How are regulators enabling an energy transformation for the benefit of future generations? Our writer Pei Fang finds out.
In the Special Focus Session on Regulation, Tim Rockell, Director, KPMG Global Energy Institute – Asia Pacific, Energy & Natural Resources Sector, KPMG Services, who served as moderator for the session, started off with an open question on how regulators should manage changes in the energy landscape.
Norman Bay, Partner and Head of the Energy Regulatory and Enforcement Group, Willkie Farr & Gallagher LLP, and Former Chairman of the Federal Energy Regulatory Commission, had three main tips. These were to be aware of technological changes; to be aware that technology inadvertently evolves faster than regulation and to constantly review regulations and market rules, which often impede innovation and create barriers to participation for new technologies.
With these practices in mind, regulators can then harness the power of markets and competition while levelling the playing field, to allow the most cost-efficient technologies to emerge in the electricity market and bring benefits to consumers.
Dr. Dirk Biermann, Chief Officer Markets and System Operations, 50Hertz, agreed, pointing out that in Germany, close cooperation between regulators and systems operators was required to enable the necessary regulatory changes to improve existing infrastructure and support the acceleration of energy transformation.
Regarding how regulators are enabling energy transformation for the benefit of future generations, Dermot Nolan, CEO Office of Gas and Electricity Markets (OFGEM), UK, acknowledged that the challenge is to balance regulatory certainty for incumbents and existing players with incentives for innovation within the industry because regulations usually change slower than technological advancements.
Mr. Nolan illustrated the point by bringing up the UK’s decarbonisation efforts, for which regulations on charging structures had to evolve to incentivise the uptake of EVs and change peak demand in order to achieve their goal of net zero carbon emissions by 2030 while still stimulating competition within the market. Mr. Nolan added that regulators have to weigh the potential benefits to the system against policy decisions during the time period of investment in the necessary infrastructure to avoid stranded assets. Mr. Harry Lai, Principal Energy Advisor, Electrical and Mechanical Services Department, Government of the Hong Kong SAR, shared that in Hong Kong, financial incentives are embedded within their policies to promote grid safety and reliability along with energy efficiency and customer service.
The panel also generally agreed that interconnectivity with other countries is a useful way to maintain flexibility in the system and that while there is no one-size-fits-all solution, using a sandbox regulatory approach can be helpful in identifying best practices and the appropriate level of market rules for new technologies.
In the Special Focus Session on Financing, Seth Tan, Executive Director, Infrastructure Asia, and moderator of the session, started off the discussion about the impact of the shift in financing energy projects from traditional energy to greener developments. The panel generally agreed that there is an observable increase in financing nuclear and cleaner sources of supply such as solar and energy storage; however, the issue is ensuring its affordability and efficiency.
Some of the challenges facing financing renewable energy infrastructure include asset risk in view of the fast-moving technology. “Will assets that are being financed by solar plants who deliver power at 8 cents instead of 3 cents be marketable going forward?” asked Mr. Ranjit Lamech, Infrastructure Director (East Asia and Pacific), World Bank.
Such issues in green energy financing are increasingly mitigated by changing policy tools. Mr. Nawaz Peerbocus, Director of Energy Transitions and Electric Power, King Abdullah Petroleum Studies and Research Center (KAPSARC), shared that in the European Union, there will be a Sustainable Action Plan for Finance policy, which will be implemented in the near future. The policy will extend the definition of sustainable investment products and introduce benchmarks to allow asset managers to track sustainable investments’ performance in order to provide clarity to industry players.
Mr. Lamech also shared success stories in green financing, which include the scaling of solar and standardisation of the procurement of large-scale solar farms as well as energy efficiency financing. These include wholesale procurement for LED bulbs, which has helped reduce costs substantially. The session ended with Mr. Peerbocus sharing that the trend in green financing involves incorporating Environmental, Social and Corporate (ESG) risk factors into the valuation of green projects.