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UPES Assignment 2014 Power Sector Economics and Planning-Ass-1-2014J
 
Product Name : Power Sector Economics and Planning-Ass-1-2014J
Product Code : AC1
Category : UPES
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Section A (20 Marks)

Write short notes on any four of the following:

  1. Scope of economics
  2. Free Market Theory
  3. Say’s Law
  4. Reflationary Policies
  5. Net Present Value (NPV)

Section B (30 marks)

(Attempt any three)

  1. What are the different Policies under Keynesian Economic Theory?
  2. Define capital budgeting.  Discuss the various steps of capital budgeting.
  3. How internal rate of return (IRR) is different from modified internal rate of return (MIRR). explain
  4. Explain the concept of depreciation. Signify the impact of inflation on depreciation.

 

Section C (50 marks)

(Attempt all questions. Every question carries 10 marks)

Read the case “Energy Tariffs in Different Countries” and answer the following questions.

Case Study: Energy Tariffs in Different Countries

In New South Wales, population 7 million with 8.6 people per km, 70% of all customers are on regulated tariffs. These tariffs are regulated by the Independent Pricing and Regulatory Tribunal (IPART), who set retail tariffs in the absence of a negotiated contract with a retailer (the three large retail-distributors are Country Energy, Energy Australia and Integral). Transmission and distribution charges are also both regulated.

Generation in NSW depends heavily on the burning of coal, with this source providing around 90% of all electricity.

IPART are involved with encouraging demand management through allowing NSW distributors to recover the costs of implementing approved tariff and non-tariff based demand management measures through an increase in the weighted average price cap.

Increasingly, time-of-use and smart meters are being adopted in NSW. For example, the retailer and distributor Energy Australia have 160,000 smart meters with variable tariffs depending on the time of day that energy is consumed (peak, shoulder, off-peak).

Country Energy and Integral have also either undertaken or are currently undertaking smaller scale pilots with smart meters and variable tariffs.

 

Victoria, Australia

 

Victoria has a population of greater than 5 million at 22.92 people per km2. 60% of consumers in Victoria are on competitive electricity contracts, with a choice of approximately 12 different retailers. In the absence of such a contract, ‘nominated’ retailers (AGL, Origin Energy, or TRUenergy) offer electricity at fixed tariffs. The Victorian Government has reserve powers to regulate retail prices for electricity customers consuming less than 160MWh/year.

Currently, most Victorian electricity supply points are metered with electro-mechanical accumulation meters that only record total consumption and are subject to manual reading every three months. These accumulation meters are owned by the distributors.

If a customer has a two-rate meter or a dedicated circuit meter (e.g. hot water cupboard) than there is a differentiation between 'peak' and 'off-peak' charges. However, for most customers in Victoria, there is no such distinction made.

There are plans starting at the end of 2008 for more than 2.5 million new smart meters to be installed over a 4 year period. This rollout is mandated by the Essential Services Commission.

Like NSW, generation in Victoria depends heavily on the burning of coal, with this source providing around 90% of all electricity.

 

Alberta, Canada

Alberta has a population of around 3.5 million at 5.38 people per square kilometre. The electricity generation mix is strongly weighted towards thermal generation, at around 90%, although hydro is also relatively important. In Alberta, the distinction is made between ‘competitive providers’ and ‘regulated rate providers’. If a consumer does not choose a provider, of which there are approximately seven options, then they are allocated their local regulated rate provider EPCOR and ENMAX dominate the Alberta market with around 70% of consumers combined.

Long fixed term rates are often used and have come about since deregulation in 2001. For example, Enmax has 72% of customers on 5 year plans, 10% on one year and 18% on floating plans. Floating plans are set in the same manner as regulated rate plans and are currently comprised of 40% monthly market prices and 60% long-term prices (increasing to 100% monthly market prices by 2010).

Meters are owned by retailers and any smart metering initiatives are their responsibility. For example, ENMAX has plans to implement smart meters over the next few years as a priority, while EPCOR has no plan to implement smart meters at this stage. Ontario, Canada

Ontario has a population of around 14 million with 13.9 people per square kilometre.

Generation is 50% nuclear, 22% coal and gas and 22% hydro, with the remainder being made up of other renewable sources, which the Ontario Government are committed to increasing. The marginal generation units are usually hydro, coal or gas.

Ontario is a relatively advanced jurisdiction in terms of smart meter usage and variable tariff structures. By the end of 2007, over one million smart meters had been rolled out for Ontario residential customers. These meters are owned and operated by the distribution companies, unless a consumer has made provisions to procure their own meter.

Competing retailers, of which there are several, offer contracts to residential customers, but tariffs are set by the Ontario Energy Board. The prices are reviewed every six months and are based on three tiers: on peak, off peak and mid peak. Residential customers not on a smart meter plan pay a rate between the mid peak and off peak rates.

 

Italy

The population of the country is approximately 60 million, with a density of 196.9 people per square kilometre. Italy is a world leader in the adoption of smart meters and associated variable tariffs.

The ‘Telegestore’ project has seen 23 million smart meters installed since 2003. The project was undertaken by Enel, a former vertically integrated monopoly that still dominates the market in generation, distribution and retailing, despite the gradual introduction of retail competition, and was funded by the Italian government.

Companies must offer a ‘base tariff’ to consumers and may also offer their customers other tariff options. Both base tariffs and alternative tariff options are subject to the regulator's (Autorità per l'energia elettrica e il gas) approval. Alternative options to the base tariff include tariffs differentiated by time (peak, high, medium, off-peak) according to a customer’s meter’s ability. Furthermore, retailers must comply with the EU’s ‘White Certificate Scheme’ to encourage energy savings. Approximately 16% of generation in Italy is from renewable sources.

 

Questions:

  1. Discuss the work of IPART(Independent Pricing and Regulatory Tribunal).
  2. What is the meaning of 'peak' and 'off-peak' charges in this case study?
  3. Who are the regulated rate provider in Alberta, Canada. Discuss their strategies.
  4. Out of all these countries, which country has the most efficient Tariff system? Why?

What do you infer from this Case study?

 
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