Download - Electricity Economics
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The electricity industry
Silvester van KotenPAHX
CERGE-EIFlorence School of Regulation
International business
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Transmission
Principles of Transmission, applied to the EU transmission network
1. Line limits2. Principles of dispatch3. Role of frequency in ac lines and stability
requirements 4. Transmission shortage, the internal market
and the 2050 carbon targets
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Power plants
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Distributors
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Transmission
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Power Plants
Transmission
Industrial consumers
Distributors
Residential consumers: Households
Other countries
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1. Power plants
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Hydro-plant
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Large coal plants
Baseload
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Nuclear plants
Baseload
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Oil burning plants
Peaker
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Wind turbines
Solar panels
Renewable energies
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Renewable energies
Concentrated solar power
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Gas burning plants
Peaker
http://iea-etsap.org/web/Highlights%20PDF/E02-gas_fired_power-GS-AD-gct%201.pdf
OCGT
CCGT
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Multitude of generation types• Trade-off:
– Economics of scale• High fixed cost• Low variable costs
– Flexibility• Low fixed costs• High variable costs
Baseload power plants
Peaker power plants
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Fixed cost per MWh
Variable cost per MWh
Baseload 40 0
Peaker 10 50
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0
60
40
Capacity factor
Baseload
Peaker
100%60%
Fixed cost per MWh
Variable cost per MWh
Baseload 40 0
Peaker 10 50
10
(=8760 hours/year)
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Use baseload when capacity factor > 60%
Use peakers when capacity factor < 60%
0
60
40
Capacity factor
Baseload
Peaker
100%60%
10
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BASELOAD
PEAKER
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0 1% =87 hours
Very expensive to built a plant for only 87 hours!Cost?
$1050/MWH (=100*10+50)
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Price spike
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Can price-spikes be avoided?
- Cap the price, eg at $1000/MWH
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0 1% =87 hours
Cost is $1050/MWH
>
price cap
?
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BLACKOUT
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0 1% =87 hours
Cost is $1050/MWH
>
price cap
?
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Can price-spikes be avoided?
- Cap the price, eg at $1000/MWH- Capacity market
- Pay power plants for being prepared to generate, even if they are not called upon
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Income of a power plant:- Price of electricity- Capacity payments (reserve)
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Setting of the wholesale electricity Price
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D S=MC
$/MWHUniform price auction
Baseload plants (MC=0)
Peaker plants
80
PROFITS!
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D S
$/MWHUniform price auction
Baseload plants (MC=0)
Peaker plants
80
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D S
$/MWHUniform price auction
Baseload plants (MC=0)
Peaker plants
80
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D S
$/MWHUniform price auction
Baseload plants (MC=0)
Peaker plants
8060
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Renewables
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Wind turbines
Solar panels
Renewable energies
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Greenhouse gasses heat up the earth
Abate CO2
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2020 Targets: 20% decarbonization
2050 Targets: 80% decarbonization
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Wind turbines
Solar panels
Renewable energies
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Retire 1 coal or CCGT plant
=(3000-5000 MW wind or solar)
Install over 1000 wind turbines
=(500 MW conventional)
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• Wind and solar needs conventional backup• Firm capacity 10%-15%
http://ejournal.windeng.net/3/01/GGiebel-CapCredLit_WindEngEJournal_2005_right_links.pdf
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http://www.pnl.gov/main/publications/external/technical_reports/PNNL-19225.pdf
Wind generation in Germany
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Feed-in tariffs
0.50 €/kWh 0.20€/kWh
Coal or gas plant costs
0.04€/kWh
2004 2012
Case of Germany
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D S=MC
€/kWH Uniform price auction
0.10
0
-0.10
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D S=MC
€/kWH Uniform price auction
0.10
0
-0.10
Negative electricity wholesale price in Germany!
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German electricity wholesale market
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Czech Republic
Germany Spain
Electricity prices 2001-2012
http://epp.eurostat.ec.europa.eu/portal/page/portal/energy/data/main_tables
€24 billion deficit
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EU Electricity industry Association
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Need for long-distance transmission
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Hydro-plant and pumped storage
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Hydro-plant and pumped storage
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Need for long-distance transmissionHydro potential
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Need for long-distance transmission
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2. Transmission lines
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Power Plants
Transmission
Industrial consumers
Distributors
Residential consumers: Households
Other countries
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September 28th, 2003
Huge blackout cripples Italy!
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Rome’s “white night”
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Rome’s “white night”110 trains stopped
Thousands of people stuck
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Mettlen-Lavorgo
Sils-Soazza
03:01
“Cross-border transmission lines”
“Interconnectors”
Tree flashover!
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Mettlen-Lavorgo
Sils-Soazza
03:01
Tree flashover!
