Disclosure on Notes to Fs

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					                                               ELECTRICITY DISCLOSURE
                                               - Objective
             ELECTRICITY                       • Electricity disclosure means that the
             DISCLOSURE                          consumers should receive information about
                                                 how the electricity they buy was produced.
                 Lecture in                    • The idea of electricity disclosure is that aware
      EG2060 Electricity Market Analysis         consumers should be able to include
                                                 environment concerns in their choice of
                     Mikael Amelin               supplier.

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ELECTRICITY                                    ELECTRICITY DISCLOSURE
DISCLOSURE                                      - Is it possible?
- Example                                      • Electricity is transferred from producers to
                                                 consumers via a common grid.
The consumers’
electricity bills should                       • Producers do not have to generate electricity at
include information                              exactly the same time as the consumers
about the origin of the                          demand it.
purchased electricity.                            The physical balance between generation and
                                                  demand is managed by the system operator.
This example of such informa-
tion is taken from an EU report                Is it in any way possible to trace which consumers
“Consumer Choice and Carbon                    are consuming the electricity generated by a spe-
Consciousness for Electricity”                                   cific power plant?

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- Analogy                                             - Analogy
Consider a simple water market within a village.      • Villager Anna is buying water from Crystal, who
• Producers “produce” water by pouring water            is fetching mineral water from a natural well in
  into a tank which is common to all villagers.         the forest.
• Consumers “consume” water by tapping water          • Villager Burt is buying water from Dave, who is
  from the tank.                                        fetching sewage water from the local chemical
• A system operator makes sure that there is
  always water in the tank and that the villagers
  buy as much water from a producer as they are

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- Analogy                                             - Double counting
The physical mix of the water is the same for both    Double counting means that the environmental
Anna and Burt.                                        benefits are counted more than once, due to
• Are Anna and Burt equally good consumers?           conflicting evaluation methods.
• Is there any justification to the statement that    Example:
  Anna is consuming mineral water and Burt                - Anna claims that she is consuming 100% mineral
  sewage water?                                             water, because that is what she is paying for.
                                                          - Burt claims that he is consuming 50% mineral water,
                                                            because that is what is supplied to the water tank.

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ELECTRICITY DISCLOSURE                                            ELECTRICITY DISCLOSURE IN
- Implementation                                                  THE EUROPEAN UNION
• Electricity disclosure requires that there is one               In article 3.6 of the EU directive 2003/54/EC it is
  set of rules defining how the origin of electricity             stated that
  should be determined.                                              Member States shall ensure that electricity
   If there are parallel systems for electricity                     suppliers specify in or with the bills and in promo-
   disclosure, then there will be a large risk for double            tional materials made available to final customers:
• It is probably preferable that the electricity                     (a) the contribution of each energy source to the
                                                                     overall fuel mix of the supplier over the preceding
  disclosure scheme is defined by laws rather                        year;
  than private initiatives.

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THE EUROPEAN UNION                                                THE EUROPEAN UNION
   (b) at least the reference to existing reference                  Member States shall take the necessary steps to
   sources, such as web-pages, where information on                  ensure that the information provided by suppliers
   the environmental impact, in terms of at least                    to their customers pursuant to this Article is
   emissions of CO2 and the radioactive waste                        reliable.
   resulting from the electricity produced by the                 • The directive states that the member states
   overall fuel mix of the supplier over the preceding
   year is publicly available. With respect to electricity          shall bring into force all laws, regulations and
   obtained via an electricity exchange or imported                 administrative provisions necessary not later
   from an undertaking situated outside the                         than 1 July 2004.
   Community, aggregate figures provided by the
   exchange or the undertaking in question over the
   preceding year may be used.

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ELECTRICITY DISCLOSURE                                     CONTRACT TRACING
- Products                                                 • Producers are obliged to supply statistics about
                                                             how the electricity they have generated was
An electricity market with electricity disclosure
enables suppliers to define different electricity
products.                                                  • Retailers are obliged to inform their customers
    - “Grey electricity”. An unspecified mix of power
                                                             about the origin of the electricity the retailer is
      sources.                                               selling.
    - Hydro power. The customer is buying hydro power         This means that each retailer (including power
      only.                                                   pools, etc.) should identify their “production mix”
                                                              and make this information available to all
    - Renewable electricity. A mix of renewable power
      sources, for example, wind, hydro and biomass. The
      mix can either be unspecified or there could be
      minimum levels for some power sources, for
      example at least 10% wind power.

