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Transcript of DEVELOPMENTS IN ENERGY REGULATORY FRAMEWORK · PDF fileDEVELOPMENTS IN ENERGY REGULATORY...
DEVELOPMENTS IN ENERGY REGULATORY
FRAMEWORK
By
Datuk Ir. Ahmad Fauzi Hasan
Energy Commission
25 Feb 2016
National Workshop Building Sector Energy EfficiencyKUALA LUMPUR25 February 2016
Malaysia’s final energy consumption is dominated by petroleum products, natural gas and electricity
Source: National Energy Balance
2014
Coal and coke – 2.9%
Natural gas – 22.6%
Electricity – 19.8%
Petroleum products - 54.7%
EGA
T
168.6 GWh (0.15%)
22.0 GWh
27,703 GWh (24.3%)
86,289 GWh (75.6%)
17.0 GWh
Domestic: 6,710,032
Commercial: 1,404,501
Industry: 24,852
Public Lighting: 63,340
Mining: 29
Agriculture. & Others : 2,271
EGAT
TNB (G) – 6,616 MW
IPP – 14,570 MW + 440 MW (NUR)
Total energy to grid: 114,182.6 GWh (100%)
Total energy from grid to consumers: 103,466 GWh (90.6%)
System
Losses :
10,716.6
GWh ( 9.4%)
Single Buyer
Oil / distillate
Installed Capacity (To Grid System):TNB (G) : 6,616 MWIPP : 14,570 MWTotal : 21,186 MWMD : 16,901 MW
Export
RE – 271.27 MW
Biomass Landfill Mini Hydro Solar PV
Single Buyer
4,111 GWh
52.9 GWh
Natural Gas
Hydro
Coal
24,298 GWh
40,725.6 GWh
50,536.2 GWh
2,631 GWh
19.94 GWh
56.58 GWh
104.74 GWh
5.28 GWh
2,214 GWh – Licensee (1,225.8 MW )
630 GWh – Private Licensee (352.12MW)
130 GWh
Co-generation
Private Licensee
1,219.26 GWh
1,190.15 GWh
128.5 GWh ( Industrial heat waste)
Electricity Generation and Consumption
for Peninsular Malaysia
22,350 GWh (19.57%)
35,801 GWh (31.35%)
43,308 GWh (37.93%)
1,370 GWh (1.20%)
133 GWh (0.12%)
414 GWh (0.36%)
11.33 GWh (64.03MW)
37.75 GWh (21.62MW)
19.0MW41.60 GWh 77.93 GWh (116.62MW)
Electricity Demand and Generation Fuel Mix
48.2%
25.2%
25.4%
1.3%
Hydro Gas Coal Diesel
75.7%
14.9%
5.7% 3.6%
Gas MFO & Diesel Hydro RE
42.3%51.8%
3.6% 1.8%
0.5%
0.0%
Coal Gas Hydro MFO & Distillate Co-gen Interconnection
Sabah
Peak
Demand
(MW)
Reserve
Margin
(%)
Pen.
Malaysia
16,901 21%
Sabah 914 40%
Sarawak 2,385 70%
Sarawak
Peninsular
Malaysia
Evolution of Malaysian Electricity Supply Industry (MESI) Structure
Distribution
“Vertically Integrated”Dominated by
National Utility-TNB
Early 1990’s -Fully Regulated
TNBG & TNBH
Transmission and Distribution by TNB Privately-owned IPPs
allowed to participate in the generation sector
Mid 1990’s -Multiple Generation
Players
IPPs
Transmission(system operator)
TNBDistribution
Retail
Present
IndependentPower
Distributors /Retailers
Energy Commission
Generation
Transmission
Transmission and Distribution by TNB Privately-owned companies allowed to
participate in generation and limited areas of distribution
Transmission
Distribution
TNB Generation IPPs
As of 2014Multiple Distribution
and Retail Players
Energy Industry Regulatory Framework Under The Energy Commission (EC)
Regulator
Regulatees
(Peninsula and Sabah)
Electricity SupplyIndustry
• Sets Electricity Supply Policy• Prescribes Electricity Supply
Regulations• Approves Electricity Supply
Licences and Tariffs
Minister of Energy, Green Technology and Water
Minister of Petroleum
Energy Commission• Advises the minister on matters relating to the
energy sector• Develops legal frameworks• Implements policy• Issues licences and certifications • Regulates the electricity and piped gas supply
industriesPo
licy
Exe
cuti
on
&
Ind
ust
ry
Re
gula
tio
n
• Sets Piped Gas Supply Policy• Prescribes Piped Gas Supply
Regulations• Approves Piped Gas Supply
Licences and Tariffs
Downstream Piped Gas SupplyIndustry
Po
licy
Fo
rmu
lati
on Policymakers
Legislation Under The Energy Commission
7
Energy Commission Act 2001
Electricity Supply Act 1990
Electricity Regulations 1994
Licensee Supply Regulations 1990
Electricity Supply (Compounding of Offences) Regulations 2001
Efficient Management Of Electrical Energy Regulations 2008
Gas Supply Act 1993
Gas Supply Regulations 1997
Gas Supply Order (Compoundable Offences) 2006
