To increase access to electricity through lower prices and cleaner energy matrices it is imperative that the region embark on an energy integration program. Credit: Bigstock.

By Andrés Chambouleyron
BUENOS AIRES, Dec 17 2020 (IPS)

The COVID-19 pandemic has accelerated an evolution across Latin American electric utilities. The need for utilities to manage structural issues derived from increased deployment of Renewable Sources of Energy (RSE) such as wind and solar and Distributed Energy Resources (DER) has rapidly increased. Technology is unleashing major disruptions and challenges. In many ways, Latin America’s traditional electric utilities are in crisis. 

Electric sector reforms throughout Latin America in the 1990s led to widespread adoption of liberalization measures and a paradigm of unbundling of generation, transmission and distribution in the sector. But now, there is a pronounced paradigm shift for the region’s utilities.

By allowing countries with temporary deficits (surpluses) to import (export) clean power (from or to) countries with low renewable density thus helping move faster towards decarbonization

Intermittent RSE, and more importantly, photovoltaic (PV) distributed generation (DG) and electric mobility (EV) have upended the decades-old system. In the aftermath of the COVID pandemic, there are clear directions companies and regulators should take to address the 3 Ds: decarbonization, decentralization and digitalization.

Indeed, unlike traditional thermal or hydro generation, intermittent RSE and DER require increasing network and operational (System Operator or ISO) flexibility from both supply and demand.

Most notable is the critical need to accommodate steeper and steeper (up and down) ramps resulting from more and more intermittent RSE coming off and on line as they take on larger shares of electricity supply. 

The increasing adoption of intermittent RSE in Latin American countries will permanently alter the electrical landscape requiring modifications in every step of the sector’s vertical structure. The first challenge, by definition, is how to deal with intermittency. 

Intermittency requires back-up traditional generation to come off (on)-line whenever the sun starts (stops) shining and the wind starts (stops) blowing.

The larger the share of intermittent RSE over total generation the steeper the slope of both down and up ramps during sunup and sundown (i.e. the duck’s “belly” becomes larger, see below) requiring faster and faster back-up generation to allow/replace PV solar panels or wind mills that go on/off line. 

Alternatively, back-up generation can be (and it is already being) replaced by storage. Batteries charged during peak hours can later replace solar panels whenever the sun comes down (or wind stops) injecting energy into the grid hence shaving the evening peak (See below) thus replacing alternative traditional (and more expensive) thermal or hydro generation as the next graph shows.

Once the intermittency problem has been dealt with and solved, RSE have enormous advantages vis à vis traditional generation, namely: they are (becoming) more economical, they have zero marginal costs as natural resources (i.e. sun and wind) are of unlimited supply, they do not pollute the environment and, combined with storage, they can contribute to reduce network congestion and losses during peak hours. They may require, however, additional investment in transmission and/or storage to fully exploit their potential. 

Intermittent RSEs in Latin America are normally located in low densely populated areas sometimes thousands of miles away from energy consumption centers.

The combination of faraway locations, more geographically scattered and smaller installed capacities generate more capillarity in transmission networks that in turn requires more investment in transmission lines, each of them of smaller capacity. But, it is important to note that storage can help overcome some of these problems. 

To a certain degree, the intermittency problem inherent to RSE has been solved by (thermal and hydro) back-up generation and increasingly by storage. The increased investment in RSE will require additional investment in transmission capacity because of their more remote and more scattered location.

This additional investment need may, however, be mitigated by additional investment in storage that will help stabilize power flows thus reducing congestion and losses. 

There is also rapidly emerging technology and what many see as an opportunity for Distribution Companies (DistCos) to island sections of the network with microgrid technology and to promote smaller projects close to loads when possible. In this manner, the microgrid would be more manageable. 

A slightly different technological challenge to electric utilities will be posed by Distributed Energy Resources (DER) and electromobility (EV).

Among DER, DG adds to the intermittency problem but it is now faced directly by the(DistCos). As hundreds or even thousands of PV rooftop panels come on and off-line injecting power into the distribution grid (or charging batteries or an EV) DistCos have now to manage intermittency 

in their own grids probably resorting to a Distribution System Operator or DSO and eventually also to a Transmission System Operator of TSO as the number of real time transactions multiplies by hundreds or even thousands.

