THE INFLUENCE OF ECONOMIC, ORGANIZATIONAL AND LEGAL FACTORS ON ENERGY SECURITY IN THE COUNTRY

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1 The Influence of Economic, Organizational and Legal Factors on Energy Security in The Country 57 THE INFLUENCE OF ECONOMIC, ORGANIZATIONAL AND LEGAL FACTORS ON ENERGY SECURITY IN THE COUNTRY 1. THE IMPACT OF ECONOMIC MEASURE AND MARKET MECHANISMS ON SECURITY Economic and market factors affect many functional areas of management within the power sector, and are also important for the security of electricity supply. Some of these factors were the subject of analysis carried out under Research Project No. PBZ-MEiN-1/2.2006, titled National Energy Security. Important results of these analyses and indications of certain abnormalities are presented in this article, and a more detailed presentation of them is included in the study [18] Electricity tariffs Tariffs belong to economic factors determining the status of energy security, defined as market and regulatory actions that form the scope and level of competition in the power sector. Tariff solutions promote the achievement of desired economic effects and improved of efficiency of energy use through market mechanisms. Electricity and transmission tariffs can effectively influence the level of energy security through the proper implementation of the functions assigned to them: revenue function related to ensuring adequate revenue from the sale of electricity, covering the costs of their own activities and gaining accumulative surplus, which enables the financing of necessary investments within in the power sector information function based on informing the electricity consumers about the possibilities of substituting this energy and changes in supply costs over time; with reliable provision of this information, the tariffs will appropriately stimulate the behaviour of consumers (in terms of shaping the energy input), which in turn should affect the improvement of energy security; the information function is often referred to as stimulation function. The conducted research and analysis shows that tariffs can be an effective tool for shaping customer behaviour. Assuming even a relatively small price elasticity of demand for electric energy and power, obtained through an appropriate internal structure of the tariff, a significant impact on the course of electrical load can be obtained, thus lowering the power consumption during peak period. Current tariffs provide poor motivation for consumers to rationally shape the load curve, reduce peak power consumptions, and do not encourage properly managing reactive power. This condition is affected by many factors, related both to development of energy tariff, as well as its transmission. Abstract Discussions on the issue of energy security in the country should take into account all the basic functional areas within the sector, including the acquisition of energy resources, electricity generation, its transmission, distribution and use. They are a part of the technological chain of supply of electricity to end users. Important factors affecting the security of the power sector operation include: economic, organizational and legal factors. They were subject to analysis carried out under Research Project No. PBZ-MEiN-1/2.2006, titled National Energy Security, implemented by the consortium of Gdańsk, Silesia, Warsaw and Wrocław Universities of Technology, in particular concerning task 7 titled The impact of economic, organizational and legal factors on energy security. This article is a brief synthesis of the results of the above analysis conducted by various research centers in the country.

2 58 Electricity tariffs Limited effectiveness of the tariff system is affected by [14]: low innovation level of used electricity tariffs defective internal structure of electricity tariffs, reflected by, for example, low range of fees for electricity, often with a tendency to minimize the differences at the levels of fees frequent changes in the levels of fees for electricity, in particular, successive increases and reductions of fees, which are usually not a result of an intention to develop adequate electricity consumption the fact that electricity consumers are not kept informed by suppliers on the available tariff options and benefits resulting from adjusting the demand for electricity to tariff signals. The analysis also covered reactive energy settlement [1, 15]. It is emphasized that the use of progressive fees for reactive power consumption is quite an effective tool for stimulating the economy with reactive power. Supplementing this method of settlement uses the approach that takes into account the turbulent energy consumption (already being tested in our country) and the consumption accompanied by distorted waveforms can result in a stronger influence on consumers, in order to eliminate the negative effects of power system operation. Transmission tariffs Apart from covering the justified costs of activity of a network company, the task of a transmission tariff is to provide an effective stimulation of the power network users, adequate to the specific nature and conditions of its operation, which include the levels of network losses, transmission limitations and security of the system. The transmission tariffs used in Poland are far from perfect. The structure of transmission tariffs should be changed so that they give reliable information on the costs of supplying electricity. The following changes are proposed [13, 16]: separation of the transmission fee part that is directly related to the connection of a user (consumer and producer) to the power network participation of producers in the transmission fee it is suggested to depart from the group tariff and use a nodal tariff (and possibly a new option, i.e. a layer tariff) instead, which allows a proper representation of the network operation status it is advised to transfer the costs of the quality fee to the balancing market area, i.e. the location where they actually arise it is recommended to develop the concept of Smart metering The issue of network limitations The number of limitations in the national transmission network is significant, resulting from a poorly developed transmit network. One way that can be used to eliminate the limitations in a national transmission network is the use of settlement for the supply of electricity [17]. Solutions to eliminate the limitations include the following: use of transmission tariffs that encourage appropriate behaviour of the network users use of power distribution methods (e.g. load flow tracing method and incremental method) when calculating the transmission tariff it is suggested to apply a coordinated redistribution method, which allows the maximum use of available resources (production sources, market participants) in order to minimize the costs of eliminating transmission limitations in inter-system connections avoid long-term reservation of capacity, often leading to the elimination of other market participants Market solutions Market solutions were evaluated from the perspective of ensuring economic efficiency and requirements for energy security [5]. The analysis covered the so-called market dimension of energy security, understood as the entire set of legal, technical and economic activities, which should create the conditions for short-, medium and long-term security. An extremely important aspect of these conditions is to ensure competitiveness, which means creating equal opportunities for all energy market participants. This involves ensuring the transparency of prices and costs, and adequate legal and economic systems. It is very important to monitor the market situ-

