Dr. Carlos Batlle
Instituto de Investigación Tecnológica
(Institute for Research in Technology)
Universidad Pontificia Comillas
Sta. Cruz de Marcenado 26, 28015 Madrid
Tel.: +34915406306 - Fax: +34915423176
E-mail: <[email protected]>
Mahón, August 19th, 2011
Dear Sirs,
It is a great pleasure for me to submit our tender for design and development of a UK capacity
mechanism.
I am sending this proposal on behalf of the team of the Instituto de Investigación Tecnológica
(IIT, Institute for Research in Technology) we would configure to develop this work: Prof.
Ignacio J. Pérez-Arriaga, Dr. Pablo Rodilla and myself. The formal declaration of offer is
signed by the José Ramón Busto S.J., Rector of the Universidad Pontificia Comillas.
We have tried to summarize the proposal as much as possible, and following your advice, we have
structured it following the suggested guidelines. Needless to say we would be glad to provide you
with any additional information you might require.
You can find my contact details in the header of this page. I will be the project leader and the
designated contact for this tender. Please do not hesitate to contact me if you consider I might be
of any help.
Yours faithfully,
Carlos Batlle
SECTION 1 – SPECIALIST SKILLS AND KNOWLEDGE
The team
The team configured for this project has been involved in the development and design of capacity
mechanisms for the last fifteen years. Prof. Pérez-Arriaga (hereafter IPA) was involved in the
design of the first Latin American electricity markets since de nineties. Dr. Carlos Batlle
(hereafter CB) joined the IIT in 1996 and since the beginning he worked among other electricity
market issues on the development of the capacity payments mechanisms implemented at the start
of the Spanish electricity market (advising the Spanish regulatory authority) and later on, in the
design of the first Reliability Options mechanism proposal (currently known in the UK as
Reliability Contracts) for the Colombian market (implemented almost ten years later in 2008, but
following the main guidelines proposed by the IIT team back in 1999). After that, the members of
this team have been involved in a significant number of projects aimed at developing capacity
mechanisms (mainly for regulatory authorities, but also governments and stakeholders) in
different countries, both in the American and European continents.
Finally, Pablo Rodilla joined the team in 2004. He has taken part in the projects related to this
issue since then, and more importantly, he received his Ph.D. degree last year for his dissertation
“Regulatory tools to enhance security of supply at the generation level in electricity markets”, supervised by
Dr. Batlle, and qualified with honors by a committee constituted among others by Prof. Josep
Borrell (President of the European University Institute and former President of the European
Parliament), Prof. Jean-Michel Glachant (Director of the Florence School of Regulation) and
Prof. Pérez-Arriaga.
Next, in the following subsections the relevant experience gathered throughout these years is
outlined. It is important to note that this experience is not just based on the research work
developed in the academic field, reflected for instance in the papers published in peer reviewed
papers. Besides authoring the first reliability options design back in the late nineties, this team
has been involved in a significant number of projects led to design the particular implementation
details of this sort of mechanisms in different countries. After all those experiences, the main
lesson learned is that a different solution is needed for each particular electric power system. The
practical implementation details and the regulations we designed and proposed were radically
different for instance for the Colombian case, than for the Iberian, the Dutch or Guatemalan or
Peruvian cases, to name some of them. These works provide the IIT team with a pretty exclusive
background that would allow them to really contribute to the task the DECC has to face in the
coming months.
Knowledge and experience of international Capacity Mechanisms
The members of the team have worked on this particular issue in a vast number of countries:
Argentina, Spain, Colombia, The Netherlands, Portugal, Russia, Guatemala, Peru, Ireland. To
properly develop these works, the team has been keeping a close track on every relevant
experience designed and/or implemented worldwide, including Europe (UK, Italy, recently
France and obviously Spain and Portugal), Latin America (Colombia, Brazil, Chile, Peru,
Guatemala, Panama), North America (PJM, NE-ISO, Texas, California) and Australia and New
Zealand.