The former duck chart at the generation level now also appears at the distribution level forcing DistCos to deal with their own duck belly and to run their own dispatch with a DSO and eventually also a TSO.

EV poses the challenge to DistCos of multiplicity of real-time transactions as does storage but with an additional problem: EV requires a different distribution network design as users charge EV batteries all around the distribution network, switching places all the time thus altering load factors and requiring additional investment in distributions lines and transformation substations to cope with this additional moving demand.

But, here again, emerging technology being implemented in some areas such as California have begun to seek to use EVs as storage for home usage during outages.

A sustainable electricity network

The traditional vertically separated electricity utility is clearly in crisis. New renewable sources of generation coupled with DG plus storage and EV are driving needed evolution of the traditional vertically disintegrated paradigm in the region’s electric sector.

Finally, to increase access to electricity through lower prices and cleaner energy matrices it is imperative that the region embark on an energy integration program. By allowing countries with temporary deficits (surpluses) to import (export) clean power (from or to) countries with low renewable density thus helping move faster towards decarbonization.

What is crystal clear is that the COVID pandemic and its aftermath should be embraced as a catalyst for the long-needed reform in Latin America’s power sector by addressing these key technological challenges. 

Out of crisis, opportunity. 

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Extraordinary session of the Senate of the Republic of Mexico, June 29, 2020. Credit: Senado de Mexico.

By Leonardo Beltran and Andrés Chambouleyron
LA JOLLA, California, United States, Jul 20 2020 (IPS)

On June 10, 2020, Senator Ricardo Monreal, President of the Political Coordination Board of the Senate of Mexico, presented a legislative initiative to reform Article 28 of the Political Constitution of the United Mexican States, in order to cluster in a single regulator of economic competition, the Telecommunications, Broadcasting and Energy sectors.

The initiative contemplates the creation of the National Institute of Markets and Competition for Social Well-being “INMECOB” as an autonomous constitutional body with legal identity, technical, operational and management autonomy that would replace the following institutions:

1. The Federal Commission of Economic Competition (“COFECE”)
2. The Energy Regulatory Commission (“CRE”)
3. The Federal Telecommunications Institute (“IFT”)

The main purpose of the initiative is to contribute to the austerity policy of President López Obrador administration, with the integration of these three regulators that, although they share some general characteristics and objectives, the final goods and/or services they provide are different.

The three regulators are intended to ensure that social welfare is maximized through economic competition in each sector, for example, by ensuring free access for competitors in cases where due to the characteristics of the infrastructure they naturally tend to become monopolies (i.e. electrical networks or gas pipelines, where duplicating the infrastructure would result in a much higher cost to the final consumer).

Although the legal framework of the three regulators, in terms of competition, is the same, each institution applies a different set of processes, which can result in different evaluation standards that could penalize or benefit individuals simply due to the interpretation and organizational culture of each entity in question.

Likewise, administrative management in terms of procurement of goods and services, material and equipment, social communication, among other functions, could be optimized by integrating them into a single institution.

The initiative estimates that from the merger of the three institutions, savings of 500 million pesos per year (22 million dollars) could be obtained, as a result of the reduction in the workforce and operating budget of both COFECE and IFT, where 79.6% is represented by cutting out 440 positions (1 in 5 employees) and the rest would come from general services or operating expenses.

The initiative also argues that in addition to the financial benefit, there will be a lower risk in the capture of the regulator by the private sector, as the relative importance of a certain sector would be reduced within the activities of the regulatory body.

Considering that Senator Monreal’s project cites the National Commission of Markets and Competition of Spain as a precedent for consolidating competition authorities and sector regulators in a single body, we analyzed in detail this particular case and its potential application to the Mexican case.

The role of the National Commission of Markets and Competition in Spain

According to its own internet portal, the recently created (2013) National Commission of Markets and Competition (CNMC) aims to guarantee, preserve and promote the proper functioning and transparency of markets, ensuring the existence of effective competition and defending the interests of consumers and companies.

It is a public body with its own legal personality under parliamentary control, which guarantees its independence from the government and legal certainty.

