Institutional Barriers to Distributed Energy:Understanding and Overcoming
Chris DunstanInstitute for Sustainable Futures, UTS
21 November 2008
I-Grid Research Program Structure
P1: Control Methodology
of DG
P2: Market & Economic
Modelling
P3: Optimal Siting & Dispatch
of DG
P4: Instit Barriers, Stakeholder
Engagement & EconomicModelling
P5: I Grid Social Impacts
P6: I Grid in New
Housing Development
P7:OperationalControl &
Energy Management
Management Committee
Economic regulatory barriers & Solutions
Business deliberation
on I Grid & DE
DANCE Model
D-CODE Model
CSIRO
InstitutionalBarriers
QUT UTS Curtin Uni UniSAUni of Qld Uni of Qld QUT
Why study Institutional Barriers to DE?
Global average temperature
Permanent Arctic ice may disappear by 2030
Scientist warn that if we do not quickly reduce greenhouse pollution, the melting of Greenland ice cp will be unstoppable and raise global sea level by 7 metres
Problem Response
Politics demands
A very senior Australian bureaucratonce said, when advising junior bureaucrats:
“as a bureaucrat, the most important thing you can do …
is to stop things from happening”
(not Sir Humphrey Appleby)
Problem
“Market Failure”
Response
“Market Intervention”
Politics demands
Policy demands
A licence to act.
"Climate change is a result of the greatest market failure the world has seen.” – Sir Nicholas Stern, Nov 2007
"the greatest market failure ever seen". – Prof Ross Garnaut, July 08
“once we have an effective price on carbon through an Emissions Trading scheme, we can do away with a range of inefficient policies and programs…”
MRET, PV Rebate, EEOA, VEET, REES, NEET, etc,
Barriers to Distributed Energy
“Non-Institutional” Barriers include:– Technical barriers– Economic (cost) barriers
Some Institutional Barriers (and market failures)1. Imperfect Information2. “Regulatory failure” and inefficient incentives3. External Costs excluded4. Inefficient pricing (not cost reflective)5. Split Incentives (landlord/tenant problem)6. High transaction costs7. Lack of access to finance8. Cultural norms9. Underdeveloped market for Distributed Energy
Technology Barriers
Economic Barriers
Institutional Barriers
What it does
What it costs
What slows it down
Barriers to Distributed Energy
“United States could reduce emissions by 31% to 46% by 2030”Distributed Energy is crucial to carbon abatement
Institutional Barriers: A framework
Economic outcomes
Environmental/ Social outcomes
Technology Frontier
“Best practice”
Institutional Barriers
Current practice
Disarray
Mispricing
Disinterest
Maladministration Impatience
Ignorance
Barriers to Distributed Energy: “The Seven D.E. Sins”
Confusion
Regulatory barriers
Cultural barriers
Lack of information
Split Incentives: landlord/ tenant etc
High discount rates
Externalities and price structures
0
50
100
150
200
GridPower
Cogen GridPower
Cogen
Indi
cativ
e C
osts
($/M
Wh)
Carbon cost
Innovation risk
Negotiation cost & risk
Capital contributions
Standby charges
Retail etc
Distribution
Transmission
Fuel + O&M
Capital cost
Indicative Impact of Institutional Barriers on Costs
Current Costs
“Real” Costs
Tool 4: Market transformation analysis
Demand0
Supply0
p0
q0 q1
Price
Quantity
Demand1
a
cccc Supply1
b
Overcoming Institutional Barriers: “Moving the Market”
Push PullLi
ft
Regulation Incentives
Information
The Policy Palette
Primary Instruments
Facilitation
Pricing
Targets
Regulation Incentives
Information
The Policy Palette
+ Secondary Instruments
Culture
Facilitation
Pricing
Targets
Regulation Incentives
Information
Facilitation
Pricing
Targets
Regulation Incentives
Information
The Policy Palette - “PIRFICT”
Coordination
Regulation
> Mandatory Audits and Plans> Mandatory information disclosure> Minimum Energy Performance Standards
Targets
> Mandated Targets (regulated)> Policy target (adaptive management)> Aspirational targets (report and review)
InformationInformation
> Benchmarking> Performance labelling> Performance Reporting (no target)> Education and Awareness campaigns> Case studies
FacilitationFacilitation
> High Level Commitment> Accreditation> Training> Audits, Advice and Assistance> Case Studies> Networking> Community Engagement
Incentives
> Cash Rebates> Competitive Subsidies> $ support for Research and Development > Loans and Financial guarantees > Expedited Planning > Public recognition and awards> Prizes
Pricing
> Price in Externalities (Carbon Tax)> Cost reflective tariffs> Dynamic Pricing> Fixed cost vs Variable Cost pricing
Coordination
> Strategic Planning – Plan, Act, Report, Review
> Interagency and intergovernmental cooperation> Coordinating Agency
Example: Residential Energy Efficiency
Reg Targets Info Facil’nFacil’n IncentivesIncentives PricingPricing
Building Shell BASIX NABERS, ACT Disclosure
Heat/Cool MEPS
Hot Water MEPS GGAS GGAS, NRET, CCF
Off peak tariffs?
White Goods MEPS Labelling
Lighting Incandescent ban
GGAS GGAS, VEET
Brown Goods 1W standby
Conclusions
> Understanding institutional barriers important – for good policy and program design – to create a “licence to act”– to build the case for a suite of actions
> Not just about complementing Emissions Trading but also about making it work
> This analysis is a work in progress> Forthcoming Discussion Paper and Industry Forum
– Adelaide, 5 December
www.igrid.net.au
Thank you.
For more information on the I Grid Research program:Web: www.igrid.net.au Tel: 02 9514 4950 (ISF)
Email: [email protected]