electricity economics

The electricity industry

Silvester van KotenPAHX

CERGE-EIFlorence School of Regulation

International business

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

Power plants

Distributors

Transmission

Power Plants

Transmission

Industrial consumers

Distributors

Residential consumers: Households

Other countries

1. Power plants

Hydro-plant

Large coal plants

Baseload

Nuclear plants

Baseload

Oil burning plants

Peaker

Wind turbines

Solar panels

Renewable energies

Renewable energies

Concentrated solar power

Gas burning plants

Peaker

http://iea-etsap.org/web/Highlights%20PDF/E02-gas_fired_power-GS-AD-gct%201.pdf

OCGT

CCGT

http://iea-etsap.org/web/Highlights%20PDF/E02-gas_fired_power-GS-AD-gct%201.pdf

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

Fixed cost per MWh

Variable cost per MWh

Baseload 40 0

Peaker 10 50

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)

Use baseload when capacity factor > 60%

Use peakers when capacity factor < 60%

0

60

40

Capacity factor

Baseload

Peaker

100%60%

10

BASELOAD

PEAKER

0 1% =87 hours

Very expensive to built a plant for only 87 hours!Cost?

$1050/MWH (=100*10+50)

Price spike

Can price-spikes be avoided?

- Cap the price, eg at $1000/MWH

0 1% =87 hours

Cost is $1050/MWH

>

price cap

?

BLACKOUT

0 1% =87 hours

Cost is $1050/MWH

>

price cap

?

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

Income of a power plant:- Price of electricity- Capacity payments (reserve)

Setting of the wholesale electricity Price

D S=MC

$/MWHUniform price auction

Baseload plants (MC=0)

Peaker plants

80

PROFITS!

D S



Peaker plants

80

D S



Peaker plants

8060

Renewables

Wind turbines

Solar panels

Renewable energies

Greenhouse gasses heat up the earth

Abate CO2

2020 Targets: 20% decarbonization

2050 Targets: 80% decarbonization

Wind turbines

Solar panels

Renewable energies

Retire 1 coal or CCGT plant

=(3000-5000 MW wind or solar)

Install over 1000 wind turbines

=(500 MW conventional)

• Wind and solar needs conventional backup• Firm capacity 10%-15%

http://ejournal.windeng.net/3/01/GGiebel-CapCredLit_WindEngEJournal_2005_right_links.pdf

http://www.pnl.gov/main/publications/external/technical_reports/PNNL-19225.pdf

Wind generation in Germany

http://www.pnl.gov/main/publications/external/technical_reports/PNNL-19225.pdf

Feed-in tariffs

0.50 €/kWh 0.20€/kWh

Coal or gas plant costs

0.04€/kWh

2004 2012

Case of Germany

D S=MC

€/kWH Uniform price auction

0.10

0

-0.10

D S=MC

€/kWH Uniform price auction

0.10

0

-0.10

Negative electricity wholesale price in Germany!

German electricity wholesale market

Czech Republic

Germany Spain

Electricity prices 2001-2012

http://epp.eurostat.ec.europa.eu/portal/page/portal/energy/data/main_tables

€24 billion deficit

EU Electricity industry Association

Need for long-distance transmission

Hydro-plant and pumped storage

Need for long-distance transmissionHydro potential

Need for long-distance transmission

2. Transmission lines

Power Plants

Transmission


Distributors


Other countries

September 28th, 2003

Huge blackout cripples Italy!

Rome’s “white night”

Rome’s “white night”110 trains stopped

Thousands of people stuck

Mettlen-Lavorgo

Sils-Soazza

03:01

“Cross-border transmission lines”

“Interconnectors”

Tree flashover!

Mettlen-Lavorgo

Sils-Soazza

03:01

Tree flashover!

Mettlen-Lavorgo

Sils-Soazza

03:0103:01-03.16

03:11

The Swiss TSO operator asks the Italian TSO for countermeasures

TSO= Transmission System Operator

Mettlen-Lavorgo

Sils-Soazza

03:21

Italy reduces import by -300 MW

03:25

Tree flashover!

Mettlen-Lavorgo

Sils-Soazza

03:25

Tree flashover!

