Least-cost generation planning: A tale of two utilities

28 October 2017 12:00 am - 0     - {{hitsCtrl.values.hits}}

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It was the age of reason, it was the age of ignorance/chaos, it was the era of tradition, it was the era of optimism, it was the season of arguments, it was the season of agreements.   


The new generation expansion plan that determines the least cost electric power plant schedule for next 20 years has gone for public consultation.   


An avalanche of public comments has criticized the plan for favouring conventional technologies. The approval for the plan is withheld and a public discourse on electric power generation has developed. Amid the chaos emerges an alternative generation plan that is cheaper than the originally proposed plan.   


By the way, this is a series of events that happened in South Africa.   


The Integrated Resource Plan prepared by the Department of Energy in South Africa is the equivalent of the Least Cost Long term generation Expansion plan prepared by CEB in Sri Lanka.   


The new version of Integrated Resource plan (IRP 2016) had been published for public comments on November 2016. The plan has been the subject of number of controversies, due to some missing appendices, outdated technology costs, artificial constraints (forced conditions) imposed on renewable technologies, and incorrect externality costs to name a few. Some submissions have gone to the extent of calling the IRP unconstitutional for its reliance on coal power. The “Council for Scientific and Industrial Research”(CSIR) has made a submission in response to the draft plan pointing out some highly flawed assumptions that have gone into the original Plan and has proposed a revised plan which costs much less than the original ‘least’ cost plan that had been proposed.   

 

The fundamental nature of power system planning is undergoing a slow transformation where planned power systems are transforming to market oriented ones


The technology costs are the key assumptions that had been challenged by the CSIR submission in South African case. South Africa has this well-known and highly acclaimed Independent Power Producer Procurement Programme (IPPPP) in place to procure renewable and conventional power plants using a competitive tendering process.   


CSIR has used the actual technology costs from these auctions with prudent adjustments using most optimistic forecasts for nuclear and coal costs, and pessimistic forecasts for renewables energy costs and Natural Gas prices, to rerun the model while also removing imposed constraints placed on renewables in the initial plan. The result has been a least cost scenario that costs 70 billion rand/year less than the original plan. The additional costs of energy storage systems required to ensure frequency stability, has also been quantified (again using conservative estimates about future technology advancements and cost reductions) where it had been noted that the worst case cost for all scenarios are well below 1% of total cost of power generation by 2050. The cost of transmission network infrastructure has also been calculated again with high cost assumptions and again, the new revised least cost plan has turned out to be 20-30billion rand/year cheaper than the original plan. The complete submission of the CSIR with detailed calculations and simulation results can be accessed from their website. In a nutshell, it had been proven that avoiding CO2 emissions is no longer a trade-off, but has become the least cost option in power system planning studies.   


In Sri Lanka, the Ceylon Electricity Board submitted the Least Cost Long Term Generation Expansion plan for the approval of Public Utilities Commission of Sri Lanka, on May 5, 2017 and a public consultation on the plan was held on 15th June 2017.   


The public consultation attracted 36 comments from various organizations, and individuals, most of which were critical of the plan. The Commission based on the submissions made during the public consultation process, directed the CEB to run 12 additional scenarios and submit results to the commission. The commission based on scenarios submitted by the utility approved a revised plan on 20th July 2017, at which point the hell broke loose.   


CEB management has questioned the legality of the process and the authority of the regulator while the unionized engineers of the CEB who have vowed to defend the original plan through hell and high water have refused to accept the Least Cost Plan approved by the regulator and is threatening trade union actions if the regulator does not approve the original plan submitted by the utility.   


There are a number of striking similarities between the case of South Africa and Sri Lanka.   


Fuel costs forecast are at the heart of both controversies. The original plan (IRP 2016) of South Africa assumes an unrealistic low technology cost (Levelised cost of electricity LOCE) for coal and nuclear while assuming higher than actual prices for Renewables. The original plan of CEB also assumes lower coal prices and higher natural gas prices.   


Both electricity industries operate for the most part as vertically integrated monopolistic utilities. And the public discourse pertain to the two plans have also followed a similar arc thus far.   


At the same time, there are significant differences between two situations. The Sri Lankan process is less rigorous than South African one and the stakeholder involvement is weaker as a result. 


