Climate Change 2001:
Working Group III: Mitigation
Other reports in this collection

3.8.5 Regional Differences Privatization and Deregulation of the Electricity Sector

In many countries, state owned or state regulated electricity supply monopolies have been privatized and broken up to deregulate markets such that companies compete to generate electricity and to supply customers. These moves affect the types of power station favoured. Traditional, large power stations (> 600MW) have had high capital costs and construction periods of 4-7 years, which have led to high interest payments during construction and the need for higher planning margins. Under the new circumstances, the new power generators use higher discount rates, seek lower overall costs, and try to minimize project risks by preferring plants of smaller unit size. They thus favour projects with low capital costs, rapid construction times, use of proven technology, high plant reliability/availability, and low operating costs. CCGTs meet all of these new criteria, and are favoured by generators where gas is available at acceptable costs. This could point the way for the development of new designs for other types of power station, which need to be smaller with modular designs that are largely factory built rather than site built. Economies of scale then come from replication on an assembly line rather than through size (see also Section

Community ownership of distributed renewable energy projects, particularly wind turbines and biogas plants, is becoming common in Denmark (Tranaes, 1997) and more recently in the UK (UK DTI, 1999). The trend towards privately owned distributed power supply systems, either independent or grid connected, is likely to continue as a result of growing public interest in sustainability and technical improvements in controls and asynchronous grid connections.

In countries where privatization of transmission line companies is occurring, there is no longer any commercial rationale to construct and maintain lines only to service a small demand. This has historically often been a social investment by governments and aid agencies. Where grid connections are already in place, it is possible that disconnections may occur in the future where the lines are uneconomic. Then existing residents will have to choose between installing independent domestic-scale systems or establishing community-owned co-operative schemes.

State owned utilities have been able to cross-subsidize otherwise non-competitive projects including nuclear and renewable technologies. Privatization of these utilities requires new methods of supporting technology implementation objectives.

In some cases, electricity tariffs and regulatory systems may need to be amended to include the benefits and costs of embedded generation. This would enable renewable energy projects to be sited on the distribution network at nodes where they would bring most benefit to quality of supply (see Mitchell, 1998, 1999; and Chapter 6). One detrimental impact could be an increase of fossil fuel electricity generation caused by the increased need to operate in load-following mode. Developing Country Issues

In the past there has been little incentive to explore for gas in developing countries unless there was an existing infrastructure to utilize it. The development of CCGT technology now means that, if electricity generation is required, an initial market for the gas can be developed quite rapidly and this market extended to other sectors as the infrastructure is built.

Developing countries have a large need for capital to meet the development of hospitals, schools, and transport and not just for energy in general or electricity in particular. In such circumstances, cheaper power stations are often built at lower efficiency than might otherwise be the case, for example 30%-35% efficiency for an old coal-fired design rather than 40%+ for a modern design. The low price of fuel in some of these countries can also make a cheaper, less efficient design economically more attractive. In India, coal-fired power station design has been standardized at 37.5% efficiency and capacity of 250 and 500MW. Capital costs are US$884/kW whereas a 40% efficiency station would cost around US$977/kW. The coal price is US$25 - US$37/t, depending on location. Even at the higher price, the increased capital costs for the higher efficiency power station outweigh the economic benefits from its lower fuel demand and hence lower emissions.

Technology transfer of advanced power generation technologies including CCGT, nuclear, clean coal, and renewable energy would lead to emission reduction and could be encouraged through the Kyoto mechanisms (see Chapter 6). In addition to limited capital resources that can make advanced technologies unaffordable, many developing countries face skill shortages that can impede the construction and operation of such technology. This is discussed more fully in Chapter 5.

Electricity plants and boilers are sometimes not operated as efficiently as possible in developing countries. In some cases, incremental investment in such a plant will yield benefits but, more often, it is investment in training the operators that is lacking and that will yield substantial gains. The extension of grids in regions such as India and Africa could allow better use to be made of efficient power stations in order to displace less efficient local units. In India, one trading scheme by three electricity companies resulted in an emissions reduction of 2MtC (Zhou, 1998), and there are similar possibilities in southern and east Africa (Batidzirai and Zhou, 1998). The same study shows that there is a large scope in the subregion for exploiting hydropower, sharing of natural gas resources for power generation, and utilization of wind power along the coastal areas. These measures can displace coal-based generation which currently emits 30–40MtC in southern Africa alone.

An alternative to the extension of grids in developing countries is to increase development of efficiently distributed power generation. This is discussed further in the section below. Distributed Systems

Distributed power comprises small power generation or storage systems located close to the point of use and/or controllable load. Worldwide, these include more than 100MW of existing compressed ignition and natural gas-fired spark ignition engines, small combustion turbines, smaller steam turbines, and renewables. Emerging distributed power technologies include cleaner natural gas or biodiesel engines, microturbines, Stirling engines and fuel cells, small modular biopower and geopower packaged as cogeneration units, and wind, photovoltaics and solar dish engine renewable generation. Increased integration of distributed power with other distributed energy resources could further enhance technology improvement in this sector.

Interest is growing in generating power at point of use using independent or grid-connected systems, often based on renewable energy. These could be developed, owned, and operated by small communities. The European “Campaign for Take-off” target for 100 communities to be supplied by 100% renewable energy and become independent of the grid by 2010 will require a hybrid mix of technologies to be used depending on local resources (Egger, 1999). Local employment opportunities should result and the experience should aid uptake in developing countries.

For small grid-connected embedded generation systems, power supply companies could benefit from improved power quality where the distributed sites are located towards the end of long and inefficient transmission lines (Ackermann et al., 1999). Expensive storage would be avoided where a grid system can provide back-up generation.

Other reports in this collection