3 The Influence of Economic, Organizational and Legal Factors on Energy Security in The Country 59 ation, assessing the energy market operation. Studies [11, 12] pointed out the shortcomings found in current market solutions, indicated the reasons for lack of economic efficiency and inability to obtain efficient conditions for energy security without making extensive changes in the current market and regulatory mechanisms. From the point of view of energy security, a particularly important link is the balancing market. It was found that a comprehensive solution for a theoretically complete electricity market model, which would incorporate all the essential requirements, (economic efficiency, security, environmental issues, system limitations, real-time requirements, etc. ) has not yet been developed in the world. However, it was stressed that in the coming years it will be possible to develop such comprehensive solutions for an effective balancing mechanism, which will take into account the security requirements and diversified nature of the electricity market. It is recommended to work on an overall project for an electricity efficiency and diversified electricity market model. In particular, a prospective concept for the mechanism of Balancing Market should be developed. Establishing an efficient energy market requires clear provisions of the energy law, which would allow the evolutionary introduction of efficient market mechanisms, and also improve the security conditions. It is advised to continue research in the fields of: changing the model and architecture of the electricity market transition from energy market model to energy market model with production/transmission capacity, which would effectively stimulate investments in the sector impact of information and communications technology integrating the existing solutions with the latest trends. 2. IMPACT OF ORGANIZATIONAL RESOURCES ON SECURITY Power sector organization A power system is a set of closely related technical facilities, organizational systems and human teams, operating in developing market mechanisms. In order to ensure the safe operation of this system, cooperation between individual entities is essential, which is largely the result of the organizational factor. The influence of various organizational resources on energy security was analysed, including [7]: impact of the current state of organizational resources division of powers and responsibilities of various entities impact of current solutions of the electricity market organization relationships between entities operating in the energy market impact of energy supply contracts and associated services impact of training that simulate various types of failures. The analysis provides conclusions on the organizational status of individual energy market participants, the division of duties and competences as well as actions that can strengthen the energy security. Transformations in the power sector The organization of the electricity sector has been changing for many years. The aim of the reforms is to improve the efficiency of the domestic energy sector. However, as emphasized by the authors [6], the successive stages of transformation have not had a good influence on improving the efficiency and, indirectly, on the energy security in our country. The process of consolidation of the electricity sector did not include the development of mechanisms for limiting the risks that arise from establishing capital groups. The situation was influenced by the lack of appropriate provisions to support energy companies in carrying out investments in power infrastructure, and provisions giving the possibility for effective regulation of energy markets by the President of Energy Regulatory Office. The Minister of Economy is expected to come to an agreement with relevant administrative authorities and the authorities of entities governing the electricity infrastructure in terms of developing the rules for response in situations of a threat to power system security. This should also concern the principles of monitoring and coordination of actions in crisis situations. It is also important to ensure the actual independence of system operators who work within the structures of these groups.

