- Email: [email protected]
Electric power economics
Book
enriched by the variety of contributors and countries. In book form this variety is a little indigestible, and the reader needs to be selective. It would certainly be a difficult introduction to the subject, but forms a useful reference for those already familiar with the issues, and who can recognize the gaps. Some ommissions are merely a function of the timing of the conference and the pace at which events have since moved. There is little discussion of social costs and the issue of environmental pollution and desecration, now so important in privatization
programmes worldwide. Similarly the new privatization programmes in parts of Latin America (particularly Mexico and Brazil) raise interesting issues of debt-equity swops in conjunction with privatization. We may look forward to the inclusion of these topics in the next conference and its report. Meanwhile this book underlines the unique nature of privatization in each economy and constitutes a useful compendium for the informed reader. Cutherine Price University of Leicester Leicester, UK
Useful compendia of past concepts ENERGY POLICY
ANALYSIS
AND
by M. Munasinghe Butterworths,
Guildford,
UK,
1990,
PP 315 ELECTRIC
POWER
ECONOMICS
by M. Munasinghe Butterworths,
0 The three levels in a national
Guildford,
UK,
1990,
PP 323 Both of these somewhat complementary volumes were published at the same time, and are both described as ‘selected works’ of the author, which is apt in that most, if not all, the substance in the chapters has appeared before. These compendia are very useful as the various condensations are to the benefit of the reader, especially as they are gathered in two volumes - Munasinghe’s works are quite formidable in both number and scope! Because these books contain selected works from the past they must of course be judged from what seemed important in the past. Although many previous concepts are being rapidly either overhauled, modified or abandoned, this will not happen overnight. The impressive basework and background built up in the
UTILITIES
POLICY
1970s and early to mid-1980s by Munasinghe and other workers in the field is still a vital part of energy, electricity and utilities policy, planning, investment, operation and pricing. The basic framework of such work was to express the importance of, and establish methodologies and models for, dealing with such issues as:
October
1991
economy, the nation, the sector and the consumer. How each level was linked to the other but led by different criteria for policy, planning, investment, pricing etc. of long-term de0 The optimization velopment programming, mainly with respect to the highest level (ie the national economy), the optimization to internalize as many features on the demand-side as possible, as well as the supply-side, eg reliability standards, quality of supplies, resources costs, energy efficiency, energy management and conservation and environmental control. 0 The setting of prices which were fully in accordance with the optimum long-term development programme, through long-run marginal costs (LRMC) but also allowing for ‘life-line’ tariffs to the poor. of ‘user-friendly’ 0 The development computer models to enable senior
reviews
management to participate more directly in planning, operation and pricing; also to enable them to quickly ‘test out’ their own, possibly entrepreneurial ideas, quickly on a model before making final decisions on investment, policy and pricing. Although this approach was, and still is, widely-used by developed and developing countries, from the perspective of the 1990s many believe now that it was really developed and is basically useful for dealing with welldeveloped energy, electricity and utilities sectors in developed, and the most industrialized developing countries, where there exists the necessary data, skills, management and finance to use it properly. Regardless of this conclusion, this well-disciplined logical, deterministic approach is today being criticized from the point of view of ex-post evaluation. In any case, world events have dictated the pace of change and all practitioners in the energy, electricity and utilities sectors must today drastically modify their approaches to planning, policy, investment, pricing, operation, etc, to take into account the dominant factors worldwide for the 1990s and beyond. These factors include: private funding and ownership; short-term financial and not long-term economic returns; entrepreneurship in planning; feasible scenarios instead of more rigidly determined optimum development programmes; dynamic and ‘spot’ pricing; buying forward; futures markets; agents; brokers; activities which treat energy as a commodity; consumer reaction, fully clearing, more efficient energy, electricity and utilities markets; regulatory authorities. Munasinghe has made a good start with these new’ features in his existing works and all must look forward to the publication of his researches in these matters in due coursee. In this respect these two volumes are somewhat out-of-date but nevertheless remain very valuable work, and on some matters are still very relevant. For example, in Energy Analysis and Policy it is still important to stress Munasinghe’s integrated national energy planning in developing countries especially, but indeed in all coun-
445
Book
reviews
