Donna Peng

Research Associate

Donna Peng is an analyst at Aurora Energy Research. Before joining Aurora in July 2017, she worked with the Oxford Institute for Energy Studies as a research fellow, specialising in the analysis of extended gas-to-power value chains under different institutional and political contexts (UK, China, Nigeria, Tanzania, and Bangladesh).  Donna holds degrees in engineering, policy analysis, and economics from Delft University of Technology, Comillas Pontifical University, University of Waterloo, and McGill University.

Contact

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                    [post_content] => Traditional regulatory models of natural monopoly network utilities are designed to incentivise cost-efficiency, subject to the firm achieving a certain level of reliability. With the rise of decarbonisation as a key policy goal, facilitating innovation in electricity networks has become of vital importance. Innovation and cost-efficiency may overlap and exhibit the same risk profile. However, we show that when there is a difference in their risk profile, incentivising these two tasks using the same incentive scheme is ineffective. This means incentive regulations need to be enhanced with additional modules that take into account the level of risk to which companies are exposed to for their stage of innovation activity. We also demonstrate that the issue of risk can distort the outcome of a competitive scheme for allocating innovation funds when bidders are heterogeneous in their risk attitude and there is uncertainty about recovering initial investments needed to prepare the project proposal. Thus, competitive schemes need to be designed such that they factor in risk attitude heterogeneity among bidders.

Poudineh, R., Peng, D. & Mirnezami, S. R., 4 March 2020, Innovation in regulated electricity networks: Incentivising tasks with highly uncertain outcomes, Competition and Regulation in Network Industries,  Volume: 21 issue: 2, page(s): 166-192.
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                    [post_content] => Gifted with vast reserves of oil and natural gas, Nigeria is a country with a low level of electrification but a rapidly rising demand. This invites the question of whether domestic natural gas can be leveraged to facilitate full electrification in Nigeria. The authors contend that, while in principle natural gas is a solution to the problem of electrification, in practice there are constraints, in the gas industry specifically and in the general power sector, to the use of gas for electrification in Nigeria. The gas-industry-specific constraints are the lack of an independent downstream regulatory regime and poor geographical coverage of transportation pipelines. Even when such constraints are resolved, and gas is readily available for use in power generation, electrification is inhibited by the failure of power sector reform to encourage the participation of private capital in financing new generation capacity, an unstable transmission network, and a liquidity crisis in the power sector due to high energy loss, exacerbated by non-cost-reflective tariffs and irregular bill collection.

Peng, D. and Poudineh, R. (2018). ‘Is natural gas a viable option to promote electrification in Nigeria?’ Economics of Energy & Environmental Policy, 8(1), 1–18.
                    [post_title] => Is natural gas a viable option to promote electrification in Nigeria?
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                    [post_content] => This article looks at ways that the European Union’s electricity market could be redesigned for a decarbonized future.

Peng, D. and Poudineh, R. (2018). ‘What is the right solution?’, Petroleum Review, 72(851), 28–29.
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                    [post_content] => While the economics of low carbon generation technologies is fast improving due to a mix of policy and market driven incentives, innovation in electricity networks has been relatively sluggish. This slow adaptation of electricity networks is challenging as they are key to the energy transition. Further electrification of the economy requires significant investment and innovation in the grid segment of the electricity supply chain.  Traditional regulatory models of natural monopoly network utilities are designed to incentivise cost efficiency, with the assumption that network business is costly and the task of regulation is to encourage cost reduction subject to firm achieving a certain level of reliability. A feature of innovation activities is that they are riskier in comparison with the business-as-usual activities of network firms. This paper reviews the evolution of electricity grids from the technological and organisational perspectives and analyses the efficacy of existing incentive models in encouraging innovation.  We show that incentive mechanisms that do not take uncertainty into account in the outcome of innovation efforts divert the attention of network utilities from innovation to normal efficiency gains. We also demonstrate that the issue of risk can distort the outcome of a competitive scheme for innovation funds when bidders are heterogeneous in their risk tolerance. Finally, based on the results of our analysis about the role of risk in innovation activities and a review of innovation incentive mechanisms in the UK and Italy, we provide recommendations for addressing the problem of innovation under regulation.