03:26

All interconnectors are automatically disconnected

1. Transmission lines limits

2. Dispatch

3. Frequency and synchronicity

4. Transmission shortage in the EU

Mettlen-Lavorgo

Sils-Soazza

03:01

Tree flashover!

Transmission lines limits

flashoverTransmission lines limits

High voltage

Transmission lines limits

Sagging of the line

High load


2. Dispatch

Mettlen-Lavorgo

Sils-Soazza

03:01

Dispatch

?

A B

Injection: 100MW Injection:

20MW

Withdrawal: 50MW

Withdrawal: 70MW

Net Injection: 50MW

Net Withdrawal:

50MW

Dispatch

Physical flow: 50MW

A B

Net Injection: 50MW

Net Withdrawal:

50MW

Dispatch

Net Withdrawal:

50MW

Physical flow: 50MW

A B

Net Injection: 50MW ∆ -10MW

40MW

∆-10MW

40MW

∆ -10MW

40MW

Dispatch

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

03:11

The Swiss TSO operator asks the Italian TSO for countermeasures

Dispatch is done by national TSOs

Mettlen-Lavorgo

Sils-Soazza

03:21

Italy reduces import by -300 MW

03:25

Dispatch


2. Dispatch


Frequency and Synchronicity

Direct Current (DC)

Alternating Current (AC)


AlternatingCurrent (AC)

50 Hertz

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.


50 Herz is the frequency in Europe


A shortage of generation makes the frequency fall

Slight shortage


A surplus of generation makes the frequency rise

Slight surplus


http://www.dynamicdemand.co.uk/grid.htm


http://www.dynamicdemand.co.uk/grid.htm

Russian frequency

All generators are synchronized

UCTE = Continental

Synchronous Area

UCTE = Continental

Synchronous Area

•Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Mongolia, Ukraine

•Armenia•Latvia, Lithuania, Estonia

•Kazakhstan, Kyrgyzstan?•Uzbekistan, Tajikistan

http://so-ups.ru/index.php?id=ees

03:26

All interconnectors are automatically disconnected


Mini circuit breakersFrequency and Synchronicity

High voltage circuit breakersFrequency and Synchronicity


2. Dispatch


4. Transmission shortage in the EU

03:26

Interconnectors very high loaded at night!

The future of the EU transmission network

Internal EU market induces increase in cross-border trading


Massive deployment of wind and solar energy


European Climate

Foundation

Increase of almost

400%


2050 Increase from 34 GW to 127

GW

Power Plants

Transmission


Distributors


Other countries

Market organization and regulation

Power Plants

Transmission


Distributors


Other countries

3. Market organization and regulation

Transmission: large returns to scale

Natural monopoly

State monopoly

Power Plants

Distributors

Transmission

Vertically integrated electricity

Utility

State monopoly

Power Plants

Distributors

Transmission

Remains a monopoly

Needs regulation:• Cost+• Tariff• Benchmarking

CompetitiveOpen to the

market!

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

Most EU consumers no longer protected by electricity price

regulation!

How is the electricity price then determined?

Competition

But… Competition must work

Concentration Generators

Well-developed financial electricity market

- Exchanges and OTC - risk management

• 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

• Regulation on Energy Market Integrity and Transparency

• Forbids:– Market abuse– Insider trading

• Monitoring task for National Regulaturs and “EU regulator” ACER

REMIT

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

Greenhouse gasses heat up the earth

Abate CO2

A B C

EMISSION PERMIT MARKET

Competition for

permits

Decisions on abatement

• United Power System (UPS): 4-th largest electricity market in the World.

• 700 generating plants Installed generating capacity 220 GW

Electricity generation Russia, 2006

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

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/

Largest 3 foreign investors:• E.ON (Germany)• Enel (Italy)• Fortum (Finland)

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

Electricity consumption Russia, 2007

Gigantic losses

Growth of electricity demand

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

Regulation

• regulatory authority: the Market Council• But not independent, government:

– control over most pricing issues – Veto over Market Council decisions

Power Plants

Transmission


Distributors


Other countries

electricity economics

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