The CNMC is the result of merging the former National Competition Commission (CNC) created in 2007 with sector regulators – the National Energy Commission (CNE), the Telecommunications Market Commission (CMT), the Committee of Railway Regulation (CRF), the State Council for Audiovisual Media (CEMA), the National Commission of the Postal Sector (CNSP) and finally the Airport Economic Regulation Commission (CREA).

The functions of the National Competition Commission (CNC) were essentially three, a) the prosecution of anticompetitive behaviors such as collusive behaviors and abuses of dominant positions, b) the control of operations with economic concentration (prior control of mergers or acquisitions), and c) the promotion of competition in those concentrated markets through liberalization or a greater opening.

Similarly, the National Energy Commission (CNE) created in 1998 had as its essential mission to ensure effective competition in energy systems, which would include the electricity market, as well as the markets for both liquid and gaseous hydrocarbons (natural gas and oil).

The CNE regulated tariffs and service quality in natural monopolies (electricity and gas distribution and transport networks), but also promoted competition in those segments where competition was not effective (gas and electricity commercialization) and resolved conflicts or disputes between different market agents (access to transport networks).

On the other hand, the objectives of the Telecommunications Market Commission (CMT) created in 1996 were a) to be the arbitrator between operators in the face of conflicts such as network interconnection, b) to control compliance with universal service obligations, c) to assign numbering to the operators, d) to adopt measures to ensure free competition between operators, e) to set rates for regulated services, f) to set interconnection charges between networks, g) to exercise sanctioning power, h) to carry out analysis and definition of markets and finally i) to coordinate its functions with the National Competition Commission.

Lastly, the objectives of the Committee for Railway Regulation (CRF), the State Council for Audiovisual Media (CEMA), the National Commission for the Postal Sector (CNSP) and the Commission for Airport Economic Regulation (CREA) were to regulate each of the markets by setting tariffs where competition was not possible and deregulating and promoting competition where it was technically feasible and desirable.

The creation of these regulatory bodies was due to the privatization of state-owned public service companies, the end of state monopolies and the need for Spain to adapt to European regulations.

Operation of the CNMC

The CNMC exercises its functions through two governmental bodies: the Council and the President, who is also the Council’ president. The Council is a collegiate decision-making body made up of ten members appointed by the Government with the proposal of the Economy and Competitiveness Minister, and includes persons of recognized prestige and professional competence, after the candidate appears before the corresponding Commission of the Congress of Deputies. Their mandate is for 6 years, non-renewable and is subject to a strict incompatibility regime.

The Council can act in Plenary or in Room. To this end, it is organized into two rooms: one dedicated to competition issues (Competition Room) and the other to supervision of regulated sectors (Regulatory Supervision Room). The Plenary is made up of all the members of the Council and chaired by the President.

In addition, the CNMC has four directions of instruction: Competition; Energy; Telecommunications and the Audiovisual Sector, as well as Transport and the Postal Sector, as illustrated in the following table.

What are the advantages of a consolidated body?

The arguments used by the Spanish government to justify the consolidation process of the competition authority and the sector regulators in a single body are basically the following: 1) guarantee legal certainty and institutional trust, 2) avoid unnecessary duplication of control of each operator and contradictory decisions in the same matter, 3) take advantage of economies of scale and regulate the administered sectors, establishing an integrating vision in terms of regulation and the defense of competition to adapt it to the changes that have occurred in the economic environment for the benefit of consumers, 4) aim at effectiveness, efficiency, rationalization, agility, objectivity and transparency, 5) unify criteria to offer a balanced and comprehensive solution to consumer problems, 6) adjust the operation of the regulatory authority to the regulations of the European Union, especially in the telecommunications and energy sectors, seeking a greater market integration of the European Single Market.

In summary, what they were looking for was to save administrative costs, streamline and make management more transparent, avoiding duplication and preventing potentially contradictory opinions by unifying criteria in a single agency.

Economic analysis and application to the Mexican case

The creation of the original sectoral regulators that regulated energy, telecommunications, railways, ports and the postal market occurred due to the need generated after the privatization of the former state monopolies by becoming private monopolies.

Sector regulation in this case is essentially an ex-ante regulation that is applied to those segments of the markets considered natural monopolies, which are unable to compete due to their technology. These segments are normally electricity and gas distribution and transport networks as well as the old landline network before the irruption of mobile and internet.

