Session 7. Spring 2010 Generation & wholesale markets Basic economic functions Prof. Ignacio J. Pérez-Arriaga Engineering, Economics & Regulation of the Electric Power Sector ESD.934, 6.974 2 2 Study material! PB Power, “The cost of generating electricity”, 2004 (just to learn the cost components)! Javier García, “Decision support models in electric power systems”, IIT working paper, Comillas University, 2007 (no need to go into details on the specific formulations)!"!“Material for this transparency has been borrowed from Bernard Tenenbaum, from FERC in the USA.3 3 Readings! M. Ventosa, “Electricity market modeling trends”, 2005 (a good taxonomy of power system models, including oligopolistic ones) ! F. Galiana & A. Conejo, “Economics of electricity generation”, Chapter 5 of the book “Electric energy systems”, edited by A. Gomez, 2009 (an alternative reading on power system optimization models, including network effects)!- See also Annex B of the same book, by A. Conejo, on a compact review of mathematical optimization techniques"“Material for this transparency has been borrowed from Bernard Tenenbaum, from FERC in the USA. 4 Generation costs5 Generation costs! The different concepts of cost & the concept of levelized cost"- Source: Royal Academy of Engineering (UK), “The costs of generating electricity”, 2004!- Capital expenditure (depreciation & interest on equity & debt)"- Fuel"- Carbon emissions"- General overhead"- Standby generation (to back-up lack of output from plant) ~ very questionable concept" To be assumed: economic life, interest rates, depreciation method, fuel costs, price of CO2, fraction of overhead costs, unavailability or intermittency"3.503.002.502.001.501.000.500.00(Pence per kWh)Lifetime cost of generationCurrent Cost of Generating Electricity from Coal-Fired PF PlantStandby generationGeneral overheadOperation & maintenanceCarbon emissionsFuelCapital expenditureKeyImage by MIT OpenCourseWare.(Pence per kWh)Current Cost of Generating Electricity from Gas - Fired OCGT Plant3.504.003.002.502.001.501.000.500.00Lifetime cost of generationKeyStandby generationGeneral overheadOperation & maintenanceCarbon emissionsFuelCapital expenditureImage by MIT OpenCourseWare.(Pence per kWh)Current Cost of Generating Electricity from Gas-Fired CCGT PlantLifetime cost of generation3.002.502.001.501.000.500.00Standby generationGeneral overheadOperation & maintenanceCarbon emissionsFuelCapital expenditureKeyImage by MIT OpenCourseWare.2.502.001.501.000.500.00Current Cost of Generating Electricity from Nuclear fission PlantLifetime cost of generation(Pence per kWh)KeyStandby generationGeneral overheadOperation & maintenanceCarbon emissionsFuelCapital expenditureImage by MIT OpenCourseWare.Lifetime cost of generation(Pence per kWh)Current Cost of Generating Electricity from an Onshore Wind Farm6.005.004.003.002.001.000.00Standby generationGeneral overheadOperation & maintenanceCarbon emissionsFuelCapital expenditureKeyImage by MIT OpenCourseWare.20 But reality is even more complex…! Minimum load requirements"- besides, obviously, maximum load requirements" Start-up costs (should we shut-down plants when demand is low, therefore incurring later in start-up costs, or should we rather keep them at minimum technical level, even if they are not the lowest cost available plant?)"- plus start-up & shut-down minimum times"- & ramps" & non-linearity of production cost curves" 16 Generation costs! Large uncertainty in the estimation of future costs"- Source: IEA (OCDE) Projected costs of generating electricity, 2005!- Source: EU Commission, “An energy policy for Europe”, January 2007!- Source: IEH CERA Power Capital Costs Index, http://energy.ihs.com"AncillaryServicesINPUT OUTPUT boiler GeneratorTurbine InputOutputPPmaxPminH & FINPUT/OUTPUT CURVES OF A THERMAL UNITTYPICAL CURVES FOR A THERMAL UNIT •CONSUMPTION: A.P2 + B.P + C•AVERAGE CONSUMPTION: A.P + B + C /P •MARGINAL CONSUMPTION: 2 .A.P + BOutputPmaxPmin P Average consumption (or cost)H/PP Marginal consumption (or cost)OutputPmaxPmindH/dPINPUT/OUTPUT CURVES OF A THERMAL UNIT23 Models & some basic power system functions 24 Representative functions & models! Analysis of electromagnetic transients" Protection coordination" Short circuit analysis" Stability analysis" Load flow ***! State estimation" Security / contingency analysis" Load forecasting" Economic dispatch ***! Optimal load flow ***! Unit commitment ***! Hydrothermal coordination ***! Reliability / adequacy analysis" Risk assessment" Investment (generation / transmission) planning"25 Broad review of production models!Scope Regulated system “Cost-based” Liberalized market “Profit-based” Short Term Mid Term Long Term • Gas & coal supply management • Mid-term hydrothermal coordination: -Water value • Capacity investment • Maintenance • Energy management - nuclear cycle - hyper-annual reservoirs • Unit-Commitment • Short-term hydrothermal coordination • Pumping units • Economic dispatch • Strategic bidding: - Energy - Ancillary Services • Objectives: - Market share - Price • Budget estimation • Bidding in derivatives markets • Capacity investment (new & existing plants) • Risk management • Long-term contracts - Fuel purchases - Elect. derivatives Borrowed from Javier García González presentation (Master Power Sector, IIT, Comillas University) ! 26 What is to be optimized?! The traditional objective of electric system planning & operation functions is to supply electricity demand at minimum cost with acceptable levels of reliability and environmental impact"- The concept of cost does not need much explanation"- Reliability means different things at different time scales & can be represented in diverse formats "- Environmental impacts are multiple & difficult to translate in terms of costs"The following slides on reliability have been adapted from a presentation by Prof. Andres Ramos (Master Power Sector, IIT, Comillas University) !27 Reliability aspects & criteria Reliability encompasses  Adequacy of installed capacity  Firmness of available capacity for operation  Security of available capacity to respond