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Mettlen-Lavorgo
Sils-Soazza
03:0103:01-03.16
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03:11
The Swiss TSO operator asks the Italian TSO for countermeasures
TSO= Transmission System Operator
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Mettlen-Lavorgo
Sils-Soazza
03:21
Italy reduces import by -300 MW
03:25
Tree flashover!
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Mettlen-Lavorgo
Sils-Soazza
03:25
Tree flashover!
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03:26
All interconnectors are automatically disconnected
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1. Transmission lines limits
2. Dispatch
3. Frequency and synchronicity
4. Transmission shortage in the EU
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Mettlen-Lavorgo
Sils-Soazza
03:01
Tree flashover!
Transmission lines limits
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flashoverTransmission lines limits
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High voltage
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Transmission lines limits
Sagging of the line
High load
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1. Transmission lines limits
2. Dispatch
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Mettlen-Lavorgo
Sils-Soazza
03:01
Dispatch
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?
A B
Injection: 100MW Injection:
20MW
Withdrawal: 50MW
Withdrawal: 70MW
Net Injection: 50MW
Net Withdrawal:
50MW
Dispatch
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Physical flow: 50MW
A B
Net Injection: 50MW
Net Withdrawal:
50MW
Dispatch
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Net Withdrawal:
50MW
Physical flow: 50MW
A B
Net Injection: 50MW ∆ -10MW
40MW
∆-10MW
40MW
∆ -10MW
40MW
Dispatch
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Physical flow: 40MW
A B
Net Injection: 40MW
Net Withdrawal:
40MW
Electricity cannot just be “send” somewhere
Any flow is the RESULT of the injection and withdrawals
Dispatch
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03:11
The Swiss TSO operator asks the Italian TSO for countermeasures
Dispatch is done by national TSOs
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Mettlen-Lavorgo
Sils-Soazza
03:21
Italy reduces import by -300 MW
03:25
Dispatch
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1. Transmission lines limits
2. Dispatch
3. Frequency and synchronicity
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Frequency and Synchronicity
Direct Current (DC)
Alternating Current (AC)
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Frequency and Synchronicity
AlternatingCurrent (AC)
50 Hertz
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Does a lamp in your house receive zero energy 100 times a second and is thus blinking?
Raise your hand if you think that this is indeed the case.
Frequency and Synchronicity
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50 Herz is the frequency in Europe
Frequency and Synchronicity
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A shortage of generation makes the frequency fall
Slight shortage
Frequency and Synchronicity
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A surplus of generation makes the frequency rise
Slight surplus
Frequency and Synchronicity
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http://www.dynamicdemand.co.uk/grid.htm
Frequency and Synchronicity
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http://www.dynamicdemand.co.uk/grid.htm
Frequency and Synchronicity
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Russian frequency
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All generators are synchronized
UCTE = Continental
Synchronous Area
![Page 108: Electricity Economics](https://reader035.vdocuments.mx/reader035/viewer/2022070604/542947968d7f72714e8b7296/html5/thumbnails/108.jpg)
UCTE = Continental
Synchronous Area
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•Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Mongolia, Ukraine
•Armenia•Latvia, Lithuania, Estonia
•Kazakhstan, Kyrgyzstan?•Uzbekistan, Tajikistan
http://so-ups.ru/index.php?id=ees
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03:26
All interconnectors are automatically disconnected
Frequency and Synchronicity
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Mini circuit breakersFrequency and Synchronicity
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High voltage circuit breakersFrequency and Synchronicity
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1. Transmission lines limits
2. Dispatch
3. Frequency and synchronicity
4. Transmission shortage in the EU
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03:26
Interconnectors very high loaded at night!
The future of the EU transmission network
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Internal EU market induces increase in cross-border trading
The future of the EU transmission network
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Massive deployment of wind and solar energy
The future of the EU transmission network
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European Climate
Foundation
Increase of almost
400%
The future of the EU transmission network
2050 Increase from 34 GW to 127
GW
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Power Plants
Transmission
Industrial consumers
Distributors
Residential consumers: Households
Other countries
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Market organization and regulation
Power Plants
Transmission
Industrial consumers
Distributors
Residential consumers: Households
Other countries
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3. Market organization and regulation
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Transmission: large returns to scale
Natural monopoly
State monopoly
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Power Plants
Distributors
Transmission
Vertically integrated electricity
Utility
State monopoly
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Power Plants
Distributors
Transmission
Vertically integrated electricity
Utility
State monopoly
![Page 127: Electricity Economics](https://reader035.vdocuments.mx/reader035/viewer/2022070604/542947968d7f72714e8b7296/html5/thumbnails/127.jpg)
Power Plants
Distributors
Transmission
Remains a monopoly
Needs regulation:• Cost+• Tariff• Benchmarking
CompetitiveOpen to the
market!