Executive Summary
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                    [post_content] => In recent years, the debate on electricity market design in the EU has focused on the fitness-for-purpose of the existing dominant design, the appropriateness of energy policy that underpins the existing market design, and on the process through which energy policy is coordinated with market design. In this paper, we contribute to this debate on all three levels. First, we propose a ‘module-and-level’-based framework to illustrate our diagnosis of coordination issues present in the EU’s power markets. We apply this framework to make a systematic identification of existing misalignments between the components of current market design and physical RES integration/financial RES support schemes. Secondly, we argue that the role of energy policy is not just in managing existing trade-offs between competitiveness, sustainability, and reliability, but also in encouraging innovations that increase the compatibility of energy policy objectives in the future. Finally, we propose a seven-step condition-dependent evolution of power market design, where the government/regulatory authority plays the role of meta-coordinator, matching the adaptation of market-based coordination modules with a hybrid future where distributed energy resources coexist with centralised generation, while decentralised market participants trade with each other and with incumbents.

Executive Summary
                    [post_title] => Electricity market design for a decarbonised future: An integrated approach
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                    [post_content] => Investment in Tanzania’s electricity sector can be made through five different vehicles: the state-owned utility company TANESCO, independent power producers, emergency power producers, small power producers, and public–private partnerships. This article examines the role and performance of these vehicles, in light of the massive power infrastructure investment needs in Tanzania. It analyses the investment vehicles’ historical performance in attracting generation investment and their likely role in the coming years. It also discusses the implication of recent natural gas discoveries for investment in Tanzania’s power generation sector.

Peng, D. and Poudineh, R. (2017). ‘An appraisal of investment vehicles in the Tanzania’s electricity sector’, Utilities Policy, 48, 51–68.
                    [post_title] => An appraisal of investment vehicles in the Tanzania’s electricity sector
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                    [post_content] => In a recent paper we provide a comprehensive analysis of the gas to power supply chains in Nigeria and Bangladesh. This short article draws on the results of that study.

In response to the dual challenge of decarbonisation and advancing energy access, some developing countries that are endowed with domestic natural gas resources have embarked on the path to develop a gas-to-power supply chain. Nigeria and Bangladesh, two of the most populous countries in the world, have adopted such a strategy. This paper uses a multi-step approach to evaluate the performance of the gas-to-power supply chains in these countries within political, regulatory, and commercial dimensions. The goal is to offer insights for other developing countries which are pursuing or considering the same strategy. By analysing the causal dynamics that are in place in Bangladesh and Nigeria, it suggests measures that may improve gas-to-power supply chain performance. Finally, it discusses the extent to which the causal dynamics observed can be generalised to other countries.

Full paper.
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                    [post_content] => The increasing global use of natural gas for power generation has begun a period of interdependence between two important energy industries. Understanding of the extended gas-to-power supply chain is important for power and gas system operators, integrated utilities, regulators, and government bodies responsible for overall energy policy. This article seeks to align the study of the gas and power industries by providing a holistic framework for the thorough identification and discussion of power and gas sector structure, infrastructure, markets, and regulatory drivers. Additionally, it offers a simulation model as an example of applying the analytical framework to study gas and power interdependence in the United Kingdom.