tries. At least in some measure, governments must still concern themselves with the energy sector and there must be some coordination of this complicated sector by some body, even if this is by a government appointed energy committee, or by regulatory or licensing authorities. Again the author’s integrated framework on pricing will also always be important as governments will never be able to leave everything to market forces, once again even if the watchdog is only a government appointed regulator. Other subjects which are raised in the book, and can be commented on in the same vein, are: energy demand management. energy conservation, energy demand analysis and forecasting, nonconventional and renewable energy, rural energy, and energy research and development. Munasinghe’s case studies, although possibly again somewhat out-of-date, are still very well worth studying in that there seems to be a present dearth of actual practical case studies, ie not computer constructed models of cases. Also the book’s references are valuable. An overall criticism of the collected works would be that it does not deal forcefully enough with the importance of global factors, which have been shown to be so vital to the energy sector since the first oil crisis in 1973. Also the importance on the sector of the state-of-the-world and/or national economies. In respect of Electric Power Economics, it is still very necessary to deal properly, within the basic ground rules of the methodology developed in the 1970s and early 1980s as described in Munasinghe’s book, and then to build on this to take into account the new factors appearing in the 1990s and beyond, that is not to dismantle the ‘old’ concepts before introducing the ‘new’. In this respect the following subjects covered in the book are still important: electricity pricing; demand analysis; rural electrification; electricity system reliability including consumer ‘outage’ costs; and a hard look at distribution systems.
County
446
Tom W. Berrie Durham, UK
The lack of urgency COMBINED PRODUCTION HEAT AND POWER generation)
OF (Co-
ed by J. Sirchis Elsevier Applied
Science, f.5’2, pp 211
This report contains the presentations from a seminar held in Madrid, 10-11 October 1989. The object of the meeting was to discuss ‘the new methods of financing, appropriate legislative action and the technological progress necessary for the successful expansion of applications of co-generation’. The reason for this conference taking place in Spain is made plain in a statement that ends the discussion on finance and legislation; ‘Spain is the only country in Europe where a public utility is operating as an ESCO (Energy Service Company) and that anyone willing to get a standardized third financing contract should ask for it for [sic from?] the D.G. XVIII of the E.C’. Development of CHP has increased in Spain from 1.64% in 1985 to 13% in 1987/88. In this period GWh increased by 16.5%; power capacity is given as 753 262kW - for cogeneration. The seminar’s five sections have some excellent review material - and some that could well have been omitted. Papers by F. Kinderman (EC Energy Directorate) on the Commission’s policy; J. Hamrin, on status and financing of CHP in California; D.A. Fee (EC Energy Directorate) on third-party financing; and, particularly, D. Driscoll of Ireland with his comparative analysis of the legal conditions in the non-EC industrialized countries. The review of cogeneration in the European Community’s Member States is limited to a mere seven case histories of industrial use of this technology. Nothing at all was said of the examples set by and continuing achievements of the many European capital cities where heat and power in combination supply have been a feature of public utility service for many decades.
The separation of industrial CHP from public utility is a feature of current UK official policy and has led to extensive advertising by the two major generating companies and British Gas. This does not represent the pattern of European experience nor the extent of energy efficiency/antipollution research. There is no agency, active or prepared to examine this direction of development. There remains the question: whether this concentration on necessarily small industrial CHP - and exclusion of public utility service - is in the best interests of national or international fuel-use and energy conversion with the accompanying considerations of energy efficiency/anti-pollution? This official EC emphasis, with its lack of approval and encouragement for the greater impact and significance of capital outlay, urban-wide, record of service to large communities, is in fact endorsing methods which small-scale CHP can never replace. This dichotomy was not discussed. It is a matter of record and regret that the more small-scale industrial CHP is promoted, the more obstacles are placed in the way of drastic reform. There is no mention here, either, of the activities of the International Union of Heat Distributors (UNICHAL), the only organization of any substance with long-standing experience - both extensive and significant ~ of production and supply of energy in combination. While this volume serves the useful purpose of recording EC policy and attitude towards the use of this energy technology it contributes little or nothing to formulating a desirable new strategy. Altogether, this presents a warning: that a great deal more information and wider awareness is needed; that the activity does not yet exist that will finally separate energy from electricity in the scale of priorities. There is a consciousness, as this seminar shows very well, that energy efficiency and concern for environmental issues are inseparable; what is lacking is urgency.
