1 / 16

The Q-Element in Incentive Regulation Challenges of Implementation

The Q-Element in Incentive Regulation Challenges of Implementation. Presentation at the 34 th IAEE International Conference (Session 57). Karolin Leukert Barbara Fischer. Outline. Motivation Incentive regulation and quality: A trade-off?

bayard
Download Presentation

The Q-Element in Incentive Regulation Challenges of Implementation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. The Q-Element in Incentive RegulationChallenges of Implementation Presentation at the 34th IAEE International Conference (Session 57) Karolin Leukert Barbara Fischer

  2. Outline • Motivation • Incentive regulation and quality: A trade-off? • Challenges of implementing a «Q-Element»: Empirical evidence from Germany • Conclusions 34th IAEE - The Q-Element in Incentive Regulation

  3. Motivation • In incentiveregulationschemesofelectricitynetworkssoonerorlaterqualityissuesarebeingdiscussed • Most regulatorysystems in Europe startwithpriceorrevenuecapwithout an explicit considerationofqualityandimplementinstruments after thefirstregulatoryperiod (UK; NO; NL; G) • Central questions • Why ist qualityregulationneeded? • Whatareappropriateinstrumentstoensurereliability? • Whatarethechallengesofimplementingqualityregulation? 34th IAEE - The Q-Element in Incentive Regulation

  4. Outline • Motivation • Incentive regulation and quality: A trade-off? • Challenges of implementing a «Q-Element»: Empirical evidence from Germany • Conclusions 34th IAEE - The Q-Element in Incentive Regulation

  5. Cost-Quality-Relation: «Hysteresis problem» situation A costs short-run  direct cost effect situation B long-run  quality effect quality Incentive regulation and quality: A trade-off? Incentive Regulation: Setting targets for efficiency improvement cap costs/revenues investments Transfer to 2nd period? real costs/ revenues regulatoryperiod Trade-off 34th IAEE - The Q-Element in Incentive Regulation 5

  6. Instruments for incentives for investment and quality regulation • «Q-Element» based on quality indices with adjustment of cap (bonus or malus) • Direct payments to interrupted customers (service quality) Complemenatary instruments Main instruments • Stable and sustainable regulatory framework • Adequate return on investments (WACC) • Adjustment of revenue or price cap within a regulatory period in the case of investment activities • A robust benchmarking w.r.t. • the underlying cost basis (comparable capital costs) • quality of supply (no discrimination of DSOs with high reliability) 34th IAEE - The Q-Element in Incentive Regulation

  7. marg. utility marg. cost marg. utility customer a marg. utility customer b marg. cost DSO a marg. cost DSO b optimum 1 optimum 3 reliability optimum 2 optimum 4 What is the optimal level of reliability? • Different optimacallfor a differentiatedmechanismwithrespectto • qualityreferencevalues • bonus-malus-payments •  Challenge ofadjustingthesystem in ordertosetappropriateincentives 34th IAEE - The Q-Element in Incentive Regulation

  8. Outline • Motivation • Incentive regulation and quality: a trade-off? • Challenges of implementing a «Q-Element»: Empirical evidence from Germany • Conclusions 34th IAEE - The Q-Element in Incentive Regulation

  9. Germany: Planned quality regulation • Regulatory Framework: revenuecap 2 periods à 5 years • «Q-Element» as a bonus-malus-mechanismtotherevenuecap will beimplementedby 2012 • SAIDI (min/customer/year) asthe relevant qualityindex (averageof3 years, composedof 50% planned/100% unplannedinterruptions) • Company specificreferencevalues(medium voltage) accountingforstructrualcharacteristics • Monetarisationby uniform rate per min/customer/year (VOLL) based on a macroeconomicapproach (18 cent/min) • Challenges: • Definingthe relevant functional form forexplainingthe SAIDI • Appropriatemonetarisation 34th IAEE - The Q-Element in Incentive Regulation

  10. Emprical results: SAIDI-Volatility 2007-2009 PreliminaryResults High volatility of SAIDI over the years (indep. of absolute SAIDI-level)  average should be taken to capture stochastic influences  German regulator plans a 3-year-average SAIDI MV: Deviationsfromthemean in % SAIDI-data of 113 German DSO for 2007-2009, sorted acending by absolute SAIDI median: -6.14 min/customer/a; std. dev. 20.52 min/customer/a 34th IAEE - The Q-Element in Incentive Regulation

  11. Empirical results: Structural differences PreliminaryResults Kruskal-Wallis- and Kolmogorov-Smirnov-Tests for SAIDI-differences w.r.t structural characteristics show significant differences between different predefined groups frequency in % groupedbysharecables/total linelength SAIDI MV in min/a/cust frequency in % groupedbycustomerdensity SAIDI MV in min/a/cust. 34th IAEE - The Q-Element in Incentive Regulation

  12. Emprical results: Functional form PreliminaryResults Large sizenetworks Small sizenetworks Medium sizenetworks Predictionload density^1 Predictionload density^0.8 Predictionload density^0.5 Example 1: load density 0.02 MW/km2 difference between functional form (^1 und ^0.8) 14.5% (=15 min) Example 2: load density 2.6 MW/km2  Difference between functional form (^1 und ^0.8) 30% (=1.6 min) SAIDI MV in min/customer/a loaddensity MV in MW/km2 (load/geographicalarea) 34th IAEE - The Q-Element in Incentive Regulation

  13. Empirical results: Bonus/Malus payments PreliminaryResults West East bonus/malus in % ofnetworkcosts DSO with low load density achieve higher shares of bonus or malus of network costs (average share bonus 0.7% and 0.9% malus) loaddensity MV in MW/km2 (load/geographicalarea) median malus/bonus in %: 0.86 / 0.68 34th IAEE - The Q-Element in Incentive Regulation

  14. Outline • Motivation • Incentive regulation and quality: A trade-off? • Challenges of implementing a «Q-Element»: Empirical evidence from Germany • Conclusions 34th IAEE - The Q-Element in Incentive Regulation

  15. Conclusions • Incentive regulation needs elements in order to set appropriate incentives for investment and a reliable energy supply • «Hysteresis problem» makes definition of adequate instruments challenging: • Long-run framework (WACC, cap-adjustment for investments) • Short-run complementary elements (Q-Element, service quality) • Different optimal cost-reliability levels make definition of «Q-Element» challenging: • Definition of a reference value (stochastic influences, structural characteristics, functional form) • Monetarisation for deviations from reference value • A «Q-Element» alone will not set sufficient incentives to invest in sustainable, long-run reliability improvements 34th IAEE - The Q-Element in Incentive Regulation

  16. 34th IAEE - The Q-Element in Incentive Regulation

More Related