The main lessons learned and some of our analyses for all of these cases are summarized in some
of the papers published in international journals, listed below:
Rodilla, P., Batlle, C., Salazar, J., Sánchez, J. J., 2011. “Modeling generation expansion in the context
of a security of supply mechanism based on long-term auctions. Application to the Colombian case”.
Energy Policy, Volume 39, Issue 1, January 2011, Pages 176-186.
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Batlle, C., Rodilla, P., 2010. “A critical assessment of the different approaches aimed to secure
electricity generation supply”. Energy Policy, vol. 38, iss. 11, pp. 7169-7179, November 2010, doi:
10.1016/j.enpol.2010.07.039.
Batlle, C., Barroso, L. A. and Pérez-Arriaga, I, J., 2010. “The changing role of the State in the
expansion of electricity supply in Latin America”. Energy Policy, vol. 38, iss. 11, pp. 7152-7160,
November 2010, doi: 10.1016/j.enpol.2010.07.037.
Rodilla, P. & Batlle, C. 2010. “Security of electricity supply at the generation level: problem
analysis”. Working Paper IIT-10-027A, to appear in Energy Policy.
Batlle, C. and Pérez-Arriaga, I. J., 2008. “Design criteria for implementing a capacity mechanism in
deregulated electricity markets”. Special issue on “Capacity Mechanisms in Imperfect Electricity
Markets”, Utilities Policy, volume 16, issue 3, pp. 184‑ 193, September 2008.
doi:10.1016/j.jup.2007.10.004.
Batlle, C., Solé, C. and Rivier, M., 2008. “A new security of supply mechanism for the Iberian
Market”. The Electricity Journal, 21 (2), Pages 63-73, March 2008, doi:10.1016/j.tej.2008.02.003.
Batlle, C., Vázquez, C., Rivier, M. and Pérez-Arriaga, I. J., 2007. “Enhancing power supply adequacy
in Spain: migrating from capacity payments to reliability options”. Energy Policy, 35 (9), p.45454554, Sep 2007.
Vázquez, C., Batlle, C., Rivier, M., Pérez-Arriaga, I. J., 2003. “Security of supply in the Dutch
electricity market: the role of reliability options”, IIT Working Paper IIT-03-084IC, for The Office
for Energy Regulation (DTe) of The Netherlands. Presented at the workshop CEPR Competition &
Coordination in the Electricity Industry, Toulouse, January 2004.
Vázquez, C., Rivier, M., Pérez-Arriaga, I. J., 2002. “A market approach to long-term security of
supply”, IEEE Transactions on Power Systems. vol. 17, no. 2, pp. 349-357.
Practical experience of design and/or evaluation of international Capacity Mechanisms
Apart from previous works develop in the nineties in the Argentinean context, the first work on
capacity mechanisms developed for regulatory authorities dates from 1997, for the Spanish
National Regulatory Commission on the capacity payment design later implemented at the start
of the market. Then, IPA led the IIT team that put forward the original reliability options
proposal back in 1999 in response to a requirement of ACOLGEN (the Colombian generators
association). Then, this particular proposal was studied and adapted in detail for the Dutch case
(for the DTe) and the National Regulatory Commission of Guatemala. The members of this team
have played a major role in the Peruvian case, where they took part in the development of the
White Paper the led to the reform of the power market. This reform implied the implementation
of long-term auctions aimed at attracting new generation into the system. Later, CB was asked to
take part in the final design of these auctions (the regulation, contract and the auction mechanism
details) and played the trustee role when they were held.
The reform of the capacity mechanism implemented in the Spanish case was later one of the major
issues the members of this team were involved in the context of the “White paper on regulatory
reform for electric power generation in Spain”, commissioned by the Spanish Government to IPA.
Two years later, CB was asked to advice the Spanish regulatory authority in the development the
Proposal for a security of supply mechanism of the MIBEL Regulators Council (jointly led by
ERSE and CNE, the energy Regulatory Authorities of Portugal and Spain). The document was
finally agreed months later, but (unfortunately) the Spanish Government decided to implement
just parts of the proposal.
