Isaac Dyner

From planning to strategy in the electricity industry

Abstract As more utility markets are deregulated and competition is introduced, there is an increasing need to understand how the planning methods used under monopoly have to change to take the new deregulated environment into account. Although this might seem relatively trivial, it has been a major problem for a large number of utilities which have continued using the same planning approaches that they used when they were monopolies. In this paper, we first describe the environment which, under monopoly conditions, gave rise to the use of mainly operational research methods for planning. We then argue that deregulation has changed the fundamental assumptions, making the planning methods used under monopoly less useful after deregulation. Finally, we review a number of methods that utilities should consider using when they formulate strategy in deregulated markets.

Lessons from deregulation in Colombia: successes, failures and the way ahead

We analyze and evaluate the evolution of the deregulated market for electricity in Colombia in the period from 1995, when deregulation took place, to 2002. The case of Colombia is of particular interest as it is one of the most open markets in the developing world as well as being predominantly based on hydroelectrical technology. Furthermore, Colombia has had no blackouts since deregulation, in contrast to a number of neighboring countries, even though Colombia has had periods with severe adverse weather conditions. Colombia has so far managed to adjust the regulatory environment to keep investment at a reasonable level. Finally, we discuss the prospects for the Colombian system over the next 5 years.

Modelling latent market power across gas and electricity markets

The restructuring of energy utilities into new competitive markets is a worldwide fashion of the 1990s. As a consequence, managers must learn to operate in competitive systems for which they have no experience and government agencies must begin to regulate markets where economic analogies may have limited relevance. For markets in transition, where strategic imbalances exist, system dynamics has a useful role to play in developing a better understanding of processes which might shape their evolution. In this paper we develop some insight into the market power which a dominant electricity generator might achieve from its size and ability to trade in both the electricity and gas spot markets. By selectively choosing to sell some gas, rather than generate electricity, a large diversified power company can increase the price of electricity obtained with the rest of its plant, earn returns on the gas sold and also increase the volatility in the spot markets, which should subsequently increase the returns on hedging contracts. The application is to the British case, but the implications are much wider.

Energy modelling platforms for policy and strategy support

The energy field has been dominated by ‘hard’ modelling approaches advocated by researchers from engineering and economics disciplines. The recent trend towards a more liberalised environment moves away from central planning to market-based resource allocation, leading to the creation and use of strategic tools, with much ‘softer’ specifications, in the ‘systems-thinking’ tradition. This paper presents the use of system dynamics in a generalised way, to provide a platform for integrated energy analysis. Issues of modularity and policy evolution are important in the design of the modelling platform to facilitate its use, and reuse. Hence the concept of a platform, rather than a model, has to be implemented in a coherent way if it is to provide sustained value for ongoing support to both government policy and corporate strategy.

A multicriteria approach to sustainable energy supply for the rural poor

Despite significant progress in energy technology, about two billion people worldwide, particularly the poor in rural areas of developing countries, have no access to electricity. Decision-making concerning the most appropriate energy technology for supplying these areas has been difficult; existing energy decision-support tools have been useful but are mostly incomplete. Trade-offs, as well as impacts that can be positive or negative, may emerge as a result of implementing modern forms of energy. These can affect both community’s livelihoods as well as the confidence of decision-makers in relation to alternative technologies. The paper discusses a newly designed multicriteria approach and its novel robustness analysis for selecting energy generation systems for the improvement of livelihoods in rural areas. The proposed methodology builds upon a sustainable rural livelihoods framework to address multiple interactions and calculate trade-offs aimed at boosting decision-makers’ confidence in the selected technologies. The methodology is tested via a case study in Colombia.