Regulatory process undertaken by EC
EC advises / proposes to
policymakers
Board of EC Members sets and reviews
regulatory policies and standards
EC prescribes requirements and creates
awareness among regulatees
Minister prescribes regulations and policies
EC issues licences,
certifications and approvals
EC promotes, monitors, inspects, audits,
investigates and enforces compliance
EC consults stakeholders
on initiatives and issues
Malaysia’s New Energy Policy (launched in 2010) Provides Direction For Energy Sector Development
Energy Pricing
• Gradual removal of subsidies
• Decoupling
Supply side
• Portfolio development to increase use of sustainable technologies
• Maintain depletion policy
Energy Efficiency
• Minimum Energy Performance Standards
• Tax incentives
• Support for co-generation units
Governance
• Improve transparency
• Allow option for full market
• Achieve market price
• Improve economic performance
Change Management
• Organise and manage implementation of initiatives
• Proper sequencing to achieve objectives
• Integrated approach mechanism
Economic Efficiency, Security of Supply, Social and Environment
Barriers To Energy Efficiency
• Lack of awareness and interest among key decision makers in
industry
• Lack of funding mechanism
• Inadequate energy service providers
• Tariff policies do not facilitate co-generation and demand side
management
• Heavily subsidized energy prices made EE initiatives not as
attractive
• Inadequate legal and regulatory framework
May 1997 – June 2008:NG Price to Power Sector fixed at RM6.40mmBtu
October 2002: NG Price to Large Industry (>2mmscfd) =
RM11.32/mmBtu NG Price to GMB(<2mmscfd) =
RM9.40/mmBtu GMB average tariff= RM12.87/mmBtu
June 2008:• NG Price to Power Sector
=RM14.31/mmBtuJuly 2008: NG Price to Large Industry (>2mmscfd) =
RM23.88/mmBtu NG Price to GMB(<2mmscfd) =
RM17.99/mmBtu GMB average tariff= RM22.06/mmBtu
March 2009: NG Price to Power Sector
=RM10.70/mmBtu NG Price to Large Industry (>2mmscfd) =
RM15.35/mmBtu NG Price to GMB(<2mmscfd) =
RM11.05/mmBtu GMB average tariff= RM15.00/mmBtu
June 2011: NG Price to Power Sector
=RM13.70/mmBtu NG Price to Large Industry
(>2mmscfd) = RM18.35/mmBtuJuly 2011: NG Price to GMB(<2mmscfd)
= RM14.05/mmBtu GMB average tariff
= RM16.07/mmBtu
Jan 2014: NG Price to Power
Sector =RM15.20/mmBtu
April 2014: NG Price to Large Industry
(>5mmscfd) = RM18.35/mmBtuNG Price to GMB(<5mmscfd)
= RM14.05/mmBtu GMB average tariff
= RM16.07/mmBtu
Domestic Gas Price Trend In Peninsular Malaysia
More Efficient Electricity Pricing Via Incentive-based Regulation (IBR)
IBR is a mechanism or framework for setting
electricity tariff with built-in incentives to improve
efficiency and quality of service
• Structured tariff regulatory process:
– First Regulatory period from 2014 – 2017
– Establishment of regulatory accounts and reporting mechanism
• Separation of accounts of TNB business units
• Determination of reasonable return for licensee
• Imbalance cost pass-through mechanism for uncontrollable costs (changes in forecast vs actual cost of generation)
• Setting of performance targets with incentive/penalty mechanism by regulator
• Efficiency sharing between TNB and consumers in the next tariff regulatory period
Aggregate Revenue
Requirement=
OPEX Depreciation Tax
Return on Assets
WACC (Return)
xRegulated asset
base (RAB)
+ + +
Additional building block for calculating revenue requirement for the second regulatory period
+Efficiency carryover amount
Building blocks to establish revenue requirement
Main Features of IBR
Electricity Customers
Distribution/ Customer Services
Single Buyer Transmission System Operation
IPPsTNB
Generation
Electricity tariff
Transmission tariff
System operations tariffGeneration
tariff
As per SLA
As per PPA Under IBR framework, the CAPEX, OPEX and
RETURN for Distribution, Transmission, System Operation and Single Buyer Operation are regulated based on KPIs with built-in incentive/penalty mechanism
