European Union / Instrument for
Pre-Accession Assistance
Energy Sector Program – Phase 2
Project
IPA 2012
Consulting services for analysis of
the energy storage systems
TASK 8: Energy Economics
Training
ENERGY ECONOMICS:
INVESTMENT DECISION MAKING
TRAINING REPORT
Final Version
This project is co-financed by the European Union and the Republic of Turkey.
This project is co-financed by the European Union and the Republic of Turkey
Team composition: Emmanuel VARRET, Christian VILADRICH – EDF
Copyright of this report belongs to the Ministry of Energy and Natural Resources. Therefore you should not, without prior written consent, refer to or use this document for any other purpose, disclose or refer to them in any prospectus or other document, or make them available or communicate them to any other party, other than the parties allowed in3 advance. No other party is entitled to rely on this document for any purpose whatsoever and thus no liability to any other party who is shown or gains access to this document is accepted. The content of this publication is the sole responsibility of the consultant and can in no way be taken to reflect the views of European Union or MENR.
Consulting services for analysis
of the energy storage systems
ENERGY ECONOMICS
INVESTMENT DECISION MAKING
TRAINING REPORT
Final version
December 2019
Contents
1. EXECUTIVE SUMMARY ... 5
1.1. GLOBAL OBJECTIVES OF THE TRAINING ... 5
1.2. AGENDA OF THE TRAINING ... 6
1.3. KEY MESSAGES ... 9
1.4. SATISFACTION SURVEY RESULTS ... 10
1.5. GLOBAL SATISFACTION OF THE ATTENDEES ABOUT THIS TRAINING ... 13
List of Figures Figure 1 The 10 tasks of this project ... 5
Figure 2 Entities of the participants who answered the satisfaction survey – Operational training ... 10
Figure 3 Entities of the participants who answered the satisfaction survey – Executive training ... 11
Figure 4 Global satisfaction of the training ... 11
List of Tables Table 1 Agenda of the 2019, 18th to 20th of November training – Day 1 ... 6
Table 2 Agenda of the 2019, 18th to 20th of November training – Day 2 ... 7
Table 3 Agenda of the 2019, 18th to 20th of November training – Day 3 ... 8
Table 4 Operational training – Details for each session ... 12
Table 5 Operational training – Details for each session ... 13
Table of Versions
Version Version Date Comment Copy Submitted A.0 November 28 2019 First version Electronic Copy
A.1 December 11, 2019 Integrating MENR comments
Electronic Copy
Abbreviations
BESS Battery Energy Storage
CAES Compressed Air Energy Storage
CAPEX Capital expenditures
CCPP Combined Cycle Power Plant
CIRED Centre International de Recherche sur l'Environnement et le Développement (International Center of Research on Environment and Development)
CIST EDF Power System and Transmission Engineering Center
DSO Distribution System Operators
EC European Commission
EDF Electricité De France
EE Energy Efficiency
EES Electrical Energy Storage
ELDER Elektrik Dağıtım Hizmetleri Derneği (Association of Distribution System Operators)
EMRA Energy Market Regulatory Authority
EMS Energy Management System
ENEDIS French DSO
ENTSO-E European Network of Transmission System Operators for Electricity EPRI Electric Power Research Institute
EU European Union
FAT Factory Acceptance Test
GDEA General Directorate of Energy Affairs
GDFRIP General Directorate of Foreign Relations & International Projects
GW Giga Watt
HVAC Heating, Ventilation and Air-Conditioning
IPA The Instrument for Pre-Accession Assistance
IPP Independent Power Producer
IRR Internal Return Rate
LCOS Levelized Cost Of Storage
LNG Liquefied Natural Gas
MENR Ministry of Energy and Natural Resources
MW Mega Watt
MWh Mega Watt Hour
NPV Net Present Value
OPEX Operating expenditures
PHS Pumped Hydro Storage
PJM American Regional Transmission Organization
PRAG Procedures and practical guide
RES Renewable Energy Sources
RTE Réseau de Transport d’Electricité (French TSO)
SAT Site Acceptance Test
SMP System Marginal Price
SOC State Of Charge
TEDAŞ Türkiye Elektrik Dağıtım A.Ş.
