Regulatory Guidelines (RG) to promote the utilization of Renewable Energy Sources:
Lessons from the Istanbul workshop and the way forward
Péter Kaderják
Director, REKK
Workshop on Renewable Energy Investment Framework and Development of Regulatory Guidelines
May 20, 2011, St. Petersburg
Overview of presentation
• Istanbul lessons
• Regulatory issues relevant for the RG
• Establishing the process to develop RG
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Istanbul lessons – resource availability, motivation
• BSRRI partner countries are well endowed with RES resources of different kind
‣ In particular, hydro (Armenia, Azerbaijan, Georgia), biomass (Moldova, Ukraine) and wind (Turkey,
Ukraine) resources are abundant
• RES resources are often complementary in the region (hydro, wind, biomass)
• Reducing gas import dependence is an important motivation for deploying RES in Armenia, Moldova, Turkey and Ukraine
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• BSRRI countries have already succeeded in establishing policies and regulations to
promote RES
‣ E.g. generous feed-in tariff schemes in Georgia, Turkey and Ukraine
• Investor interest is significant
‣ Pressure on transmission operators to connect RES generators is increasing. Their knowledge needs to be expanded in managing queues,
establishing grid connection requirements and improving their balancing regimes
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Istanbul lessons – existing experiences, investor interest
• Regulatory cooperation and harmonization could help mobilize additional investments
‣ Further consultation and cooperation of regulators on the details of RES licensing, promotion, tariffs and
certification could be helpful
‣ Regional, European and US experiences are at hand to learn from
• But…the affordability of massive deployment of RES is questionable in some countries.
‣ The fear from rate increases, especially for vulnerable customers is a major obstacles to enhance support for RES investments.
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Istanbul lessons – perspectives and obstacles
• There were at least three discussion topics where the interest of participants was intense regarding the US and EU experiences:
‣ Market based allocations for RES development rights, e.g. structuring and pricing wind connection tenders
‣ Arrangements for regional cooperation in grid planning and development
‣ Cost sharing arrangements for system upgrades aiming at RES grid integration
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Istanbul lessons – specific interests
Continue cooperation in order to develop Regulatory Guidelines (RG) to promote the
utilization of RES
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Istanbul lessons – conclusion
Overview of presentation
• Istanbul lessons
• Regulatory issues relevant for the RG
• Establishing the process to develop RG
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Assumptions about the relation of RES policy and regulation
• RES definition, targets, renewable mandates are established by Government / Parliament
• Major areas for regulatory involvement:
‣ Involvement in the design of support scheme (optional)
‣ Licensing
‣ Green certification
‣ Tariff development (in case of green or feed-in tariffs)
‣ Rules for grid access, balancing and settlement
‣ Cross border cooperation in RES (if any)
‣ Monitoring the RES-E market
‣ Any other…?
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RES policy formation and the role of Regulators in the process
• Regulatory Agencies may invariably have useful insights into the issues and problems renewable
investors face before their investment decisions are made and with regard to the operation of their assets.
• How to feed the information the Regulator has into the policy making process?
• How the Regulator can help in providing feedback on the operation of renewable markets and mitigate
possible RES policy flaws?
‣ E.g. overshooting in RES applications, installations
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General regulatory principles to promote RES
1. Least cost end customer solutions given policy priorities.
‣ e.g. promotion of specific technologies; promotion of jobs (Ukraine: minimum local share in RES
equipment installed) or climate objectives 2. Promote proper RES investment climate.
‣ Transparency, consistency, credibility and (certain level of stability) of rules
3. Maintain operational security of the electricity system.
• Any other?
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Licensing
• Licensing might establish the basis for regulatory monitoring and oversight of the RES-E market.
‣ To keep track of whether the support is used legitimately
‣ To collect financial data to establish regulated feed-in tariffs
‣ To help modifying market rules
• How to make it simple, fast and low cost?
‣ e.g. Moldova limiting licensing fee at €150
• Its relation to other permit and license
requirements (environmental, building, etc).
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Green certification
• A Green Certificate (GC) is about to prove that a certain amount of electricity has been generated from renewable energy sources.
• GCs serve the following purposes:
‣ Tracking (share of RES in consumption)
‣ Accounting (use of subsidies)
‣ Disclosure (for customers)
• Can be traded under specific regulations
• Existing practices on carrying out the RES certification process in a cost-efficient and investor-friendly manner?
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Feed-in tariff development
• Most popular support scheme
• But… it has some fundamental contradictions:
‣ Achieving quantitative targets with regulated tariffs
‣ Aims to provide investor security but frequent scheme amendments
• Problems with FIT might undermine the credibility of the entire RES policy
• Purpose: review best practices to establish, adjust and phase out feed-in tariffs so that the affected producers are not overcompensated and customers get RES-E at least cost
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Feed-in tariff development –
cont.
• Wide range of approaches to establish, adjust and phase out feed-in tariffs
• Key questions:
‣ Uniform or differentiated by technology, time of day (peak, off-peak), size, new-existing, etc.? Arguments for
differentiation?
‣ Basis for establishing the feed-in tariff (cost, benchmark)?
‣ Regulated tariff vs. premium/bonus?
‣ Settlement regime?
‣ Rate adjustment rules; e.g. pre-defined tariff reduction
schemes (UKR) versus annual revision of tariffs (Moldova)?
‣ Phase out rule? Regulatory management of certain FIT risks (e.g. exchange rate correction in Ukraine)?
‣ Any other…?
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Grid access and integration
• Resource might be distant from load
‣ Connection regime, cost allocation
‣ Que management, grid connection requirements (must be non-discriminatory)
‣ Large scale RES: possible trade-off between RES quality and transmission cost
• Forecasting intermittent generation is difficult
‣ Balancing rules
• Providing enhanced system flexibility
‣ Justified level of reserves
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Cross border cooperation in RES utilization
• RES endowments of BSRRI participants seem to be complementary
‣ The harmonized utilization of abundant hydro
resources of Armenia and Georgia and the vast wind resources of Turkey, for example, could benefit both those exporting hydro as well as those using it to
balance their wind resources or to meet peak load.
‣ Azerbaijan – Georgia – Turkey interconnection project
• Minimum regulatory requirements to promote cross- border pilot projects of this kind?
• Is this a relevant issue?
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Organizational issues and regulatory resources
• The promotion of RES-E has not been part of the core competencies of energy regulators.
• Considerable regulatory knowledge and human resources are still to be developed in this area.
• A requisite organizational solution can also help the Regulator meet the new expectations in this regard
‣ including RES market monitoring.
• This section will put forward an overview of
practices on the organizational response to the new challenges of RES-E regulation.
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Discussion
• Is the objective to develop RG acceptable?
• Anything missing?
• …
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Establishing a process for developing RES-E Regulatory Guidelines
(second half of morning session)
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