Energy Economics. Lecture 6 Electricity Markets ECO Asst. Prof. Dr. Istemi Berk

Transcription

1 Energy Economics ECO-4420 Lecture 6 Electricity Markets Asst. Prof. Dr. Istemi Berk istemi.berk@deu.edu.tr 1

2 Electricity Markets An Introduction Electricity secondary energy source generated from different primary energy sources 2

3 Electricity Markets Electricity Generation by Fuel type TURKEY 3

4 Electricity Markets An Introduction Electricity secondary energy source generated from different primary energy sources difficult to store in economically viable manner hence needed to be consumed at the time it is produced. first publicly supplied in London in 1881 and in New York in 1882 as population increased electricity consumption/supply increased 4

5 Electricity Markets Global Electricity Consumption 5

6 Electricity Markets Electricity Consumption by Country & Sector 6

7 Electricity System (Grid) Generation to Consumption 7

8 Electricity System Main Actors Supply (Generation) Transmission & Distribution System (TSO) Consumption (Load) Consumers Transmission/Sub-transmission Customers high voltage Large Scale Industries / Railway Infrastructure Primary Customers medium voltage Small Scale Industries Secondary Customers low voltage Households 8

9 Electricity System Main Actors Supply (Generation) Transmission & Distribution System (TSO) Consumption (Load) Generators (Power Plants): to supply electricity 9

10 Electricity System Main Actors Supply (Generation) Transmission & Distribution System (TSO) Consumption (Load) Both consumers and suppliers are dependent on the infrastructure TSO s main duty is to secure the transmission Security: power system should be kept in a state in which it can continue operating indefinitely as long as the external conditions do not change To coordinate supply and demand 10

11 Electricity Demand Consumer to Grid A consumer switches on an appliance demand is directly felt in grid (interconnection network) and needs to be supplied instantaneously Grid = interconnection network = High voltage transmission line + distribution network Total Demand in the grid at any time = sum of all consumer demands Note: Watt (W): Electric Power Unit (rate of consumed electricity) 1kW (kilowatt)=1000w / 1MW (megawatt)=1000kw 1GW(gigawatt)=1000MW / 1TW (terawatt)=1000gw 11

12 Electricity Demand Consumer to Grid Total Demand in the grid at any time = sum of all consumer demands Demand = LOAD Consumers use different appliances (with different electricity requirements) not at the same time they don t impose demand at the same time BOARD 12

13 Peak Load Cyclical Behavior Peak Load varies within a day, over a week or year Load cycle (or load curve): Pattern for electricity demand for consumers over a time period 13

14 Peak Load and TSO Why is it Important? To know the consumption pattern: How much % of the time TSO needs to supply how much of electricity Load Duration Curve 14

15 How does TSO meet demand? Generation An electricity system needs at least 3 types of electricity producing units (generators/power plants) Those which run constantly over time (over whole year) To supply base load (low operating cost & high capital cost) Those which are required to have a capability to follow demand and vary output frequently during the operation Those which are suitable for running only during peak demand period (high operating cost & low capital cost) 15

16 Electricity Generation Power Plants 2 broad categories of power plants: 16

17 Electricity Generation Power Plants 2 broad categories of power plants: Conventional Thermal (coal, gas, oil, nuclear) 17

18 Electricity Generation Power Plants 2 broad categories of power plants: Conventional Thermal (coal, gas, oil, nuclear) Hydro 18

19 Electricity Generation Power Plants 2 broad categories of power plants: Conventional Thermal (coal, gas, oil, nuclear) Hydro Non-conventional Solar Wind Geothermal 19

20 Electricity Generation Power Plants 2 broad categories of power plants: Conventional Thermal (coal, gas, oil, nuclear) Hydro Non-conventional Solar Wind Geothermal Each power plant technology has some certain features 20

21 Electricity Generation Capacity, Capacity Utilization and Capacity Factor Capacity of a power plant represents the maximum amount of electricity that can be generated over a specific time Capacity utilization: A percentage representing the extent to which a generating unit fulfilled its capacity over a given time period Capacity Factor (C.F.) = kwh produced in a year / capacity in kw*8760h 8760=365*24 hours 21