Finally, this team has been involved in the detailed analysis of the Colombian Reliability Charge
from the point of view of a stakeholder, the utility EPM. Additionally, numerous shorter
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consultancy projects have been performed for electricity companies in different market contexts,
as for instance France, Guatemala and Panamá.
Currently, as part of their duties as Visiting Scholars in the MIT CEEPR, the members of this
team are deeply involved in a research project whose aim, among others, is to assess how a large
penetration of RES-E can affect the long-term adequacy of the electric power system. It is
expected that by the beginning of September a report will be published revealing extremely
sound conclusions regarding the potential conflict between the RES-E variability and the
inflexible nature of nuclear plants, a discussion which surely will play a central role in the UK
case.
Below, the main projects centered in the design and implementation of capacity mechanisms in
which the members of this team have been developed are listed:
Regulatory instruments for the financial viability of an efficient and reliable power system under marketbased rules, with a strong presence of renewable intermittent generation in a low carbon economy
context. MITEI-IIT joint project. 2011
Supervision and refereeing of the long-term supply auctions led by the distribution companies Edelnor
S.A.A. e Hidrandina S.A. during 2009. OSINERGMIN (Organismo Supervisor de la Inversión en
Energía y Minería), Peru. 2009
Criteria and procedures for default electricity supply auctions. OSINERGMIN (Organismo Supervisor de
la Inversión en Energía y Minería), Peru. 2008
Capacity payments mechanism design for pumped-storage hydroplants in Guatemala. For Corporación
Hidroeléctrica Guatemalteca, Guatemala. 2008
Principles and criteria for the design of a security of supply mechanism for the Iberian electricity system.
National Energy Commission (Comisión Nacional de Energía, CNE), Spain. 2007
Diagnosis, design and implementation of surveillance and monitoring of the functioning of the electricity
market in the Republic of Guatemala. For the National Energy Regulatory Commission (Comisión
Nacional de Energía Eléctrica, CNEE), Guatemala, in collaboration with Mercados Energéticos
Consultores. 2006
White Paper for the reform of the regulatory scheme of the power generation in Spain. For the Ministry
of Industry, Tourism and Trade of Spain. 2005
Advisory services to the committee created by the Law 28447, on the “White Paper: Bill to Assure the
Efficient Development of Power Generation”. For the Ministry of Energy and Mines of Peru and
OSINERG. 2005
Consulting services for development of capacity payments mechanisms in Russia. RAO UESR, Russian
Federation. 2004
Foundations and trends of liberalization models in electricity markets. Strategic analysis on power
market design fundamentals in face of full liberalization. Endesa, Spain. 2004
Security of supply in the Dutch electricity market: general framework. Dienst uitvoering en toezicht
Energie (DTe), The Netherlands. 2003
Long term generation adequacy for the Dutch electricity market. Amsterdam Power Exchange (APX),
The Netherlands, in collaboration with EEE Limited. 2003
A market based proposal for generation capacity payments in Colombia. ACOLGEN (Asociación
Colombiana de Generadores de Energía Eléctrica). Endesa, Spain. 1999-2000
General support on electricity market design. Spot markets, energy contracts and stranded cost recovery.
For the National Electricity Regulatory Commission (Comisión Nacional del Sistema Eléctrico,
CNSE), Spain. 1997
Referees
We would be glad that the DECC could contact any of people we have had the pleasure to work
with and for during all these years of work. Since in the instructions we are required to provide a
small number of them, we could suggest the following:
•
Jorge Sanz
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Director General of the Spanish Ministry of Industry at the time of the development of the
Spanish White Paper. Currently Spanish Trade Commissioner, focused among others on
energy issues, in Los Angeles, US.
1900 Avenue of the Stars, Suite 2430, Los Angeles, CA 90067
Tel.: +1 310 277 51 25
•
Victor Ormeño
Director of the Office of Tariff Regulation. (OSINERGMIN-GART) of Peru.
