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					Smart Grids Deployment: A Regulatory 
   Challanges and Opportunities




                  Mariusz Swora (Ph.D.)
  The President of the Energy Regulatory Office in Poland
                           gy   g      y


                 ERRA Chairmen Meeting
            Tirana, Albania, October 7÷8 , 2010
    Smart Grids Deployment: A Regulatory 
       Challanges and Opportunities
       Ch ll        d O         ii

    Content (1):
      European Union’s objectives for 2020 and 2050
      E        U i ’   bj i  f  2020 d 2050
                                     /       g
       ERGEG definition of Smart Grid/Metering
       The smart grid/metering environment
       Driving smarter grids: regulatory challenges
      Effects/benefits of smartness and potential
      output measures identified by ERGEG  

2
    Smart Grid Deployment: A Regulatory 
       Challanges and Opportunities
       Ch ll        d O        ii

    Content (2):
       Output­based regulation
            p         p                      g
       Example of output incentive based regulation:
       reduction of distribution losses in Portugal 
       RIIO : A new Ofgem approach to regulation
       Smart grid/metering deployment: Initiatives
       of the President of the ERO 
         g      y g
       Regulatory agreement – new idea in Poland
3
                        European Union’s important 
                        objectives for 2020 and 2050
European Union’s climate changes objectives for 2020 :
European Union s climate changes objectives for 2020 :

    20 % Reduction
    20 % 
    20 % Reduction         20 %              20 % Savings
     in Greenhouse      Renewables         in Consumption
                                           i C          i
     Gas Emissions
     Gas Emissions        Share               by Increase
                                           EnergyEfficiecy
    More ambitious objectives for 2050
    More ambitious objectives for 2050 :

      Sustainability     Security          Competitivenes
                         of Supply
                         of Supply
                         of 

         To obtain all these objectives
        we need smarter grids/metering
            in the very near future.
            i  h              f
4
                         ERGEG s
                         ERGEG’s1 definition of Smart Grids
    Smart Grid is an electricity network that can
    cost­ ffi i   l integrate the b h i
    cost­efficiently i           h behaviour and    d
    actions of all users connected to it – generators,
    consumers and those that do both – in order to
    ensure economically efficient, sustainable
    power system with low losses and high levels of
                                        safety.
    quality and security of supply and safety.
       2   Source: European Regulators Group for Electricity and Gas (ERGEG) ,
           Source: European Regulators Group for Electricity and Gas (ERGEG) 
           ”Position Paper on Smart Grids –
           ”Position Paper on Smart Grids – An ERGEG Public Consultation Paper”
           Ref. : E09­EQS­30­04

     Regulators should take the initiative
     to play a very important role as a key 
     facilitators of smart grids/metering 
                  deployment.
                  deployment
5
                 The smart grid/metering
                 The smart grid/metering
                 environment1




      Source: P. Nabuurs, KEMA, presentation at CEER
    1 Source: P Nabuurs  KEMA  presentation at CEER

    Workshop on Smart Grids 29th June 2009.
6
                      Driving smarter grids:
                      key regulatory challenges
                      k        l      h ll


    appriopriate balance between the scope
    of innovations, cost­efficient evolution of the
    network and customer interests

    facilitating evolution into the smarter grid directly
    b       k   l   d d           i   i   i i
    by market rules and determination minimum
    requirements and by efficient finacial rewards
    and penalties

    appropriate balance between position of all
    stakeholders and benefits of all grid users


7
             Effects/benefits of smartness and 
             Effects/benefits of smartness and 
             potetial output measures identified 
             by ERGEG2 (1)
    Eight classes of effects/benefits of smartness
    were    identified by European Regulators Group
    for Electricity and Gas (ERGEG).
    for Electricity and Gas (ERGEG)
    Potential performance indicators and output
    measures for each effects/benefits were also
    listed by ERGEG.




                   Source: ”PositionPaper on Smart Grids –
                           ”   ii                    id
                 2 Source: ”PositionPaper on Smart Grids – An ERGEG
                  Public Consultation Paper” Ref. : E09­EQS­30­04
8
    Effects/benefits of smartness
    Effects/benefits of smartness and 
    potetial output measures identified 
    by ERGEG2 (2)




         Source: ”PositionPaper on Smart Grids –
                 ”   ii                    id
       2 Source: ”PositionPaper on Smart Grids – An ERGEG
        Public Consultation Paper” Ref. : E09­EQS­30­04
9
     Effects/benefits of smartness
     Effects/benefits of smartness and 
     potetial output measures identified 
     by ERGEG2 (3)




          Source: ”PositionPaper on Smart Grids –
                  ”   ii                    id
        2 Source: ”PositionPaper on Smart Grids – An ERGEG
         Public Consultation Paper” Ref. : E09­EQS­30­04
10
                            Output­
                               p           g
                            Output­based regulation
     A key principle is to concentrate on outputs
     and not on inputs of a given activity or service
     of the regulated company.
     Output­based regulation can be realized by :
     O t tb     d     l ti       b     li d b  

         direct regulation on a basis of minimum
         requirements for the determined set of
         parameters
         and/or output­based incentive regulation
         providing financial rewards and penalties
         related to determined set of parameters

          benchmarking and comparative publication
           f             ifi   t t       lt   
          of company specific output results  
11
     Example of out­
     Example of out­based incentive
     regulation: reduction of distribution
     losses in Portugal3