TNB Business Units under IBR Framework (Accounting Separation)
Note 1 : SLAs = Service Level Agreements with TNB’s generation plants2 : PPAs = Power Purchase Agreements with independent power producers
Single Buyer Operation (Non-generation asset + OPEX)
Single Buyer Generation(SLA and PPA costs)
1313
Incentive Scheme - Key Performance Indicators (KPIs) under IBR framework
14
Upper bound target
Lower bound target
Incentive
Penalty
Performance Indicator Scale
No incentive / penalty imposed
Distribution / Customer Services1. System Average Interruption
Duration Index (50%)2. Average of Minimum Service
Level Compliance Performance (25%)
3. Weighted Average Guaranteed Service Level (25%)
System Operator1. Wide Area Loss of
Supply Event (25%)2. Voltage and
Frequency Limit Compliance (50%)
3. Dispatch Adjustment (25%)
Single Buyer Operation1. System Average Cost
(25%) *2. Compliance to Timely
Settlement of Generators’ Invoices (25%)
3. Compliance to Malaysian Grid Code(25%)
4. Compliance to Single Buyer Rules(25%)
Transmission1. System
Minutes (40%)2. System
Availability(30%)
3. Project Delivery Index (30%)
Incentive / penalty capped at +/- 0.3% to 0.5% of annual revenue requirement
The annual incentive / penalty results will be monitored on yearly basis
The actual amount of incentive to be shared / penalty to be imposed will be implemented in the next regulatory period
*Note: number in bracket represents weightage of KPI
14
14
Average Electricity Tariff Has Gradually Adjusted Towards Policy Driven Market Pricing In Line With Subsidy Rationalisation Plan
Base tariff under IBR
for first regulatory
period
Gradual Removal of SIT until 2020
SIT discount will be gradually reduced by 2% every year beginning 1 January 2016
Notes:E3s Tariff: Special Industrial Tariff for High Voltage Peak / Off-peak Industrial TariffE2s Tariff: Special Industrial Tariff for Medium Voltage Peak / Off-peak Industrial TariffE1s Tariff: Special Industrial Tariff for Medium Voltage Industrial TariffDs Tariff : Special Industrial Tariff for Low Voltage Industrial Tariff
Current SIT Discount Rate
Jul '15 Jul '16 Jul '17 Jul '18 Jul '19 Jul '20
E3s Tariff 10.30% 8.30% 6.30% 4.30% 2.30% 0.30% 0.00%
E2s Tariff 8.30% 6.30% 4.30% 2.30% 0.30% 0.00% 0.00%
E1s Tariff 4.80% 2.80% 0.80% 0.00% 0.00% 0.00% 0.00%
Ds Tariff 3.00% 3.00% 3.00% 1.00% 0.00% 0.00% 0.00%
0%
2%
4%
6%
8%
10%
12%
SIT
Dis
cou
nt
Ra
te
17
Overview of Current and New SIT Eligibility Criteria
Current SIT Criteria New SIT Criteria
Eligibility Criteria:
Total electricity cost ≥ 5%Total company operating cost
Document to be submitted:1. Audited Annual Report for the
Previous Financial Year (FY)2. Appendix 1 endorsed by External
Auditor3. 12 months electricity bill for the
same FY
Eligibility Criteria:
Document to be submitted:1. Energy Manager appointment Letter2. Baseline - kWh/production (Year 1)3. Energy Efficiency (EE) plan endorsed by
energy manager4. Improvement on kWh /unit production
and kWh savings (comparison with previous year kWh/production index)
The approval process will be similar to the current practice by TNB (EE and financial audit reports are required for SIT approval)
Enhanced Time-Of-Use (E-ToU) Tariff Scheme
18
E-ToU Periods
0800
1700
2200
1400
Monday to Friday
,
Off -Peak Mid-Peak Peak
1100 -1200
Saturday, Sunday &Public Holidays
Existing Peak and Off-Peak Periods
Monday to Friday
0800
2200
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
20
22
20
24
Gen
erat
ion
(G
Wh
)
Year
Sarawak
RE
Diesel
MFO
Coal
Gas
Hydro
Generation Fuel Security Policy Framework In The Power Sector
• Fuel diversification (HHI <= 0.5)• System least cost
Enhanced MESI Structure – Single Buyer “Managed Market” Model
Single Buyer (SB)
A ring-fenced entity in TNB responsible for
procurement of electricity from Generators
and scheduling of generation to meet
demands based on least cost.