In these cases the regulation is ex-ante because it is applied before observing how the market behaves, since it is assumed that natural monopolies (by definition) cannot compete and therefore their rates must be regulated and they must provide their services with a minimum acceptable level of quality.

The body in charge of defending and promoting competition, on the other hand, exercises supervision and eventually also regulation, but of an ex-post type, on those markets in which anti-competitive behavior is observed. In this case the remedy (e.g. sanctions or prohibitions, obligations etc.) is applied after observing how competitive the market is, not before, because it is not possible to predict how competitive a market will be before observing how the companies behave in that market.

The eventual state intervention in a market is normally subsequent to the observation and verification of anti-competitive behavior by the authority.

It is for these two reasons that both types of agencies (competition and sector regulator) are normally separate: their nature is different because they serve markets and/or companies with different characteristics or technologies. Some are natural monopolies that require ex-ante regulation of rates and quality due to their technological impossibility of competing and the others operate in markets that are not competitive enough and that require supervision and (eventually) ex-post regulation to inject more competition, which is, by nature, impossible to achieve in the first group.

While there are segments within regulated sectors that are potentially competitive, such as the production, generation, and commercialization of natural gas and electricity, where sector regulators normally have the power to make ex-post regulation by deregulating potentially competitive markets, the competition agencies are the natural authorities to apply such policies.

Having said all this, there is no argument (economic at least) that justifies the adoption of a super regulatory body that consolidates the competition authority and the sector regulators.

Reviewing the arguments put forward by the Spanish authorities in the previous section, it can be easily verified that: 1) All the advantages that a single regulator supposedly has would also be shown by two separate regulators: one competition authority on the one hand and another multi-sector regulator on the other that regulates natural monopolies, 2) In fact, the CNMC works with 2 suites, the Competition Suite and the Regulatory Supervision Suite, each suite with its directions of instruction that operate separately.

Apparently, and judging by the arguments wielded by the Spanish authorities, the only advantage that the creation of a single authority would offer (in addition to complying with some European regulations) would be to have a single board of directors and a single president, avoiding duplication and reducing administrative costs.

It is clear that for the Mexican case, neither of the two apparent advantages put forward by the Spanish authorities would apply, since, on the one hand, there are no USMCA regulations obligating to adopt a similar measure (Canada and the United States have separate authorities) and there is no assurance that consolidating the current competition authority and sector regulators into one body will result in lower administrative costs.

The CRE of Mexico also has the power to dispose of the income derived from the rights and uses that are established for its services to finance its total budget and a public trust in which it will contribute the remainder of the excess income that it has to accumulate the equivalent to three times its annual budget and if there are additional resources, these will be transferred to the Treasury of the Federation.

This means that CRE’s operation does not represent a burden for public finances and that the cost is self-sustaining from the payment of those regulated by the reception of the service. The CRE, in addition to the regulatory mandate in economic matters, has the mandate to establish technical regulations to address the reliability, stability and security in the supply and provision of electrical energy services, a technical attribute that does not share with the other two Mexican institutions.

In summary, the consolidation project presented does not seem to be able to guarantee any of the objectives it pursues, neither reduction of administrative costs nor less capture power by the authorities. In fact, consolidation into a single agency could generate a superstructure with greater duplications than those that exist today, and nothing guarantees that the new agency will be less prone to capture by the regulated sectors.

Excerpt:

By Andrés Chambouleyron
BUENOS AIRES, Apr 28 2020 (IPS)

Electricity demand normally depends on such variables as retail electricity rates, daytime temperature, time and day of the week, economic activity and consumer type (i.e. residential, commercial, industrial, etc.).

During the period of the COVID-19 pandemic however, there have been dramatic quarantine policies enacted aimed at controlling the virus but with dire economic impacts. The extent of those economic impacts on energy have been widely reported in terms of fossil fuel consumption but what about the electric sector? Has there been a similar reduction in demand and consumption? Moreover, will it be permanent or more temporary?

A residential user will normally consume electricity between 6 pm when they come home after work and 8 am when they leave again peaking at 8 – 10 pm during dinner time. Commercial or industrial electricity demand by contrast will follow the economic activity of each sector during the hours of a typical business day.