Norman Jenkins Farnham, Surrey, UK
UTILITIES
POLICY
October
1991
enriched by the variety of contributors and countries. In book form this variety is a little indigestible, and the reader needs to be selective. It would certainly be a difficult introduction to the subject, but forms a useful reference for those already familiar with the issues, and who can recognize the gaps. Some ommissions are merely a function of the timing of the conference and the pace at which events have since moved. There is little discussion of social costs and the issue of environmental pollution and desecration, now so important in privatization
programmes worldwide. Similarly the new privatization programmes in parts of Latin America (particularly Mexico and Brazil) raise interesting issues of debt-equity swops in conjunction with privatization. We may look forward to the inclusion of these topics in the next conference and its report. Meanwhile this book underlines the unique nature of privatization in each economy and constitutes a useful compendium for the informed reader. Cutherine Price University of Leicester Leicester, UK
Useful compendia of past concepts ENERGY POLICY
ANALYSIS
AND
by M. Munasinghe Butterworths,
Guildford,
UK,
1990,
PP 315 ELECTRIC
POWER
ECONOMICS
by M. Munasinghe Butterworths,
0 The three levels in a national
Guildford,
UK,
1990,
PP 323 Both of these somewhat complementary volumes were published at the same time, and are both described as ‘selected works’ of the author, which is apt in that most, if not all, the substance in the chapters has appeared before. These compendia are very useful as the various condensations are to the benefit of the reader, especially as they are gathered in two volumes - Munasinghe’s works are quite formidable in both number and scope! Because these books contain selected works from the past they must of course be judged from what seemed important in the past. Although many previous concepts are being rapidly either overhauled, modified or abandoned, this will not happen overnight. The impressive basework and background built up in the
UTILITIES
POLICY
1970s and early to mid-1980s by Munasinghe and other workers in the field is still a vital part of energy, electricity and utilities policy, planning, investment, operation and pricing. The basic framework of such work was to express the importance of, and establish methodologies and models for, dealing with such issues as:
October
1991
economy, the nation, the sector and the consumer. How each level was linked to the other but led by different criteria for policy, planning, investment, pricing etc. of long-term de0 The optimization velopment programming, mainly with respect to the highest level (ie the national economy), the optimization to internalize as many features on the demand-side as possible, as well as the supply-side, eg reliability standards, quality of supplies, resources costs, energy efficiency, energy management and conservation and environmental control. 0 The setting of prices which were fully in accordance with the optimum long-term development programme, through long-run marginal costs (LRMC) but also allowing for ‘life-line’ tariffs to the poor. of ‘user-friendly’ 0 The development computer models to enable senior
reviews
management to participate more directly in planning, operation and pricing; also to enable them to quickly ‘test out’ their own, possibly entrepreneurial ideas, quickly on a model before making final decisions on investment, policy and pricing. Although this approach was, and still is, widely-used by developed and developing countries, from the perspective of the 1990s many believe now that it was really developed and is basically useful for dealing with welldeveloped energy, electricity and utilities sectors in developed, and the most industrialized developing countries, where there exists the necessary data, skills, management and finance to use it properly. Regardless of this conclusion, this well-disciplined logical, deterministic approach is today being criticized from the point of view of ex-post evaluation. In any case, world events have dictated the pace of change and all practitioners in the energy, electricity and utilities sectors must today drastically modify their approaches to planning, policy, investment, pricing, operation, etc, to take into account the dominant factors worldwide for the 1990s and beyond. These factors include: private funding and ownership; short-term financial and not long-term economic returns; entrepreneurship in planning; feasible scenarios instead of more rigidly determined optimum development programmes; dynamic and ‘spot’ pricing; buying forward; futures markets; agents; brokers; activities which treat energy as a commodity; consumer reaction, fully clearing, more efficient energy, electricity and utilities markets; regulatory authorities. Munasinghe has made a good start with these new’ features in his existing works and all must look forward to the publication of his researches in these matters in due coursee. In this respect these two volumes are somewhat out-of-date but nevertheless remain very valuable work, and on some matters are still very relevant. For example, in Energy Analysis and Policy it is still important to stress Munasinghe’s integrated national energy planning in developing countries especially, but indeed in all coun-
445
Book
reviews
tries. At least in some measure, governments must still concern themselves with the energy sector and there must be some coordination of this complicated sector by some body, even if this is by a government appointed energy committee, or by regulatory or licensing authorities. Again the author’s integrated framework on pricing will also always be important as governments will never be able to leave everything to market forces, once again even if the watchdog is only a government appointed regulator. Other subjects which are raised in the book, and can be commented on in the same vein, are: energy demand management. energy conservation, energy demand analysis and forecasting, nonconventional and renewable energy, rural energy, and energy research and development. Munasinghe’s case studies, although possibly again somewhat out-of-date, are still very well worth studying in that there seems to be a present dearth of actual practical case studies, ie not computer constructed models of cases. Also the book’s references are valuable. An overall criticism of the collected works would be that it does not deal forcefully enough with the importance of global factors, which have been shown to be so vital to the energy sector since the first oil crisis in 1973. Also the importance on the sector of the state-of-the-world and/or national economies. In respect of Electric Power Economics, it is still very necessary to deal properly, within the basic ground rules of the methodology developed in the 1970s and early 1980s as described in Munasinghe’s book, and then to build on this to take into account the new factors appearing in the 1990s and beyond, that is not to dismantle the ‘old’ concepts before introducing the ‘new’. In this respect the following subjects covered in the book are still important: electricity pricing; demand analysis; rural electrification; electricity system reliability including consumer ‘outage’ costs; and a hard look at distribution systems.