22 Electricity Generation Generation Capacity Reserve Generation Capacity Reserve: the extra/spare capacity that is required to be maintained in addition to the demand at any time Why do we need spare capacity? allows the system to tide over any generating plant outages, errors in demand forecasting and other type of errors Types: Spinning reserve (under capacity generation) Quick-start reserves 22

23 Load Factor (L.F.) = Electricity Generation Overall Capacity Utilization kwh consumed in a year / Peak Load * 8760 If L.F.=100% - system load=peak load all the time AS L.F. Approaches to 100% max. capacity of each plant Main usages pricing peak load pricing 23

24 Optimization of Electricity System Role of TSO How does TSO secure the system? Balancing LOAD (DEMAND) & GENERATION (SUPPLY) Genco: Generation Companies Disco: Distribution Companies 24

25 Optimization of Electricity System Role of TSO How does TSO secure the system? Balancing LOAD (DEMAND) & GENERATION (SUPPLY) What happens if Load & Generation is not balanced? Frequency of transmission lines (Power line frequency/utility frequency): frequency of the oscillations of alternating current (AC) in an electric power grid transmitted from a power plant to the end-user Main property: it must be more or less constant generally 50Hz/60Hz 25

26 if Optimization of Electricity System Role of TSO Generation=Load Frequency constant ( 50Hz in Turkey) Generation>Load Frequency (>50Hz) Generation<Load Frequency (<50Hz) Large deviations in frequency system could collapse Coping with frequency deviations generating from spare capacity additional generators become operational 26

27 Optimization of Electricity System Role of TSO Ex: Until 12:25 Load=Generation at 12:25 sudden failure in a power plant Load>Generation Frequency Primary responses (in first 10 sec) Cut electricity from cities Load Frequency Secondary Responses (in first minute): Additional generation from capacity reserve Generation Frequency 27

28 Optimization of Electricity System Generation Planning Two widely used methods of generation planning: 1. Economic Dispatch: Decide how much each plant should generate power so that system is operating at minimum cost 1.1. Merit Order Dispatch: average cost ordering 28

29 Merit Order Dispatch priority list that ranks generating units in order of hourly fuel cost per megawatt average cost ordering 29

30 Renewables & Electricity Merit Order Effect Effect of increasing renewables on electricity prices 30

31 Optimization of Electricity System Generation Planning Two widely used methods of generation planning: 1. Economic Dispatch: Decide how much each plant should generate power so that system is operating at minimum cost 1.1. Merit Order Dispatch: average cost ordering 1.2. Incremental Cost Dispatch: marginal cost ordering constrained optimization (demand as a constraint) example on board! 2. Unit Commitment besides minimum cost and demand constraint a lot of system constraints (max generation, time for generator to become online, transmission line capacities etc.) 31

32 Electricity Markets Pricing Day Ahead & Intra-day Markets 32

33 Day Ahead Electricity Markets Bids (Demand) & Offers (Supply) 33

34 Electricity Markets History and Today Electricity industries worldwide Dominated by state until 1990s Privatization since then 34

35 Electricity Markets Monopoly Model 35

36 Electricity Markets Competitive Model 36

37 Electricity Markets History and Today Electricity industries worldwide Dominated by state until 1990s Privatization since then Tendency to be monopolistic in generation and distribution and competitive in distribution Why? Generation a decreasing cost industry high initial investment comparatively lower operational costs 37

38 Electricity Markets Decreasing Cost Industries & Natural Monopoly A decreasing cost industry negatively sloped long-run market supply curve economies of scale Why does a decreasing cost industry have a tendency to become monopolistic? Alfred Kahn The economics of Regulation (1970, 1971): Socially Optimum Pricing MC=P not working in economies of scale why? BOARD 38

39 Electricity Markets Government Policy & Pricing Since the social optimum in decreasing cost industries is at lossmaking quantity competitive market is not sustainable To prevent market failure government regulation Linear Pricing Mechanisms MC pricing vs. AC pricing BOARD 39

40 Electricity Markets Government Policy & Pricing Peak Load Pricing: a non-linear pricing mechanism charging different prices depending on load on the grid due to seasonal variation (hourly/daily/monthly, etc) charging more when it costs more to produce MC P peak P off peak b a AR peak MR off peak MR peak AR off peak O Q off peak Q peak Units per hour Peak-period and off-peak-period pricing BOARD 40

41 End of Lecture See you next week Asst. Prof. Dr. Istemi Berk 41