Av. Canadá 1460, Lima
Tel.: +551 224-0487
•
Prof. Richard Schmalensee
Howard W. Johnson Professor of Economics and Management at the Massachusetts Institute
of Technology (MIT) and Director of the MIT Center for Energy and Environmental Policy
Research.
77 Massachusetts Avenue, Cambridge MA 02139, USA
Tel: +1 (617) 253-2957
•
Juan J. Alba
Director of Regulatory Affairs, Endesa.
Ribera del Loira 60, 28042 Madrid, Spain
Tel.: +34 912139159
•
José E. Salazar Velásquez
Energy Markets, Empresas Públicas de Medellín (EPM)
Carrera 58, Medellín, Colombia
Tel. +5743802244
Familiarity with the UK electricity market
The members of this team have been following closely the evolution of the UK market during the
last fifteen years. In the late nineties, the UK pool was a key inspiration for the design of the
Spanish electricity market. And it has been a reference since then, which this team has not
stopped analyzing.
IPA, besides his works for the European Commission, as Independent Member of the Single
Electricity Market Committee of Ireland, has permanent information about the regulatory
discussion in the UK. CB has been advising the Spanish Regulatory Authority and the Chair of
ERGEG’s Regional Initiatives group the whole year 2010, so he has a vast knowledge of the state
of electricity markets regulation in the EU. He also had the opportunity to meet both the DECC
and Ofgem staff a couple of months ago and could hold interesting discussions on the recent
regulatory developments and current debate in the UK.
Knowledge of targeted and market-wide mechanisms
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This team has been working specifically on the regulatory analysis and design of targeted and
market-wide mechanisms at least for the last fifteen years in more than 30
countries. The knowledge was beyond the European case, and covers also
the whole American continent. The visiting positions held at the CEEPR MIT
allow both IPA and CB to follow closely the evolution of US power markets,
and the works developed in more than ten Latin American countries (where
capacity mechanisms have played a major role) allow them to have a large
understanding of their regulatory matters.
IPA is a permanent visiting professor at MIT, at the Center for Energy and
Environmental Policy Research (CEEPR), where he teaches a graduate course
on power system regulation, engineering and economics. CB is also visiting
scholar at the MIT CEEPR (currently in the process of renewing the
appointment), and he takes charge of a significant part of the teaching load in
the course. Both are involved in the supervision of a significant number of
Ph.D. and Master theses. Also, both coordinate the Energy Training at the
Florence School of Regulation (IPA is the Director) where they are directors
and lecturers on different electric training courses on power systems
regulation.
Currently, they are co-editors of a book that will be edited in a few months by
Springer called “Regulation of Power Systems”. CB has authored, among
others, the chapters on wholesale markets, retailing and specifically the one
devoted to security of supply mechanisms.
IPA is also presently a member of the Advisory Group of the Energy Roadmap 2050 for the
Energy Directorate of the European Commission, so he has perfect information about the future
trends in the EU context.
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SECTION 2 - AVAILABILITY
The members of the team would be fully available to work on this project.
The discussions and contacts between the DECC staff would be able to be arranged either
through the phone or video conference. The IIT, as well as the CEEPR MIT, count on advanced
videoconference equipments in their premises, so it would be possible to arrange meetings
anytime needed.
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SECTION 3 – PRICING AND VALUE FOR MONEY
Part A – Staff/project team charges
Daily rate**
Grade/level of staff
(ex VAT)
No. days offered
over course of
contract
Total price
offered per staff
member
Carlos Batlle
Ignacio
Arriaga
J.
Pérez-
Pablo Rodilla
Sub-total
£18850
Part B – Non-staff/project team charges
Item
No. of items
Price per item
Total price per
offered
(ex VAT)
£
Sub-total
£
£
Part C – Full price offered
Sub-total (Part A + Part B)
VAT
TOTAL (Sub-total + VAT)
£18850
£
£18850
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