Electric Power Industry - Assignment Example

Electric Power Industry Introduction Electricity systems were developed during the last century on the basis of large central generating units. This feed into an interconnected high voltage transmission and lower voltage distribution network. However, recent development has challenged this structure. Electricity market liberalization introduced in 1989 has had a profound impact on the nature of the UK electricity delivering industry. This along with the technological advances and increased environmental concerns are reported to have fueled increased interest in low-capital, small scale, low pollution technologies (Patterson, 1999, pp. 128). The UK government in particular has set a range of energy related targets that reflect on the environmental concerns, through advocating for increased contribution on renewable electricity technologies together with a combined heat and power as well as reduction in greenhouse gas emissions to which the electricity industry is a major contributor. This thesis investigates the structural framework of electricity allocation and supply networks in UK, which will be required for an electricity system that supports greater proportion of intermittent renewable and embedded electricity generation. The existing government policy, commercial frameworks among other regulatory standards required motivating the development of future transmission and distribution networks will be analyzed. Literature Review Pre-privatization After the Second World War, the UK had over 560 or less electricity suppliers of which one-third is represented by private suppliers. Under the act of 1943, the electricity supply in north of Scotland was placed under North of Scotland Hydro-Electric Board a public corporation established to develop the water power resources of the highlands (Haugland, 1997, pp. 28). Later on under the electricity industry in England, Wales and Scotland was reorganized and nationalized. This act so establishment of the British Electricity Authority as a public corporation responsible for generation and transmission of electricity as well as finances of the supply industry. According to Kennedy (1999, p.124) the act also created 14 area boards, among them 12 were from England and two from Wales and south Scotland with each of them constituting a separate public corporation responsible for distributing a retailing of the electricity in its own identified region. The electricity Act of 1957 reorganized the electricity industry in England and Wales. These Acts had a driven objective in introducing decentralization, with Central Electricity Authority replaced by two new statutory bodies the Central Electricity Generating Board (CEGB) and the UK Electricity Council. Green and Newbery (1992, p.68), sentiments indicated that CEGB owned and operated transmission system and generating stations in England and Wales. Similarly, CEGB was responsible for bulk supply of electricity to 12 area board in England and Wales with its duties including planning provision of new generation and transmission capacity. Patterson (1999, pp. 83) argues that restructuring strategy under the new Act, the area boards were accorded greater autonomy particularly the financial matters and responsibly continued to increase responsibility for distribution and retail of electricity in their respective areas. The pre-privatization can therefore, be characterized by extensive vertical integration of electricity production, transmission and supply. The structure of this nationalized industry in England and Wales was dominated by one large production and transmission company, the CEGB which sold their generated electricity in bulk to 12 area distribution boards serving as close supply area. Structure of Nationalized Electricity Supply Industry Source: Patterson, 1999 Political Impact on Electric Industry Business in UK The electricity Act of 1989 received a royal Assent by the end of jolly 1989 creating a legislative foundation for possible restructuring and privatization of electricity industry in the Great Britain. The act made provision for change in ownership from the state to private investors. These so introductions of competitive markets and system of independent regulations come into play. In contrast to privatization of gas and telecommunications industries the electricity industry was restructured before actual privatization took place. This was in response to widespread critics of previous sell-offs, where it appeared that a public monopoly was transformed to a private monopoly. The recent electricity industry privatization measures so CEGB business was split into three generating companies and a transmission company (Department of Trade and Industry, 2001). This included: National Power, Powergen, Nuclear Electric and The national Grid Company This has since replaced the area boards with twelve regional electricity companies (RECs). The local supply system was transferred to the RECS and each REC was obliged to supply on request all reasonable demands for the commodity in its authorized area (Besant-Jones, 1999, p.67). There have been some minor modifications to the area boards’ boundaries were made in defining RECs’ authorized delivery areas. The RECs jointly owned NGC, with each REC holding a stake proportionate to its size. The newly found structure in the industry established electricity pool as the wholesale market mechanism through which electricity traded in England and Wales, abolishing the Electricity Council and creating a system of independent regulation, lead by the director general of electricity supply, covering England, Wales and Scotland all supported by regulatory office. The system also designed a series of regional consumer committees, the electricity consumer’s committees replacing electricity consultative councils (Green and Newbery, 1992). The Utilities Act 2000 amended the Gas Act 1996, the earlier adopted electricity Act of 1989, and updated regulatory regime. An overview of the utilities Act of 2000 was essential in understanding the legislative and regulatory environment in the ESI operating present and in the future. The gas and electricity sectors have converged during 1990s after the industry restructured with many firms supplying both fuels to customers (Green and Newbery, 1992, p.78). In addition, the multi-utility groups have been established, providing a range of gas, electricity, water and telecommunication services. The Utilities Act was essentially adopted to advocate for market development through integrated regulation of gas and electricity markets. The differentiation of electricity supply and distribution and creation of necessary framework in underpinning introduction of NETA, which provided for a principal