Generation Despatch
Daily despatch of IPP/TNB plants based on
variable costs provided in PPA/SLA
Merit order of despatch based on least
variable cost in half-hourly tranche.
Cogen and RE generators sell electricity based
on contract rates/FiT rates.
Grid System Operator (GSO)
A ring-fenced entity in TNB responsible for
the real-time operation of the Grid System in
a safe, secure and least-cost manner.GSO
SB
IPPsCogen, RE
Gencos
Consumers
Franchise Distributors
TNBGeneration
Transmission(Grid Owner)
Planning
Distribution
Consumers
ENERGY COMMISSION
Current Dispatch Arrangement
New Enhanced Dispatch Arrangement
New Enhanced Dispatch Arrangement (NEDA)
Introduction of Price-based
Bidding to complement current
PPA/SLA arrangements:
Generators with PPA/SLA can offer optional reduced heat rates & VOR. If dispatched, generators will be paid at cost using the lower of the PPA/SLA or optional offer of heat rates & VOR.
Non-PPA generators bid to sell energy to the Single Buyer. If dispatched, generators will be paid at Price as Bid.
In addition to sales of energy, non-PPA generators can offer term-based capacity for short-term system reserve, if required by regulator
Single Buyer Single Buyer
Generators with
PPAs/SLAs
Generators with
PPAs/SLAs
Price
Non-PPA Generators
PPA/SLA ratesPPA/SLA rates
or optional offer of reduced rates
22
The Electricity Supply Act 1990 (Act 447) has been amended in 2015
to improve governance and quality of service in the power sector
• Ring-fence Single Buyer and System Operator according to prescribed codes, rules and guidelines
• Require licensee to submit business plan
• Require licensee to administer safety management plan and programme
• Prescribe mandatory standards of performance
• Define a transparent tariff setting process by EC
• Establish industry fund for tariff stabilisation
• Require supply agreements to be subject to EC endorsement
• Require licensee to ensure cyber security of supply system
• Enable advanced metering infrastructure
• Enable ASEAN Harmonised EEE Regulatory Regime
• Increase severity of penalties for non-compliance
• Expand regulatory powers of EC, including to obtain information, plan, audit, resolve disputes and issue and enforce codes, directions, rules and guidelines
Enhanced Legal Framework
Acts of Parliament
Regulations – Power of the Minister to make regulations
Licences – Issued by Energy Commission and approved by Minister
Licence Conditions
1. Energy Commission Act 2001
2. Electricity Supply Act, 1990
3. Electricity Regulations, 1994
4. Licensee Supply Regulations, 1990
5. Electricity Supply (Compounding of offences) Regulations 2001
6. Efficient Management Of Electrical Energy Regulations 2008
7. Licences issued to generators, distributors and suppliers
8. Prescribes mandatory standards for licensees’ activities
Agreements – Between Industry Players / Consumers
10. Power Purchase Agreements
11. Fuel Supply Agreements
12. Electricity Supply agreements
9. Grid Code, Distribution Code, Rules, Guidelines provide guidance for industry
Industry Codes, rules and guidelines – Issued By Energy Commission
Current Reform Initiatives Are Based On “No Regrets” Steps Approach
Existing situation No regrets stepsMarket implementation
Status quo – Managed market
Improvements to the status quo that have benefits in and of themselves
Initiatives required for trading to commence
Benefits flow from the market introduction rather from the individual initiatives
The reform process consists of two distinct phases:
No regrets steps
Market implementation steps
To encourage the entry of more players to bring in more gas to the
market, an open access regulatory framework will also be established
Piping system
Consumers
Consumers
Consumers
Consumers
Consumers
Consumers
