Huge potential for energy savings: improved regulatory models for efficient investment and loss reduction in electricity network

The Energy Efficiency Action Plan has set an indicative goal of reducing energy consumption by 20% by 2020. It suggests several initiatives to improve energy efficiency in the coming years. Network loss reduction in the power systems is one of these initiatives. This issue was discussed in the recent consultation paper “Treatment of Losses by Network Operators” published by the European Regulators Group for Electricity and Gas (ERGEG). ERGEG is currently developing a set of recommendations for establishing effective loss reduction incentives for the electricity network operators.

In the meanwhile, some figures to think about:

• EU27 energy losses in distribution transformers reach 33.4 TWh/year.
• Starting now, until 2025, EU has the opportunity to save 12 TWh/year and avoid 4 MTonnes CO2 if renovation of old transformers is carried out using efficient ones (instead of conventional ones)
• Transformer lifespan : 30 to 40 years. Payback period of additional investment in efficient transformer : less than 10 years. Energy savings, CO2 avoided emissions and social benefits for the remaining 20 to 30 years.
• Distribution companies need long term visibility in order to justify the choice of more expensive & more efficient transformer. Ideally >10 years, 3 or more regulatory periods. Benefits of higher NPV solution should be shared between electricity consumers and distribution company.

The engagement on energy efficiency is also a matter of electricity networks regulators. This report contributes to the energy efficiency objectives by bringing some light and economic analysis on the right regulatory signals to be implemented for efficient investments and energy loss reduction.

The structure of the remainder of this report is set out as follows:

Chapter 2: Overview of Regulatory Models This chapter takes a closer look at the regulatory models in Europe and describes their main characteristics. This chapter serves as an initial step in preparing the discussion on incentives for efficient investments.

Chapter 3: Analysis of Regulatory Schemes in Selected Countries This chapter contains a detailed description of the regulatory regimes in five selected countries namely Great Britain, Germany, the Netherlands, Norway and Spain, in order to demonstrate how the regulatory models are implemented in practice.

Chapter 4: Analysing Incentives for Efficient Investments Whereas the two previous chapters provide an examination of theoretical developments and applications of regulatory models in practice, this chapter focuses on how regulation provides incentives to encourage efficient investments and loss reduction programmes.

Chapter 5: Case Study on Distribution Losses The chapter provides a summary of the ERGEG’s report on the regulatory incentives for loss reduction. In addition, some examples for cost benefits analysis are provided, supporting the decision to invest in an energy-efficient distribution transformer. A case study is provided for Spain.

Chapter 6: Conclusions and Recommendations This chapter summarises the project findings and provides recommendations for potential improvements.