TEİAŞ Turkish Electricity Transmission Company TETAŞ Türkiye Elektrik Ticaret ve Taahhüt A.Ş.
TOR Terms Of Reference
TRY Turkish Lira
TSO Transmission System Operator
TSR Technical Specification Report
UK United Kingdom
USD United States Dollar
WACC Weighted Average Cost of Capital
1.
Executive summary
1.1. Global objectives of the training
This training is the main deliverable of the eighth task of this project. It took place in the Wyndham Hotel of Ankara from the 18th to the 20th of November 2019. It was organized in two sessions: one for
operational level (two days) and one for executive level (one day).
Figure 1 The 10 tasks of this project
The objectives of this training were:
• To present the objectives and scopes of Energy Economics.
• To master the main criteria used in investment decision in a techno-economic approach. • To understand the sources of value of an investment for the power system (generation and transmission)
• To understand the main methods associated to Energy Economics.
This document presents a summary of the key messages of this training. All the slides of this training were sent to the stakeholders.
1.2. Agenda of the training
The training was organized in the following sessions:First day : November 18, 2019
Time Topic Description
9.00 Presentation of the training Welcome, objectives, organization
9.15 Power System Outlook Key Features and current Challenges
9.45 Break
10.00 Scope of Energy Economics Scope and purpose of energy economics
10.30 Basic Economic concepts
- Introduction to basic notions in economy:
- Money, Inflation, Discount rate - Economic criteria (NPV, BCR, IRR) 12.15
14.00 Basic Economic concepts (continued) Comparison of projects and annualization
14.30 Hands on exercises
Exercises on Excel models with the main indicators and parameters, which can be modified to assess their impacts
15.30 Break
15.45 Hands on exercises
Exercises on excel models with the main indicators and parameters, which can be modified to assess their impacts
16.15 Investment decision in Power Market
Presentation of :
- market models & market actors, - value of a project in a monopolistic or
in a liberalized market, - investment criteria Examples
16.45 Questions / Answers
17.00 End of the first day
Second day : November 19, 2019
Time Topic Description
9.00 Introduction of the day Questions / answers
Complementary discussions about the first day.
9.15 Introduction to tools and methods Why simulation & optimization models are needed?
9.45 Break
10.00 Energy simulation Simulation of the Demand Supply Balance
Associated concepts: incremental cost of generation, merit order, LCOE.
Comparison of generation projects.
12.00 Lunch break
14.00 Generation investment Objectives & the steps in Generation
Expansion Plan
15.15 Break
15.30 Transmission Investment Objective & the steps in Transmission Expansion Plan
16.15 Questions / Answers
16.30 Quiz
16.45 Satisfaction survey
17.00 End of the second day
November 20, 2019
Time Topic Description
9.00 Presentation of the training Welcome, objectives, organization
9.15 Power System Outlook Key Features and current Challenges
9.45 Break
10.00 Scope of Energy Economics Scope and purpose of energy economics
10.30 Basic Economic concepts Introduction to basic notions in economy:
- Money, Inflation, Discount rate - Economic criteria (NPV, BCR, IRR) - Annualization
12.15 Lunch break
14.00 Investment decision in Power Market Presentation of :
- market models & market actors, - value of a project in a monopolistic
or in a liberalized market, - investment criteria - Examples
15.30 Break
15.45 Tools and methods (generation) Energy simulation & Generation Master Plan
16.15 Transmission Investment Benefit and Transmission Master Plan
16.45 Questions / Answers
17.00 End of the session
1.3. Key messages
The main messages were the following:Power systems outlook
Anticipation is needed to guarantee the demand/supply balance and to be a performant player in this field.
The optimal development of the electrical system to ensure a certain level of reliability at a minimized cost of electricity is the second key objective in power systems. These master plans are updated regularly (~5 years) and take into consideration: the next 15 to 30 years, current ongoing projects, state energy policies.
In the past, the equation was simpler (economy-only): we wanted economic efficiency and quality of supply. Economic studies are here to help decisions to be taken regarding investments in new generation or transmission assets.
Scope of Energy Economics
Energy economics is a guide for decision making in the field of energy systems, energy policies and energy regulation.