County
446
Tom W. Berrie Durham, UK
The lack of urgency COMBINED PRODUCTION HEAT AND POWER generation)
OF (Co-
ed by J. Sirchis Elsevier Applied
Science, f.5’2, pp 211
This report contains the presentations from a seminar held in Madrid, 10-11 October 1989. The object of the meeting was to discuss ‘the new methods of financing, appropriate legislative action and the technological progress necessary for the successful expansion of applications of co-generation’. The reason for this conference taking place in Spain is made plain in a statement that ends the discussion on finance and legislation; ‘Spain is the only country in Europe where a public utility is operating as an ESCO (Energy Service Company) and that anyone willing to get a standardized third financing contract should ask for it for [sic from?] the D.G. XVIII of the E.C’. Development of CHP has increased in Spain from 1.64% in 1985 to 13% in 1987/88. In this period GWh increased by 16.5%; power capacity is given as 753 262kW - for cogeneration. The seminar’s five sections have some excellent review material - and some that could well have been omitted. Papers by F. Kinderman (EC Energy Directorate) on the Commission’s policy; J. Hamrin, on status and financing of CHP in California; D.A. Fee (EC Energy Directorate) on third-party financing; and, particularly, D. Driscoll of Ireland with his comparative analysis of the legal conditions in the non-EC industrialized countries. The review of cogeneration in the European Community’s Member States is limited to a mere seven case histories of industrial use of this technology. Nothing at all was said of the examples set by and continuing achievements of the many European capital cities where heat and power in combination supply have been a feature of public utility service for many decades.
The separation of industrial CHP from public utility is a feature of current UK official policy and has led to extensive advertising by the two major generating companies and British Gas. This does not represent the pattern of European experience nor the extent of energy efficiency/antipollution research. There is no agency, active or prepared to examine this direction of development. There remains the question: whether this concentration on necessarily small industrial CHP - and exclusion of public utility service - is in the best interests of national or international fuel-use and energy conversion with the accompanying considerations of energy efficiency/anti-pollution? This official EC emphasis, with its lack of approval and encouragement for the greater impact and significance of capital outlay, urban-wide, record of service to large communities, is in fact endorsing methods which small-scale CHP can never replace. This dichotomy was not discussed. It is a matter of record and regret that the more small-scale industrial CHP is promoted, the more obstacles are placed in the way of drastic reform. There is no mention here, either, of the activities of the International Union of Heat Distributors (UNICHAL), the only organization of any substance with long-standing experience - both extensive and significant ~ of production and supply of energy in combination. While this volume serves the useful purpose of recording EC policy and attitude towards the use of this energy technology it contributes little or nothing to formulating a desirable new strategy. Altogether, this presents a warning: that a great deal more information and wider awareness is needed; that the activity does not yet exist that will finally separate energy from electricity in the scale of priorities. There is a consciousness, as this seminar shows very well, that energy efficiency and concern for environmental issues are inseparable; what is lacking is urgency.
Norman Jenkins Farnham, Surrey, UK
UTILITIES
POLICY
October
1991