Junior Isles, Managing Editor
They say ‘the devil is in the detail’ and some would argue that the US is having a devilish time with deregulation. The truth is, it has little to do with the devil and more to do with ‘God helping those who help themselves’.
I sat through a keynote session at DistribuTech Europe in Vienna where a keynote speaker from one of Austria’s major electric utilities went to great lengths to point out the problems of deregulated markets.
Michael Schneeberger, Member of the Executive Board of Energie AG Oberoesterreich, cited transmission system breakdowns in California and San Diego and blackouts in Chicago as examples of what can happen in a deregulated market.
The address seemed to blame deregulation for most of the highly publicised system failings around the world. He even managed to associate breakdowns in Germany and France, which were the result of storms, with deregulation. They would still have happened even in a monopoly market (which France pretty much still is).
The point he was trying to make was that security of supply should be top of the list and not market liberalization. But in making that point, deregulation received some bad press. Deregulation in itself is not to blame but more the fact that in many markets, policy makers have brought the problems on themselves. Not enough attention has been paid to the details of the existing system and what a sudden ‘free for all’ could do to such a system.
Schneeberger’s main concern was that what we have seen in the US, i.e. tremendous peaks in power prices and system failures, would soon follow in Europe when cross-border trading becomes more widespread. This, he claimed, would be the result of no one paying attention, or being able to control, the geographical sources of generation.
Certainly security of supply is not the prime concern of any generator in a liberalized market. Their goal is simply to maximize revenues and this is best done by building efficient plants (quickly) and siting those plants close to the fuel source.
As Donald Volzka, president of the IEEE’s Power Engineering Society pointed out at this year’s CEPSI conference in Manila: “IPPs are not locating plants where transmission system planners would like them.” However, Mr Volzka’s view of deregulation, or as he called it “re-regulation”, and its challenges was much more rounded than that given in Vienna.
Volzka stressed the need for load control and real-time pricing. “Tools need to be developed to help the ISOs (independent system operators) operate their regional networks in real-time. Computers and communications systems make this easier today.”
So the technology is available to make a liberalized, fully competitive market work. What has been missing in some markets has been the right political environment. California is a case in point where the rules do not provide incentives for the new generating capacity needed to smooth out the price peaks.
Clearly, careful thought is needed in both generation and transmission planning before full competition can be introduced without fear of jeopardising security of supply. Generation siting, however, is always going to be a problem. If someone is given the power to dictate where plants can be connected to the grid or pricing mechanisms are introduced which influence plant siting, we could see a new twist in the market.
There was an interesting announcement last month which saw the term ‘a global market’ take on a new dimension. Japanese electricity supplier, Kansai Electric Power Corporation said it is to enter the US power generation market by transferring idle facilities (see PEi October 2000, page 13). The Osaka-based supplier is to form Naniwa Energy LLC, an equally-owned joint venture company in Delaware with US power company MSDW Power Development Corp.
Naniwa will buy six idle gas turbine power facilities with a generating capacity of 360 MW from Kansai which will be put into operation in the US. Given the market conditions and the project’s low cost operations, Naniwa expects to recover investment in four to five years.
This could be an interesting development, especially when considering the overcapacity in many parts of the world. What is there to stop merchant plant developers from moving units from market to market as they see fit? Well they say ‘the devil finds work for idle hands’, or should that be idle plants.