Former approach in energy economics mainly focused on providing the best reliability of an electrical system at a minimized cost. Now the context is very important. Its perimeter has to be clearly defined in order to identify the costs, risks and revenues. Then the investment value may be assess: revenues, saved costs, externalities… Finally, the decision criteria can be used to guide the investment decision. Economic but not only: social welfare, financing, uncertainties are also decision criteria.
Basic Economic concepts
The concepts of net present value (NPV), benefits cost ratio, pay-back period, internal rate of return (IRR), weighted average cost of capital (WACC) were introduced.
Investment decision in Power systems
In a monopolistic vertically integrated utility, the objective of a new project is to reduce the overall cost of the system.
In a market model, the actual revenues flow received by the project have to be maximized.
Tools and methods to assess the value of investments
There are two main types of tools that can be used in energy economics:
For the short-term time horizon: “operation simulation” models to simulate the optimal simulation of a generation mix balancing demand and supply.
For the long-term time horizon: “investment planning” models for the determination of generation master plans.
In operation simulations, the objective is to simulate the supply-demand balance. Different indicators like LCOE, LCOS, and marginal costs of operation were discussed
Unlike for generation, there is no specific tool to perform a network transmission master plan. We use normal tools like the ones to perform general network studies. One of the reason is that there is no specific candidates: we define the needed reinforcements from the network study results.
In a second stage, dynamic simulations have to be performed on the target network for the target year to assess its dynamic behavior and stability.
Finally, in a third stage the intermediate years have to be studied in order to define the investment planning of the different reinforcements selected for the target year. A reinforcement should be implemented as soon as its annual benefits overcome its annual O&M costs and investment annuities.
1.4. Satisfaction survey results
In order to measure the satisfaction of the participants to the training, and improve future training sessions, the attendees were asked to fill out a satisfaction survey.
Figure 2 Entities of the participants who answered the satisfaction survey – Operational training
2
13
7 7
4
Which company/entity are you from? (Operational)
Unknown
MENR
TEIAS
EUAS
EMRA
Figure 3 Entities of the participants who answered the satisfaction survey – Executive training
33 people out of the 47 operational training participants answered this survey. We can consider that the answers are representative of the global opinion. For the executive training, 12 participants out of the 18 answered the survey so answers may be considered as representative.
1
4
4 1
2
Which company/entity are you from? (Executive)
Unknown
MENR
TEIAS
EUAS
EMRA
Operational training
Was the
presentation
informative,
adequate?
Were the
explanations
given clear?
Were the information
provided corresponding
to your expectations?
Session #1: Power
System Outlook
7,8
7,8
8,1
Session #2: Scope of
Energy Economics
8,1
7,6
8,1
Session #3: Basic
Economic concepts
7,8
7,7
8,1
Practice #1: Hands
on exercises
7,7
7,6
7,9
Session #4:
Investment decision
in Power Market
7,6
7,5
7,8
Session #5:
Introduction to tools
and methods
7,9
7,7
8,1
Session #6: Energy
simulation
7,9
7,9
7,7
Session #7:
Generation
investment
7,9
7,7
7,8
Session #8:
Transmission
Investment
7,8
7,9
7,9
Executive training
Was the
presentation
informative,
adequate?
Were the
explanations
given clear?
Were the information
provided corresponding
to your expectations?
Session #1: Power
System Outlook
7,8
8,0
7,6
Session #2: Scope of
Energy Economics
8,5
8,3
7,8
Session #3: Basic
Economic concepts
8,4
8,5
8,1
Session #4:
Investment decision
in Power Market
7,8
8,0
7,8
Session #5: Tools
and methods
(generation)
7,7
7,8
7,7
Session #6:
Transmission
Investment
8,0
8,5
7,8
Table 5 Operational training – Details for each session
All sessions were equivalently positively appreciated whatever the training: operational or executive. Average grades for the sessions of the operational training are with the range [7.5; 8.1] and within the range [7.6; 8.5] for the executive training. Participants were interested in the subject of energy economics.
1.5. Global satisfaction of the attendees about this
training
Most of the participants gave their opinion. They were globally satisfied (7.9/10 for the operational training and 8.0/10 for the executive training).
From the comments, it seems that this training could have been longer:
This publication has been produced with the assistance of the European Union. The content of this publication is the sole responsibility of the consultant and can in no way be taken to reflect the views of European Union or MENR.