Peng, D. and Poudineh, R. (2016). ‘A holistic framework for the study of interdependence between electricity and gas sectors’, Energy Strategy Reviews, 13–14, 32–52.
                    [post_title] => A holistic framework for the study of interdependence between electricity and gas sectors
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                    [post_content] => In order to fulfil its aspiration to become a middle-income country, Tanzania is working on improving infrastructure and service delivery in electricity provision, where $40 billion investment is needed in the sector to meet rising demand and widening electrification efforts from 2013 to 2035. This paper considers the institutional arrangements for investment in Tanzania’s power sector and surveys the track record (and possible bottlenecks) in funnelling investment to the sector, with special attention given to the gas sector, given the power sector’s planned reliance upon natural gas as a generation fuel. The paper finds that the financial health of TANESCO is central to all investment vehicles, since it is either directly responsible for investment, or indirectly, as the counter party to the variety of PPAs available with IPPs, EPPs, SPPs, or PPPs. During 2011–13, the financial position of TANESCO was negatively impacted by the increased of its electricity purchases, while the regulated tariff that it charges has not changed. The cost increase is partially attributable to non-favourable hydrology and partially attributable to the depreciation of Tanzanian shilling against the US dollar, in which PPAs are denominated.

Detailed study of the tariff setting methodology in place in Tanzania, as evidenced through its latest tariff review, and evaluation of the ratemaking principles used in the tariff approved in 2013 reveals that the core tension within Tanzania’s tariff setting methodology is the trade-off between efficiency, sufficiency, and stability principles. The ex-ante assessment of TANESCO’s revenue requirement, a typical incentive-based price cap regulation, is theoretically efficient but not robust: TANESCO’s costs of service are subject to important external uncertainties like hydrology, currency depreciation, and global fuel prices. In order to take revenue sufficiency into account, the regulator needs to periodically adjust tariffs based on ex post fuel costs and inflation rates. This diminishes the regulator’s ability to maintain tariff stability, which might impact certain classes of customers more than others (lifeline rate customers and domestic industries). The experiences of other nations, namely Bangladesh and Côte d’Ivoire, reveal a potential challenge with regard to power and gas co-development: if non-cost reflective gas tariffs are applied as a regulatory decision, then high gas demand that results from that cannot be indefinitely sustained, since investment in gas supply will not follow suite. The case study of Côte d’Ivoire also reveals a less obvious opportunity: periods of low electricity demand can be leveraged positively through electricity exports, which can positively influence investor interest.

Executive Summary
                    [post_title] => Sustainable electricity pricing for Tanzania
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                    [post_content] => The increasing global use of natural gas for power generation has resulted in a period of interdependence between two important energy industries. Understanding of the extended gas-to-power supply chain is important for industry agents, power and gas system operators or integrated utilities, regulators, and government bodies responsible for overall energy policy. This paper seeks to align the study of gas and power industries by providing a holistic framework for the thorough identification and discussion of power and gas sector structure, infrastructure, market, and regulatory drivers. It acts as a lens through which the combined gas and power supply chains of any given country can be observed and understood. The gas-to-power supply chain of the United Kingdom is profiled to illustrate how the framework proposed can be applied to integrate the various dimensions of power and gas industries.

Executive Summary
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            [post_content] => Traditional regulatory models of natural monopoly network utilities are designed to incentivise cost-efficiency, subject to the firm achieving a certain level of reliability. With the rise of decarbonisation as a key policy goal, facilitating innovation in electricity networks has become of vital importance. Innovation and cost-efficiency may overlap and exhibit the same risk profile. However, we show that when there is a difference in their risk profile, incentivising these two tasks using the same incentive scheme is ineffective. This means incentive regulations need to be enhanced with additional modules that take into account the level of risk to which companies are exposed to for their stage of innovation activity. We also demonstrate that the issue of risk can distort the outcome of a competitive scheme for allocating innovation funds when bidders are heterogeneous in their risk attitude and there is uncertainty about recovering initial investments needed to prepare the project proposal. Thus, competitive schemes need to be designed such that they factor in risk attitude heterogeneity among bidders.

Poudineh, R., Peng, D. & Mirnezami, S. R., 4 March 2020, Innovation in regulated electricity networks: Incentivising tasks with highly uncertain outcomes, Competition and Regulation in Network Industries,  Volume: 21 issue: 2, page(s): 166-192.
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Latest Publications by Donna Peng