Following this summer’s power panics in the US mid-west, and the fluctuating fortunes of the early encounters with deregulated power supply in Scandinavia and the Antipodes, ensuring continuity of electricity supply when conditions get tough in a competitive power market is looking increasingly difficult. Top of the agenda at this year’s CIGRE congress in Paris, the problems of wheeling-in large volumes of emergency power over constrained transmission lines following state-wide outages of generating plant suggest that independent system operator (ISO) control philosophy is now virtually back to the drawing board.
Take the case of Norway. “There is now a concern whether the market will provide sufficient capacity in time,” according to a CIGRE paper by five authors from Norway’s ISO, Statnett. It set the scene for the most active discussion and whistle blowing of the congress. In general, delegates from regimes committed to introducing genuine competition, ie power markets with both supply side and demand side bidding, were expressing a worrying level of anxiety.
Nevertheless the Norwegian authors still believe that market mechanisms are the most efficient tool. A stronger contribution from the demand side will be necessary to maintain a satisfactory capacity balance and as the Norwegian capacity balance becomes tighter, the demand side will get stronger price incentives to offer capacity reserves. “The system operator, Statnett, has an important role to play in developing administrative and practical arrangements that enable the demand side to offer such reserves.” But “no particular institution will have any particular responsibility for the future capacity balance,” they note.
In short, nobody is responsible for ensuring that adequate spinning reserve exists, and there is no incentive for generators to invest in it. In Norway, Statnet is debarred from any involvement as a player in the market and it cannot therefore invest in peaking power itself. Statnett is responsible for maintaining short term energy balance, including generating reserves, but it has no responsibility for bringing more capacity into the future market.
Herein lies the nub of the issue. In a commercially competitive electricity supply system, the configuration of the ISO rather than any form of regulator seems to be the key to security of supply. This may be the reason for armies of Scandinavian consultants descending on California in recent months – they have already encountered the kind of problems now being experienced in the USA.
When the Norwegian Energy Act came into force in 1991 there was an energy surplus as well as a substantial capacity surplus in Norway. “Since then”, the Statnett report notes, “further power plant development has been cancelled or deferred. Thus it can be argued that the present mechanisms have been a successful tool to prevent excessive investments in the power sector in a surplus situation. In the near future, the problem may be the opposite, however.”
“When the adequacy of a market mechanism to avoid a possible capacity deficit is discussed, one must notice that the problem may not be the market mechanisms, but the market situation. The present situation, with low spot market prices and also small daily price variations does not encourage generators to invest. Neither do end users have incentives to shift consumption to off-peak periods.”
“The adequacy of the market mechanisms will be tested when the fast increase in capacity delivery obligations from 2001 to 2003 approaches. The challenge is to provide sufficient new capacity to and avoid the excessive investments which the former planned economy probably would have required. An improvement in market instruments within the framework of market mechanisms may be necessary.”
The problem in Norway is that by 2003, the new contracted obligations for exports to continental Europe via three hvdc undersea links of some 1800 MW capacity may result in a scarcity of capacity. The other Nordel countries with which Norway’s open market is rapidly integrating are also committed to ever increasing numbers of high capacity hvdc links to various parts of Europe and Russia, and the Baltic Ring may eventually result in further export of highly competitive hydropower from Scandinavia. The prospects of spinning reserve being available in great quantities from any of the states at the remote ends of the hvdc links looks increasingly dim.
Does anyone have any answers? The only ones we have heard so far appear to undermine the very basis of open competition, but for all that, generally the lights have not gone out.
