Economic regulation and efficiency of electricity systems

Abstract

Environmental awareness is of increasing concern for society and leads heavy pressure to adopt challenging political decisions. In this context, electricity systems are facing a massive transformation from the replacement of conventional generation technologies by renewables. A safe, successful and affordable energy transition entails an efficient, optimal and low-cost connection of renewables. To that end, it is essential anticipating future scenarios and creating market-based frameworks aimed at maximizing social welfare.

In this context, this thesis focuses on grids, the core of electricity systems as they have to allocate large amounts of RES. Grid-efficiencies and grid-related costs linked with renewables and their impact on social welfare are explored in four empirical studies. More in detail, electricity losses, grid-congestion costs and grid-investments. This represents a relevant contribution to the literature, as there are fewer empirical studies about these topics at a country size using actual datasets.

Each study collects results and conclusions from the previous ones, which enables better progress in the research and ensures a great traceability of the chapters from this dissertation. Topics explored in this thesis are of current interest in the literature about energy transition in the electricity systems. Moreover, results provide value insights to policymakers and regulators in the definition of energy transition policies.

First study, the economic cost of electricity losses, explores the determinants of electricity losses, one of the most unknown grid-related cost, and evaluates the impact of consumption patterns and different generation technologies on electricity losses and their economic costs. In the analysis, electricity losses are disaggregated between losses in the transmission and distribution grid levels, which is a contribution to the literature. Results allow to quantify potential economic costs and benefits of some policies at country-scale. Among others, Demand Response and Distributed Generation.

Second study, CO2 content of electricity losses, analyzes the contribution of electricity losses in the power system CO2 emissions, which has not been explored before in the literature. Results highlight and quantify how relevant is the impact of electricity losses reduction on CO2 emissions in the power systems.

Third study, Analyzing flows and congestions: looking at locational patterns, explores in the grid flows and grid-congestions to know how the locations of actual generation technologies explain electricity flows, to identify locational patterns related to congestions and to evaluate how the generation produced in each region contributes to flows. The empirical approach also represents a contribution to the literature as includes a gravity model, which has scarcely been explored in the field of energy flows and provides different insights than models used so far. Results from this paper highlights how relevant is the location of actual generation in the electricity flows.

Fourth study, Locational impact and network costs of energy transition: Introducing geographical price signals for new renewable capacity, uses results from the third study as baseline and explores how to make compatible markets principles, economic signals and grid development through the analysis of the grid-related costs associated with the location of new renewables. This study evaluates grid-congestions, grid-investments and electricity losses associated with the location of renewables in different geographical scenarios in a real electricity system. Results show how the location of future renewables is highly relevant from the private and social perspectives. Moreover, the future incurred costs for consumers might be much higher if the regulatory framework does not provide the right incentives for all the agents, specially the entrants: renewable promoters. This paper puts into question the actual regulatory framework about renewable auctions.

Finally, conclusions’ chapter include an overview of all the policy recommendations defined in the four studies and potential impacts on the final price of electricity paid by consumers.