Simulating the new British Electricity-Market Reform

The British government is implementing fully its novel Electricity Market Reform (GB EMR). Its objective, in line with European directives, aims at replacing existing nuclear and coal plant with low-carbon systems, to deliver reliable and affordable power. Though the GB EMR has proposed several policy instruments for meeting its objectives, and the academic literature has discussed the main issues, no known report includes a comprehensive and dynamic simulation exercise that assesses the extent of this profound and important initiative. This paper presents a system dynamics model that supports analysis of long-term effects of the various policy instruments that have been proposed in the GB EMR, focusing on environmental quality, security of supply and economic sustainability. Using lessons learned from simulation, the paper concludes that effectively achieving the GB EMR objectives requires this comprehensive intervention or a similar one that includes the promotion of low carbon electricity generation through the simultaneous implementation of various direct and indirect incentives, such as a carbon price floor, a Feed in Tariff (FIT) and a capacity mechanism.

Modelling for policy assessment in the natural gas industry

The selection of a method for policy assessment in a particular industry varies according to the characteristics of the issues involved. In the natural gas industry, each component has its own specific features and, when analysed as a single whole, a synthesized modelling approach may turn appropriate. This paper shows that in some instances, the integration of modelling methodologies might be of great value for understanding, evaluating and formulating energy policy. Here we address methodological issues that have been considered for the assessment of policy options in the natural gas industry in Colombia. We focus on both modelling and policy, specifically with respect to industry sustainability, and also on environmental impacts.

Chapter 17 – Understanding the Argentinean and Colombian Electricity Markets

Publisher Summary This chapter makes comparisons between Argentina and Colombia to develop a better understanding of how the different models of deregulation shaped the evolution of their electricity systems. Both countries deregulated over 10 years ago and as such provide a period where analysis and comparison can begin to yield insights into the consequences of both the initial and later decisions on the evolution of the electricity system. After the initial transformation, the two countries almost “froze” the reforms and no substantial adjustments were made to cope with the challenges that emerged subsequently. Argentina faced the problem, because the regulator avoided creating uncertainty for investors about revenues in the future by allowing a relatively high tariff. A similar situation occurred in Colombia. This might make the situation better for the investors, but might create another set of problems as consumers do not see sufficient benefits from the reforms. The new round of reforms should take into account different aspects of the problem—they should consider an economic recovery of the region, they may rely more on market institutions, and the future design should take into account the possibility of creating regional integration.

Systems Simulation to Support Integrated Energy Analysis and Liberalised Planning

This paper describes the application of system dynamics to two very different energy policy contexts, both of which constitute key issues of the 1990s. On the one hand there is the global concern about sustainability and the financing of new energy capacity which has motivated integrated energy planning as a means to accommodate conservation and other demand-side measures. On the other hand, there is the rapid restructuring and privatisation of public utilities, world-wide, into competitive markets. These trends not only appear to pose conflicting policy objectives, e.g. planning versus liberalised market-forces, they also pose a modelling challenge. This paper investigates how far systems modelling and simulation can provide the broad policy oriented framework required for these new purposes. Applications to the UK and Colombia are presented to explore some of the new issues which need to be integrated on this modelling platform.

Making Progress Towards Emissions Mitigation: Modeling Low-Carbon Power Generation Policy

The need for regulation of greenhouse gases (GHGs) sets policy challenges to the energy industries in the twenty-first century, given the major climate threat that has manifested in recent decades. The focus will thus be on environment-related issues, including emissions, renewable-based technology, and change in consumer-use patterns. In this context, policy aims at preserving and maintaining security of supply as well as a competitive environment within both power generation and energy-intensive industries. There are enormous uncertainties regarding the effect of GHGs on climate change in Latin America and on the structure of the electricity sector in the future. In spite of the obvious threats, these conditions also provide opportunities not yet explored. A low-carbon policy aims at changes regarding: regulation, demand, supply, market structure, management, and in general, the competitiveness of the power generation industry. In this direction, it is neither clear what structural changes should be adopted within the electricity sector, nor what are the opportunities that this policy may offer. This article assesses the effect of GHG policy on the Colombian electricity sector, based on system dynamics simulation; it also indicates how emission costs and incentives in the electricity sector induce technology changes leading towards a low carbon economy.