14.AZ:“ENERGY (ELECTRICITY & GAS) SECTOR PERFORMANCE ASSESSMENT AND IMPROVEMENT UNDER THE REGULATORY PERSPECTIVE” INOGATE Technical Secretariat (ITS) and Integrated Programme in support of the Baku Initiative and the Eastern Partnership energy objectives Contract No 2011/278827 A project within the INOGATE Programme Implemented by: Ramboll Denmark A/S (lead partner) EIR Development Partners Ltd. The British Standards Institution LDK Consultants S.A. MVV decon GmbH ICF International Statistics Denmark Energy Institute Hrvoje Požar i Project Title: “ENERGY (ELECTRICITY & GAS) SECTOR PERFORMANCE ASSESSMENT AND IMPROVEMENT UNDER THE REGULATORY PERSPECTIVE” Contract No: 2011/278827 Country: Azerbaijan Project Office EC Contractor INOGATE Technical Secretariat Kiev Ramboll Denmark A/S Name Kudriavska 26/28 Hannemanns Allé 53, Address 04053 Kiev – Ukraine 2300 Copenhagen S Denmark +380 44 230 2754 +45 51 61 85 91 Tel. Number +380 44 230 2753 +45 51 61 10 01 Fax Number e-mail Contact Person Signatures Authors: Non Key Expert Team CONTRACTING AUTHORITIES Signature Date EC Programme Ms Viola Calabrese Manager Document title ENERGY (ELECTRICITY & GAS) SECTOR PERFORMANCE ASSESSMENT AND IMPROVEMENT UNDER THE REGULATORY PERSPECTIVE Prepared by Konstantinos Perrakis, Katerina Sardi, Nikos Tourlis and Zaur Mamadov Checked by Nikos Tsakalidis Date January 2015, March 2015 ii Acronyms ACER Agency for the cooperation of Energy Regulators AGI Above Ground Installation AHEF Ad-Hoc Expert Facility BETTA British Electricity Trading and Transmission Arrangements BM Balancing Mechanism BoP Balance of Plant BSIS Balancing Services Incentive Scheme BSUoS Balancing Services Use of System CAPEX Capital Expenses CCGT Combined-cycle gas turbine CDM Clean Development Mechanism CEER Council of European Energy Regulators CFU Compressor Fuel Use CGWC Capacity goes with the customer principle CHP Combined Heat and Power CVS Calorific Value Shrinkage CWV Composite Weather Variable DA Day Ahead DLN Dry Low NOx DSO Distribution System Operator EEA European Environmental Agency EGIG European Gas pipeline Incident data Group ENTSO-E European Transmission System Operators for Electricity ENTSO-G European Transmission System Operators for Gas ERDF Electricite Reseau Distribution France (DSO in France) ERGEG European Regulators' Group for Electricity and Gas ETS EU Emissions Trading Scheme GC Gas chromatographers GCV Gross Calorific value GDP Gross Domestic Product GGPSSO Guidelines for Good TPA Practice for Storage System Operators GHG Green House Gas GIS Geographic Information Systems GSP Grid Supply Point GT Gas Turbine GWP Global warming potential HHV Higher heating value HRSG Heat recovery steam generator ICF Incomplete Combustion Factor IEA International Energy Agency IGCC Integrated Gasification Combined Cycle IPCC Intergovernmental Panel on Climate Change LCC Lifecycle costs LDAR Leak Detection and Repair LHV Lower heating value LI Lift index LNG Liquefied Natural Gas MN Methane Number MOV Motor operated valves MRP Mains Replacement Planning 1 MS Member State NRA National Regulatory Authority nTPA negotiated Third Party Access OCGT Open-cycle gas turbine OECD Organisation for Economic Co-operation and Development OPEX Operational Expenses OTC Over-the-Counter (trading) OUG Own use Gas OVA Organic vapour analyser PEX Power exchange PSO Public Service Obligation RAB Regulated asset base RPI Retail Price Index rTPA regulated Third Party Access SCADA Supervisory control and data acquisition SI Soot index SMB Social benefit SMC Social cost of production SSO Storage System Operator T&D Transmission & Distribution TANAP Trans Anatolian Natural Gas Pipeline TAP Trans Adriatic Pipeline TGSC Total gas storage capacity TLF Transmission Load Factor TNUoS Transmission Network Use of System TOC Total Organic Compound ToR Terms of Reference TSO Transmission System Operator UfG/ LAUF Unaccounted for Gas / Loss and Unaccounted gas UGS Underground Storage UNECE United Nations Economic Commission for Europe UNFCCC United Nations Framework Convention on Climate Change VOC Volatile organic compound WGC Working gas capacity WI Wobbe index 2 Contents 1 Executive Summary ..........................................................................................................................7 2 INTRODUCTION .............................................................................................................................. 13 2.1 Objectives of the study, key findings and recommendations ................................................... 13 2.2 Methodology and outputs ...................................................................................................... 14 2.3 Limitations and further work .................................................................................................. 14 2.4 Structure of the report ........................................................................................................... 15 3 FUNDAMENTALS ............................................................................................................................ 16 3.1 The various types of efficiency ................................................................................................ 16 3.1.1 Efficiency in the economics’ context ............................................................................... 16 3.1.2 Efficiency in the engineering context............................................................................... 21 3.2 Energy system performance ................................................................................................... 28 3.3 Quantities and energy content ............................................................................................... 31 4 ELECTRICITY GENERATION .............................................................................................................. 34 4.1 Electricity generation from natural gas-fired units: an overview ............................................. 34 4.1.1 Efficiency ........................................................................................................................ 34 4.1.2 Gross versus net capacity (or: Auxiliary power consumption) .......................................... 38 4.1.3 Part load efficiency of CCGTs ........................................................................................... 39 4.2 Efficiency in electricity generation from natural gas-fired units in Azerbaijan .......................... 40 4.3 Conclusions and recommendations ........................................................................................ 41 5 ELECTRICITY TRANSMISSION AND DISTRIBUTION LOSSES ............................................................... 43 5.1 Transmission losses in the EU ................................................................................................. 43 5.1.1 Definition of losses.......................................................................................................... 43 5.2 Valuation of losses .................................................................................................................. 44 5.2.1 International losses’ benchmarking ................................................................................. 44 5.3 Procurement of losses ............................................................................................................ 52 5.4 Tariffs and regulation.............................................................................................................. 54 5.5 Regulatory and incentive mechanisms .................................................................................... 59 5.6 Country-specific cases (EU Member States) ............................................................................ 64 5.6.1 France ............................................................................................................................. 64 5.6.2 Italy ................................................................................................................................ 66 5.6.3 United Kingdom .............................................................................................................. 66 5.6.4 Germany ......................................................................................................................... 68 5.6.5 Spain............................................................................................................................... 68 3 5.6.6 Portugal .......................................................................................................................... 69 5.7 Conclusions and recommendations ........................................................................................ 70 6 UPSTREAM GAS SECTOR: REVIEW OF THE EXPERIENCE WITH OPERATION OF UNDERGROUND GAS STORAGE IN THE EU IN RELATION PARTICULARLY TO THE “STORAGE TARIFF” ................................. 72 6.1 Defining the context ............................................................................................................... 72 6.2 Technical characteristics of underground storage facilities ..................................................... 76 6.3 Access to underground storage facilities in the EU .................................................................. 79 6.4 Ensuring non-discrimination: transparency requirements ....................................................... 98 6.5 Storage tariffs ......................................................................................................................