objective to the secretary of state and electricity markets Authority in protecting the rights of consumers (Besant-Jones, 1999, p.37). Structure of United Kingdom Electricity Industry at Privatization Source: Green and Newbery, 1992 Economic Impacts of Electricity Industry in UK The UK Electricity Supply Industry Following 40 years in the public sector, the ESI in the UK has experienced a drastic restructuring since 1989 that was purposely created to create a competitive electricity market ensuring financial independence from government. A full understanding of restructuring process, in the industry relationships that have established a result and the market structures and mechanisms that have been developed essentially in assessing future development of UK electricity networks (Green and Newbery, 1992, p.29). The Overview of UK ESI England and Wales The CEGB successor companies (Powergen and National Power) are no longer the only players in the wholesale electricity generating markets (Green and Newbery, 1992,p.23). By 1999, over 20 producing companies had made entry in to the electricity generating market in England and Wales. For most of these firms, gas becomes the most preferred fuel for the newly established firms in the new power production plant in the UK electricity industry. The rash for gas took advantage of abundant North Sea gas supplies and cheap world gas prices, which has had a drastic impact on the mix of production of fuel sources in UK. Expansion of gas was a significant factor in decline of coal generation from an estimated figure of about 70% in the 1990/91 to the 33% in 2000 (Besant-Jones, 1999). The advantage of CCGT were clear low capital costs, short construction times, modular design, flexibility in location, improved efficiencies and lower emissions. Since 1990 to 1999 over 18.6 GW of CCGT capacity was commissioned in England and Wales with a further 4.2 GW under construction. This new gas capacity has primary replaced order oil and coal fired plant. The figure below identifies different UK ESI fuel sources for production comparing production in 1989 and 1999 (Department of Trade and Industry, 2001). Source: Green and Newbery, 1992 Socio-cultural Environment Impact on UK Electricity Development of the 1997 Kyoto protocol to the UN deliberations on the framework convention which raised concerns on climate change is reported to have been the driving force behind the UK electricity industry revolution in the recent years. Over the last two decades the industry has time-honored a legally binding target to reduce greenhouse gas emissions by a 12.5% rate a result that was scheduled to be implemented within 2008 to 2012, a predicted achievement that is reported to go beyond results achieved in 1990. The government policy targets to oversea reduction of 20% electricity industry carbon dioxide (Co2) emissions of as compared to 1990. As part of the government’s measures towards further reductions, it has drafted a climate change program. A key source of this policy program involves the renewable obligation aimed at producing over 10% of the UK’s Electricity from renewable sources this plan had to be achieved by the end of 2010. By 1999, renewable electricity sources including large-scale hydro production accounted for 3% of the entire production in the country. In 1995 to 2000 production renewable other than large scale hydro double (Electricity Association, 2001). In addition, the government policy objective was aimed at doubling the capacity of combined heat and power (CHP) electricity production to a minimal production of about 10GWe by 2010. At the present, CHP is the prevalent form of embedded generation in the UK. In 1999 for instance it was reported to have contributed over 4,239MW of electricity. In this thesis, it is identified that the key assumption lying behind the contributions of the small scale and renewable electricity generation continually increase going beyond the 2010 targets (Czamanski, 1999, p.152). Renewable obligation in the statutory consultation, the department of trade and industry supports the potential need to set more ambitious targets beyond 2010. The historical structure of the electricity production industry in UK lined towards large-scale production plants and grid networks, states or even private monopoly control and vertical integration of generation, distribution and supply functions. The transmission network transports electricity from production units to distribution companies and small numbers of large-scale industrial customers through lower voltage networks. The figure below explains the process applied by large-scale transmission network and social distribution system. Source: Barker, 1997 Conclusion Central to development of flexible and active electricity networks is clear vision of the Energy future. The UK policy responsibilities are spread across a wider range of departments. Evident from our discussion, UK ESI are concerned about the lack of focus and direction on the future nature of the industry. Though, ESI and government agencies have to establish a vision for the electricity systems in the future. In late 1980s, combined impact of UK liberalization of electricity industry markets, technology advances, lending constraints and increased environmental concerns is reported to have fueled interest in low-capital, small scale, fast revenue generating projects. This can be explained by the rapid growth in the proliferation of combined cycle gas turbines (CCGT)in UK during 1990s and increase in CHP among other small-scale generating units being embedded into lower voltage distribution networks rather than connect to higher voltage transmission system. Bibliography Barker J Jr, Tenenbaum, B and Waoolf, F, (1997). Governance and Regulation of Power Pools and System Operators: An International Comparison. World Bank Tech. Pap.382. Washington, DC . Czamanski, D. (1999). Privatization and Restructuring of Electricity Provision. London: Praeger. Kennedy, D. (1999). Competition in the Power Sectors of Transition Economies. Work. Pap. 41. London:Eur. Bank Reconstr. Dev , pp.24. Department of Trade and Industry. (2001). The Renewables Obligation Statutory Consultation New & Renewable Energy: Prospects for the 21st, Department of Trade and Industry, London. Green, R .J, Newbery, D, M. (1992). Competition in the British electricity spot market. Journal of Political Economy , Vol.100, pp.929 - 53. Haugland T, Ingebarg, K. (1997). Price reforms in the power sector: the World Bank's role. Energy Policy , 25:1041–49 . Besant-Jones J, (1999). The impact of the financial crises on the power sector of transition countries. In Energy After the Crisis. Energy Dev. Rep , pp. 24–32. Patterson, W. (1999). Transforming Electricity. 203 pp. Read More