The Integrated Resource Plan of South Africa attracts comments from a plethora of organizations from various sectors most if not all of whom are well informed about the planning process and models that involves PLEXOS software. In Sri Lanka, CEB believes that the generation planning process and the model that involves WASP IV software and linear optimization, is perhaps slightly less challenging than rocket science and that none other than Electrical Engineers of CEB can probably wrap their heads around profound intricacies of the generation planning model and power systems.   


In South Africa, non-electrical engineers such as energy economists, scientists, financial analysts, policy experts get involved in the generation planning discourse and make significant contributions based on their individual expertise that refines the plan. In Sri Lanka, omniscient electrical engineers of CEB are believed to be the experts in all matters including economics, demand and price forecasts, energy markets, financial analysis, and social and environmental externalities that are relevant to generation planning model.   


In South Africa, the discussion on the IRP 2016 is mostly objective and is about the planning process, models, scenarios and parameters. In Sri Lanka the discussion on LCLTGEP has become sentimental, emotionally charged, and sometimes digresses to topics tangential to the issue at hand including conspiracy theories and patriotism. In hindsight, there are a lot that Sri Lanka can learn from South Africa about generation planning.   


However, this comparison will be grossly incomplete if it doesn’t acknowledge and take into account the size of power systems and the fact that South Africa is an interconnected system, where Sri Lanka operates as an isolated islanded power system.   


But let’s consider an interconnected system for a moment.   


The national grid of UK, a 70GW power system operates with three interconnections, the 2GW French interconnection, 1GW BritNed interconnection with Netherlands, and two 500MW connections with Northern Ireland and republic of Ireland.   


In the case of Sri Lanka, proposals about an Indian interconnection had been around for decades with number of various pre-feasibility studies conducted at different instances. There might have been, socio political concerns, pricing models, technical issues when the proposal was considered in 1970’s for the first time, but not anymore.   


Wheeling charges however will be on the higher side due to transmission losses of Indian system. Yet, a rough calculation with conservative estimates (wheeling charges upto Kerala plus twice the transmission cost of Sri Lankan system) will show that electricity can be procured from the spot market of these power exchanges, for less than 20 LKR/kWh (landed cost in Sri Lanka), much less than what Sri Lanka is paying for emergency power via PPAs.   


Long term contract prices are bound to be less than day-ahead market prices. The 65,000 MW of coal power plants in India, stranded without fuel and dispatch instructions is a well-known fact and in this context Sri Lanka can procure energy from India sans pollution if it decides to.   


Yes, transmission constraints are present. But reactive power compensation can be done with a larger controller at HVDC converter stations, which will not only strengthen the transmission system, but also facilitate renewable integration in time to come. California Independent System Operator’s (CAISO) western energy imbalance market (EIM) recently started to trade electricity in a sub-hourly market, a move that will reduce the reserve margin requirements of system operators, and thereby overall costs.   


In UK, national grid uses market mechanisms to obtain about 15 types of various ancillary services from electricity generators. The emergence of electricity markets has led certain planning requirements to be replaced by market mechanisms. Though power exchanges in India currently don’t provide these services at the moment, the industry is moving there slowly. Sri Lanka meanwhile is struggling to implement a SCADA system.   


The electricity sector is rapidly changing, that has posed new challenges to the generation planning exercise, all around the world. The electricity demand is becoming more and more stochastic in nature, rendering once revered demand models obsolete. The uncertainty associated with a long term demand forecasts has increased rapidly due to technological disruptive forces, behavioural and lifestyle changes etc... With the increasing renewable energy penetration, planners will soon be required to consider a forecast demand curve instead of the existing practice of using ‘Load Duration Curve (LDC)’ for planning capacity additions at the unit commitment level, because the variable nature of renewable energy will be imposing different ramping requirements and peak load hours on rest of the generators in the system.   


The fundamental nature of power system planning is undergoing a slow transformation where planned power systems are transforming to market oriented ones.   


Markets always have the potential to transcend politics, bring down prices by promoting competition and ultimately serve as economic optimization tool. However a strong and mature regulatory regime is an essential prerequisite before moving to a market oriented model. Establishing a robust and transparent power procurement programmes like the IPPPP in South Africa and establishing a fair and transparent generation planning process are the first steps Sri Lanka can take in that direction.   
Dileepa Karunarathna is an Electrical Engineer by profession and is serving as Assistant Director - Tariff and Economic Affairs, at the Public Utilities Commission of Sri Lanka. The writer’s view does not reflect the view of the Public Utilities Commission of Sri Lanka. 

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