Gas Processing Plant/Onshore Gas Terminal
Liquefaction Plant
PRODUCTION TRANSMISSION DISTRIBUTION
1
2
Transmission pipeline
3
City Gate StationLast flange of GPP/OGT
Tie-in point
Connection flange of
loading arm
International BorderEconomic, Safety and Technical
Regulations
Economic Regulations
Demarcation of GSA 1993
RETAIL
Distribution pipeline
Metering or
Regulating Station
RGT
Consumers
Legend:
: Source of gas
: Gas delivery system
Consumers
Private gas licensee
Gradual phasing-out of gas subsidy
Incentive-based electricity tariff regulation with regulatory
accounts unbundling, performance incentive scheme and
imbalance cost pass-through mechanism
Competitive framework for generation capacity development
IPP generation efficiency savings sharing framework
Generation fuel security policy framework
Ring-fencing of single buyer and system operator with
market rules and regulatory oversight
Enhanced time-of-use and cost-reflective tariffs framework
New enhanced dispatch arrangement
Gas third party access framework
National Energy Efficiency Action Plan
Ongoing Initiatives To Improve MESI Performance
Initiatives In The National Energy Efficiency Action Plan
Initiatives for Appliances and Equipment:
• 5-Star Refrigerator Campaign
• EE lighting Campaign
• 5-Star Air Conditioner Campaign
• High Efficiency Motors
Initiatives for Commercial Buildings:
• Energy Audit and Management in Large Commercial Buildings
• Energy Audit and Management in Medium-Sized Commercial Buildings
• Energy Efficiency in New Buildings
Initiatives for Industry:
• Energy Audit and Management in Large & Medium Sized Industries
Initiatives for Government Facilities:
• Energy Audit and Management in Government Facilities
Initiatives for Cogeneration:
• Cogeneration in Industries and Commercial Buildings
Malaysia’s electricity intensity trend has not shown sustained improvement
Note: Intensity = Quantity of energy required per unit output or activity
(*): Electricity Intensity (toe/RM Million GDP at 2005 prices
(**): Electricity Intensity (GWh/RM Million GDP) at 2005 pricesPreliminary Data for 2014
Sources: i) Department of Statistics Malaysia
ii) TNB, SESB, SEB and IPPs
iii) National Energy Balance 2013
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Electricity Intensity (toe/GDP at 2005 Prices (RM Million)) 7.9 8.1 8.57 8.61 9.44 9.89 10.06 10.88 12.26 12.15 12.2 12.91 12.96 13.06 12.87 12.77 12.67 12.59 12.49 13.15 13.29 12.97 13.31 13.45 13.26
Electricity Intensity (GWh/GDP at 2005 Prices (RM Million)) 0.092 0.094 0.1 0.1 0.11 0.115 0.117 0.126 0.143 0.141 0.142 0.15 0.151 0.152 0.15 0.148 0.147 0.146 0.145 0.153 0.154 0.151 0.155 0.156 0.154
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
0.16
0.18
0
2
4
6
8
10
12
14
16
GWh/GDP at 2005 Prices (RM Million)toe/GDP at 2005 Prices (RM Million)
PRINCIPLES OF GOOD REGULATION
NECESSITYIs the regulation necessary? Can we reduce red tape in this area? Are the rules and structures that govern this area still valid?
EFFECTIVENESSIs the regulation properly targeted? Is it going to be properly complied with and enforced?
PROPORTIONALITYAre we satisfied that the advantages outweigh the disadvantages of the regulation? Is there a smarter way of achieving the same goal?
TRANSPARENCYHave we consulted with stakeholders prior to regulating? Is the regulation in this area clear and accessible to all? Is there good back-up explanatory material?
ACCOUNTABILITYIs it clear under the regulation precisely who is responsible to whom and for what? Is there an effective appeals process?
CONSISTENCYWill the regulation give rise to anomalies and inconsistencies given the other regulations that are already in place in this area? Are we applying best practice developed in one area when regulating other areas?
THANK YOU