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2003 and 2009 Electricity laws(2003/54/EC and 2009/72/EC)
• Separation from networks and generator activities
• Non-discriminatory access of generators to networks
• “EU regulator”: ACER
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Most EU consumers no longer protected by electricity price
regulation!
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How is the electricity price then determined?
Competition
But… Competition must work
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Concentration Generators
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Well-developed financial electricity market
- Exchanges and OTC - risk management
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• US hedge fund, Amaranth Advisors LLC held1. gas derivates at ICE and OTC markets2. Gas futures on NYMEX
• Then sold the gas futures on NYMEX to affect the settlement price at ICE and OTC markets
• Profit: $60m-$170m
Financial market manipulation
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• Regulation on Energy Market Integrity and Transparency
• Forbids:– Market abuse– Insider trading
• Monitoring task for National Regulaturs and “EU regulator” ACER
REMIT
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2003 and 2009 Electricity laws(2003/54/EC and 2009/72/EC)
• Separation from networks and generator activities
• Non-discriminatory access of generators to networks
• “EU regulator”: ACER• 2020 goals: 20% renewable energy in 2020
– Feed-in tariffs– Emission Trading Scheme
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Greenhouse gasses heat up the earth
Abate CO2
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A B C
EMISSION PERMIT MARKET
Competition for
permits
Decisions on abatement
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• United Power System (UPS): 4-th largest electricity market in the World.
• 700 generating plants Installed generating capacity 220 GW
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Electricity generation Russia, 2006
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Reform of the system 1992-2015• 1992 United Energy Systems of Russia (RAO-
UES) replaces soviet ministerial units• 1998 Anatoly Chubais president of RAO-UES.• 2003–2011
– restructuring and private ownership – Partial price deregulation
• 2011 full competition in generation• 2015 price deregulation for retail conconsumers
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RAO UES split up in 2008• OGK 1: http://www.ogk1.com/en/• OGK 2:
http://www.ogk2.ru/eng/index.wbp• OGK 3: http://www.ogk3.ru/en-main/• OGK 4: http://eng.ogk-4.ru/• OGK 5: http://www.ogk-5.com/en/• OGK 6: http://www.ogk6.ru/en/• GidroOGK:
http://www.eng.rushydro.ru/• TGK 1: http://www.tgc1.ru/en/home/• TGK 2:
http://www.tgc-2.ru:8101/en/index.shtml
• TGK 3: http://www.mosenergo.ru/Eng/Default.aspx
• TGK 4: http://www.quadra.ru/• TGK 5: http://www.tgc5.ru/rus.html• TGK 6: http://www.tgc6.ru/index.php?
id=news&L=1
• TGK 7: http://en.votgk.com/• TGK 8: http://www.tgk-8.ru/• TGK 9: http://www.tgk9.ru• TGK 10: http://www.fortum.ru/company/• TGK 11: http://eng.tgk11.com/about/• TGK 12: http://www.kuzbassenergo.ru/eng/• TGK 13: http://eng.tgk13.ru/• TGK 14: http://www.tgk-14.com/• IDGC North-West: http://eng.mrsksevzap.ru/• IDGC Ural:
http://www.mrsk-ural.ru/eng/company/• IDGC South: http://www.mrsk-yuga.ru/• IDGC Center: http://www.mrsk-1.ru/• IDGC Center and Volga Region:
http://www.mrsk-cp.ru/• Manager of the unified transport network:
http://www.fsk-ees.ru/• Rosenergoatom: http://www.rosenergoatom.ru/
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Largest 3 foreign investors:• E.ON (Germany)• Enel (Italy)• Fortum (Finland)
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Need for new investment
• Most power stations built in 1960-1970 – Low efficiency ratio of 33-35% instead of 40-52%
• Ministry of Energy: modernization program for generators of 10 trillion rubles up till 2030– Increase in demand for equipment
• Russian technology behind western standards– heavy duty gas turbines– ultra supercritical steam turbines– gasification – process control systems
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Electricity consumption Russia, 2007
Gigantic losses
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Growth of electricity demand
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Competition problems• No working retail markets yet• Fair access to gas for fair and equal prices
– Gas fired generators 40% of production– Newcomers often CCGT– Gazprom (75% share) seems to favor its own
subsidiary generators• Financial energy market not developed
– Risk management
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Regulation
• regulatory authority: the Market Council• But not independent, government:
– control over most pricing issues – Veto over Market Council decisions
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Power Plants
Transmission
Industrial consumers
Distributors
Residential consumers: Households
Other countries
![Page 151: Electricity Economics](https://reader035.vdocuments.mx/reader035/viewer/2022070604/542947968d7f72714e8b7296/html5/thumbnails/151.jpg)