requirements,
EWPC “article” Power Markets Essential Requirements - II
Comments under the EnergyPulse article New Market Signals Are Urgently Needed to Change the Global Warming Threat, by Rafael Herzberg, Partner, Interact Ltd., Energy Consulting
3 comentarios:
This is the expected meaning of the EWPC discovery mentioned above:
EWPC will bring electric energy costs lower for customer precisely under those states that didn't restructure after a transition when stranded costs are paid out.
States that did restructured are more difficult (will take longer), if they have again significant new stranded costs to shift to EWPC.
Those states that restructure and don't have significant stranded costs to shift to EWPC can get lower costs faster for customers than states that didn't restructure.
Don Giegler
3.9.08 Not very Aptly put, Jose. Apt's "higher" appears to be your "lower". He, however, seems to have data that supports his conclusions. Do you?
Jose Antonio Vanderhorst-Silverio
3.9.08 As there is no EWPC systems in operation, no data is available. But, no data is needed. What is needed is for every customers to be able take the level of risks that is right for them, instead of having to pay for an accross the board risk level that leads to greater investment in generation and transportation capacity, as well as operations costs. As simple as that.
The low leverage intervention is leading to a zero sum game where genarators are taking consumers for a ride. Aptly put, on page 25, “A natural question is this: if generators are earning higher revenues in the RTO auction markets, and if they have lowered their costs by becoming more efficient, where is the money going?” One explanation is provided by Bodmer (2006), who demonstrate that share prices of low-cost generators operating in restructured markets have increased dramatically since the late 1990s. Another explanation may be that generating firms are demanding higher returns in exchange for being forced to take on more risk. Given that our data set consists of distribution utilities that are still regulated in some fashion, it is perhaps difficult to square the risk explanation with our particular sample. A third possibility is that firms are able to exercise market power in ways that the RTO market monitors do not detect.”
Further comments and the responses are posted as the article Another EWPC Discovery II.
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