4 60 Study [10] outlines three key directions of such changes: initiation of regulation transfer from the end (consumer) to the beginning (investor), including a quick strengthening of locational signals, e.g. in the form of marginal costs; it is a way of establishing a segment of independent investors, who are open to competition introduction of reference costs, taking into account the external environmental costs (in the production of electricity and heat), as well as potential stranded network costs and excessive employment; it is a way to at least partially block the cross-subsidies between energy/power technologies in consolidated groups and to avoid new stranded costs modernizing regulation in the area of work of distribution operators (in the area of intensive development of renewable energy and creating new system services) and separating distribution operators from consolidated energy groups; it is a way to create a segment of a distributed and innovative renewable energy sector and to join the EU energy strategy. Training of personnel Introduction of new technologies in the energy sector, including those using nuclear energy, requires the training of personnel, both at higher and medium level [10]. There is a need to conduct training on simulators, which affect: the ability to make optimal decisions regarding personal responsibility for energy security the ability to act actively and quickly in situations of disturbances in the power system operation. 3. IMPACT OF LEGISLATIVE RESOURCES ON SECURITY The analysis conducted as part of the research project indicated that without numerous and significant changes at various levels of the existing regulatory laws, it is impossible to carry out a full and effective implementation of measures to ensure energy security by the government and local authorities as well as energy companies engaged in licensed business activity. These changes relate to three areas of regulations [2, 9]. The first relates to the proposal for legislative changes in the higher order acts, especially in the Energy Law and its executive acts. The second area includes proposals for new procedures and regulations for operators of transmission and distribution systems. Proposed changes relate to: Instructions for Operation and Maintenance of Transmission Network (IRiESP) for the transmission system operator and Instructions for Operation and Maintenance of the Distribution Network (IRiESD) for the distribution system operators, as well as the regulations and procedures of system operators, relating to operation and maintenance of electrical equipment. The third area includes proposals for cooperation between TSO, DSO and the owners of distributed sources. In this area, the suggested solutions relate to issues such as: requirements for automation and mechanical systems, security for active distributed generation sources; cooperation of security systems for distributed generation sources and power networks; behaviour of distributed generation facilities in various conditions, and monitoring of distributed generation facilities. Ensuring energy security in the country requires cooperation and division of responsibilities between public authorities, energy companies and system users in terms of fuel and energy supply. Increased coherence and effectiveness of legal solutions in the area of security requires solutions based on development of adequate responsibilities of ministries. It should include the responsibilities of many ministries. It is necessary to create coherent and high-quality legal regulations regarding energy security based on two pillars: multi-scale electrical power and TSO, and distributed energy and DSO. Many proposals for changes to the responsibilities of various entities involved in emergency state and restoration of EPS [3, 4]. Most of the changes proposed in the Energy Law were included in the last amendment to the Act of 11 March The division of responsibilities was introduced together with the imposed responsibility for ensuring security of electricity supply to all major users of power system and public authorities. OSP was identified as the most important entity in the area of security of electricity supply. In addition, the amendment allows the system operators to take effective and efficient actions in the event of power shortage in the system. Although these changes in the Energy Law have significantly improved the legal solutions in the area of energy security, they have not introduced all the necessary changes.

5 The Influence of Economic, Organizational and Legal Factors on Energy Security in The Country 61 It is worth mentioning the presence of various risks associated with energy and climate policy of the European Union, and so [8]: implementation of the energy and climate package in Poland according to the EC proposal of 23 January 2008 will result in many negative effects on the energy system, national economy and living conditions in households effects of reducing CO 2 emissions as a result of implementation of the new EU policy are very costly, to an degree significantly higher than emission allowance prices after SUMMARY The authors of the studies prepared under the research project PBZ-MEiN-1/2.2006, titled National Energy Security pointed out various threats to the security of electricity supply, as well as recommendations for their elimination. Some of these recommendations, e.g. regarding the proposal for effective development of tariffs, may be implemented immediately or after an amendment of relevant legislative acts. Another group consists of recommendations for organizational activities that regulate the relations between various entities in the energy market, procedures in case of system failures risks, associated with restoration after such failures, the concept of changes in market solutions, which require changes in legislative provisions in various acts laws or lower order acts. Another group of measures concerns the elimination of risks arising from legislative acts of the European Union they require the involvement of the highest ranking politicians, representatives of government administration and Members of the European Parliament. Conclusions and recommendations formulated by the authors of the studies are sometimes of a general character, but mostly include very detailed indications. They can certainly be considered in order to take actions to improve the security of electricity supply in the country; the threats outlined in the studies are quite numerous. The situation in the environment of the Polish power sector is undergoing permanent change, and this applies to both the macroenvironment and microenvironment. These changes often result in increased risk to the energy security in the country, and therefore, the studies conducted under the research project should not be treated as a completed process. They should be conducted in a continuous manner, and the conclusions and recommendations included in them should be used in practice.

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