The daily aggregate demand curve of both types of users will normally show a two-hump shape with peaks during noon and the evening hours when users go back home after their workday. Also, weekly demand curves will show peaks during weekdays and valleys during weekends reflecting high (low) business activity.

By adding up average daily consumption during a month one should see a curve with ups and downs reflecting high activity during weekdays and low activity during weekends as reflected in the graph below.

This shows total (daily) electricity consumption in Argentina between March 1 and April 22 in 2019 (grey backdrop behind) in contrast with total consumption during the same period in 2020 and broken down by distributors (blue curve) and large users (yellow curve) before and after the mandatory lockdown imposed by Argentina’s government on March 20, 2020.

The lockdown included all economic sectors with very few exceptions: manufacturing and sales of food and basic consumer goods and services.

From the simple observation of the graph above one can see that electricity consumption for both distributors and large users fell after the lockdown imposed on March 20, 2020. More precisely, by taking the difference between the average daily demand of the 10 working days after and those before lockdown, consumption by distribution companies fell by 18.2% and for large users by 32.4% (-20% totally). This reduction is starker after breaking down consumption by large users into 3 groups: food, retail sales and services, manufacturing and oil, gas and mining as shown in the following graph:

The difference between the average daily consumption of the 10 working days after and 10 before lockdown shows manufacturing demand falling by 50.6%, Food, Retail Sales and Services by 15.3% and Oil, Gas & Mining by 3.8%.

By taking the difference in consumption of the same number of (only) working days before and after lockdown we control for several variables. On the one hand retail rates, and on the other economic activity for we know that the latter takes on different values between working days and weekends.

Also, by using a relatively reduced number of working days (10 before and after) we control for another important variable that affects electricity demand: temperature. One can safely assume that temperature did not substantially change in the 20 days that we take as sample to assess the impact of lockdown on electricity demand. Indeed, the average temperature in the Buenos Aires Metropolitan Area fell from 21.6°C during the 10 days before lockdown to only 21.5°C after lockdown (-0.1°C).

Having now controlled for temperature, retail rates, economic activity and working days can we safely conclude that the mandatory lockdown caused a reduction in electricity consumption of the magnitudes already shown? Not yet.

The analysis is still incomplete because we need to know the trend that electricity consumption had before the 20 days under study. In other words, if electricity consumption was already falling at a rate of 10% before our 20 – day sample and continued falling at 10% after lockdown, can we conclude that lockdown caused that fall?

The answer is obviously not, absent the lockdown consumption still would have fallen by 10% and therefore lockdown would have had no impact on it whatsoever. To take that effect into consideration we need a control sample. Ideally, the control sample should show the exact same underlying variables that our test sample but – for the lockdown.

There are two possible ways of doing this, one is to project counterfactual consumption values beyond March 20, 2020 assuming no lockdown but with the same underlying variables (temperature, retail rates, economic activity, working days, etc.) as in reality. The other (much simpler) is to use the difference in consumption of the 10 working days after and before March 20,2019 and compare it with the actual reduction in 2020.

For the sake of simplicity, herewith the latter approach whose results that are shown as follows:

The table shows the actual 2020 reduction in electricity consumption but adjusted for what happened the same 20 days in 2019. For instance, after lockdown we observe a reduction in consumption by Distribution companies of 18,2% however this consumption was already falling by 1,7% during the same days the year before so the net impact of lockdown is the difference, –18,2% – (– 1,7%) = – 16,5% and the same for the rest of the sectors.

This approach should work well as long as there are no substantial differences in temperature and retail rates during both periods, which is the case.

In sum, after controlling for several relevant variables, the impact of mandatory lockdown in the consumption of electricity in Argentina was substantial, ranging from -48,4% in manufacturing to -32,5% in large-scale users to only -8% in Oil, Gas and Mining.

How much of that reduction will be permanent and how much of a more temporary nature? It’s hard to say however most of activities that do not involve the gathering or crowds will go back to normal as soon as the lockdown is lifted, the others (i.e. movies, concerts, restaurants and bars) may see a permanent reduction due to the change in social habits and norms.

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