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CONTRACT TRACING - Example                                 CONTRACT TRACING - Example
   Producer A         Producer B         Producer C                 Retailer/         Supplied by      Market
 24 TWh hydro       12 TWh hydro       15 TWh hydro                Fuel source        retailer [%]   supply [%]
 16 TWh nuclear      2 TWh nuclear      9 TWh nuclear         Retailer 1
                    16 TWh coal         6 TWh coal             Hydro                       60            51
                                                               Nuclear                     40            27
                           30 TWh
                                                               Coal                        0             22
           30 TWh     Power pool   20 TWh
                    40 TWh hydro                              Retailer 2
                    20 TWh nuclear                             Hydro                       50            51
                    20 TWh coal                                Nuclear                     25            27
                                                               Coal                        25            22
 10 TWh             40 TWh         40 TWh    10 TWh           Retailer 3
    Retailer 1         Retailer 2       Retailer 3             Hydro                       50            51
  6 TWh hydro       20 TWh hydro     25 TWh hydro              Nuclear                     26            27
  4 TWh nuclear     10 TWh nuclear   13 TWh nuclear            Coal                        24            22
                    10 TWh coal      12 TWh coal

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CONTRACT TRACING                                      CONTRACT TRACING
- Advantages                                          - Disadvantages
• Simplicity. The information necessary for a         • Market separation. A separate market has to
  contract tracing system is readily available and      emerge for each electricity product.
  is simple to transfer directly from producers to      In order to offer two different electricity products
  retailers and consumers.                              (for example grey electricity and hydro power), a
                                                        retailer may have to split the company in two
                                                        separate subsidiary companies.
                                                        The hydro subsidiary can only buy electricity from
                                                        companies which only operate hydro power plants,
                                                        or from a special power pool for hydro power
                                                        producers and retailers.

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• A certificate of origin is issued for every MWh     • The certificates are traded in a separate
  which is fed into the power system.                   market.
• The certificates are valid for a specific             Hence, a retailer may buy electric energy from one
                                                        producer but certificates from another.
  accounting period (typically one year).
                                                      • To simplify the trading, the closure of the
• Producers are obliged to sell their certificates.
                                                        certificate market should be after the end of
• Retailers are obliged to buy enough certificates      the accounting period.
  to match the consumption of their customers.          Example: If the accounting period is from 1 January
  The purchased certificates are reported on the        2009 to 31 December 2009, then the certificate trading
  customer’s bills.                                     period could be from 1 January 2009 to 1 March 2010.
                                                        This way the players will receive information about the
                                                        amount of certificates they need to sell/buy before the
                                                        closure of the certificate trading.

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CERTIFICATES OF ORIGIN                                          CERTIFICATES OF ORIGIN
- Advantages                                                    - Disadvantages
• Easy to offer new electricity products.                       • Administration. A certificate trading system
   - The trading of physical contracts does not have to be        must be set up, authorities must issue
     changed in order to offer new electricity products.          certificates to producers and penalise
   - It is easier for retailers to fulfil the requirements of
     an electricity product, since temporary variations           producers/consumers which have not fulfilled
     may even out during an accounting period.                    their obligations.
                                                                • Credibility. A retailer which is buying electric
                                                                  energy from a coal condensing plant and
                                                                  certificates from a hydro power plant can state
                                                                  that they deliver 100% hydro power on their
                                                                  bills. Will the consumers accept this?

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CERTIFICATES OF ORIGIN                                          ELECTRICITY DISCLOSURE
- Renewable Energy Certificate                                  - Transmission
System (RECS)                                                   • The transmission between two regions of the
                                                                  power system will always be limited.
• 200 members in 24 European countries.
                                                                • Trading of a specific electricity product may not
• Certificates of origin for renewable energy
                                                                  always result in a physical flow.
  sources (hydro, wind, waste, etc.).
                                                                    - Certificates of origin only exist as a valuable paper
• Sweden is one of the largest exporters of                           (probably registered electronically) and there is no
  RECS.                                                               physical limit to the trading.
                                                                    - Two electricity products can be traded on the same
  Some information and statistics are available on                    interconnection and thus cancelling each other.
  www.recs.org and www.aib-net.org.                             • Should there be a limit to the trading of each
                                                                  electricity product?

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- Transmission                                      ELECTRICITY DISCLOSURE
• Two interconnected power systems may not          • If the generation sources requested by the
  have the same rules for electricity disclosure?     consumers are less expensive when the alter-
• What origin should then be declared for the         natives then the actual generation will not
  electricity traded between the two systems?         change due to consumer choices.
  Risk for double counting!                         • If the demand for specific electricity products is
                                                      less than the supply then the marginal cost of
                                                      supplying that electricity product is zero.

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Description: Disclosure on Notes to Fs document sample