          Source: R. Vailatti, CEER/ERGEG presentation
        3 Source: R  Vailatti  CEER/ERGEG presentation

         at Florence Forum, Florence, 11th June 2010
12
                                                   RIIO: A new Ofgem
                                                   approach to regulation
     Constraint on revenue set up front to ensure:
       • timely and efficient delivery
       • network companies remain financeable                              Revenue
       • balance costs paid by current and future consumers
     Deliver outputs efficiently over time with:
                                                                               =
       • transparency and predictability
       • focus on longer term, including with eight year control periods
       • rewards and penalties for output delivery performance
                  and penalties for output                                 Incentives
       • symmetric upfront efficiency incentive rate for all costs
       • use uncertainty mechanisms where add value for consumer
                                                                               +
     Technical and commercial innovation encouraged through:
       • core incentives in price control package
       • option of giving responsibility for delivery to third parties
                of giving                for delivery to third parties     Innovation
       • innovation stimulus gives support and ‘rewards’
         for commercial innovation, building on LCN Fund
                                                                               +
     Outputs set out in licence
     Consumers know what they are paying for                               Outputs
     Incentives on network companies to deliver
     Outputs reflect enhanced engagement with stakeholders
13
                  Smart Grid/Metering Deployment :
                  I ii i       f  h  P id
                  Initiatives of the President
                  of the ERO
Declaration concerning the introduction of smart metering into
the Polish power system was signed in Warsaw
on 3rd June 2009 by Presidents / Chairmen of:
o 3 Ju e 009 by es de ts / C a          e o
       Energy Regulatory Office,
       Consumers’ Federation,
       Polish Consumers’ Association,,
       The Polish National Energy Conservation Agency
       Consumers’ Forum for Electricity and Gas
    y              (               ,                     )
Many other bodies (administrative, academic and business) send 
access will.

                                The Roadmap, conferences 
Smart grid/metering promotion – The Roadmap  conferences 
and meetings 

Smart Metering Information Platform – information about events 
and conferences concerning smart grid/metering
                         www.piio.pl
                         www piio pl
14
                           Regulatory agreement:
                               id  i  P l d
                           new idea in Poland
Act concerning smart metering deployment in some 
A t          i        t  t i  d l          t i     
infrastructural sectors and prosument activity
(outline of assumptions) were presented by the 
(    li   f         i    )              d b   h  
President of Energy Regulatory Office in Polish 
    li                   b
Parliament on 2 September, 2010.
According to this act the smart metering deployment
will be supported by the special regulatory agreement 
between the President of the ERO and the regulated 
entity.
It i        d th t th     diti     f thi      l t    
It is assumed that the conditions of this regulatory 
agreement will be set in the transparent way.  

15
                         g        y g
                       Regulatory agreement:
                       outline of assumptions
     assurance of the project realization targets,
     including customer benefits
     basis for including the project in the entity
     development plan and tariff framework
     transparency by the public consultations
     of the  regulatory agreement content
     rewards/penalty scheme for implementing entity
     monitoring by public administration
     obligation of sign up of regulation agreement
     to 2012 and obligation of full roll­out of smart
     meters to 2018  
16
                                                   Next steps in Poland
             Condition                                   Justification                       Time frame
 The introduction of intelligent    The implementation of smart metering should lead  8 years
 metering system, including the     to the ‘smart grid ready’ status. In particular, the 
 participation of all interested    objectives of the project should the following: 
 stakeholders, in particular all    1. Promotion of competition (to facilitate switching, 
                                                          p        (                      g
 consumers
 consumers.
                                    new tariff instruments),
                                     2. Improvement of energy efficiency (Demand Side 
                                    Management, reduction of transmission losses, etc.)
                                     3. Improvement of safety and quality of electricity 
                                     3 Impro ement of safet and q alit of electricit
                                    supply.
 Improvement of energy              The public sector should play a leading role in         2015
          y        p
 efficiency of the public sector.            g     gy          y         j
                                    ensuring energy efficiency. This objective should be 
                                    achieved by introducing intelligent metering 
                                    systems and equipment, where it is technically and 
                                    economically viable, and equipping public buildings 
                                    with their own source of energy. Municipal policy 
                                    should aim at implementing the concept of the
                                    should aim at implementing the concept of the 
                                    smart city in accordance with the principle of 
                                    sustainable development.
 Establishing the funding ceiling  The report of IEA has identified a financial gap         2011 – 2020. 
 for cooperation between science  between the funds which should be spent on R&D 
 for cooperation between science between the funds which should be spent on R&D
 and industry with particular       in the Smart Grid and the actual funds currently 
 emphasis on the smart grid         assigned for this purpose. The government should 
 system.                            spend 100 million zlotys annually on cooperation in 
                                    this area. The State policy should be directed 
                                          d          i    h     i i l      f          i i
                                    towards promoting the principles of cooperation in 
                                    the form of science and industry consortium. 
17
   Thank you for your attention
   Th k      f              i

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