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Economic Policy

    Energy and the electrical system
                 Silvester van Koten
                        CERGE-EI, Prague
                  Florence School of Regulation
                            LEE, VŠE


Silvester van Koten, www.energyeconomics.tk ,
Huge blackout cripples Italy!




                                                Sils-Soazza



                                  Mettlen-
                                  Lavorgo


                                                03:01-03.16
Silvester van Koten, www.energyeconomics.tk ,
Transmission lines limits

                             Sils-Soazza
          Tree
       flashover!




  Mettlen-
  Lavorgo


                          03:01
Silvester van Koten, www.energyeconomics.tk ,
Dispatch



              ∆-10MW
 Net Injection:
    50MW
   40MW                     ∆ -10MW

                      Physical flow: 50MW
                                      40MW

               A                             B
                                                     ∆ -10MW

                                                     Net
                                                 Withdrawal:
                                                   40MW
                                                   50MW


Silvester van Koten, www.energyeconomics.tk ,
The Swiss TSO operator asks the
      Italian TSO for countermeasures




      Dispatch is done by national TSOs




                         03:11
Silvester van Koten, www.energyeconomics.tk ,
Limits
                              Injection: 60MW +30 MW
                                  30$/MWh


                                                              B: +10 MW
                                   A                   A:+10 MW

                   A: 40MW                   A: 20MW


         Limit: 500MW
                                                   Limit: 20MW



                С                                      B
                               A: 20MW
                                                  70$/MWh
          Withdrawal: 120MW
                                                  +30 MW
Silvester van Koten, www.energyeconomics.tk ,
Frequency and Synchronicity




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




Silvester van Koten, www.energyeconomics.tk ,
All generators are
          synchronized




                                   UCTE = Continental
                                   Synchronous Area


  •Azerbaijan, Belarus, Georgia, Kazakhstan,
Moldova,
  Mongolia, Ukraine
  •Armenia
  •Latvia, Lithuania, Estonia
  •Uzbekistan, Tajikistan & Kazakhstan, Kyrgyzstan?




 Silvester van Koten, www.energyeconomics.tk ,
1. Transmission lines limits

  2. Dispatch

  3. Frequency and synchronicity

  4. Transmission shortage in the EU




Silvester van Koten, www.energyeconomics.tk ,
The future of the EU transmission network

  Interconnectors very high loaded at night!




                         03:26
Silvester van Koten, www.energyeconomics.tk ,
The future of the EU transmission network




           Internal EU market induces increase
                   in cross-border trading


Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
The future of the EU transmission network


   Massive deployment of wind and solar energy




Silvester van Koten, www.energyeconomics.tk ,
The future of the EU transmission network

    European                                            2050
     Climate
                                                  Increase from
   Foundation
                                                   34 GW to 127
                                                       GW

                                                        Increase
                                                        of almost
                                                          400%




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Industrial
                            consumers


      Transmission                              Other countries



                        Distributors

   Power Plants




                      Residential consumers:
                           Households
Silvester van Koten, www.energyeconomics.tk ,
2. Power
           plants
Silvester van Koten, www.energyeconomics.tk ,
Hydro-plant




Silvester van Koten, www.energyeconomics.tk ,
VID
  Wednesday 2_ Hydroelectic Power - How it Works (hq).mp4




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Baseload

              Large coal plants




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Baseload
                Nuclear plants




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Peaker
                Oil burning plants




Silvester van Koten, www.energyeconomics.tk ,
Wind turbines



                                   Solar panels



            Renewable energies

Silvester van Koten, www.energyeconomics.tk ,
VID
  Wednesday 2_ Wind Turbines - How does it actually work- Investment- (hq).mp4




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Renewable energies

                     Concentrated solar power




Silvester van Koten, www.energyeconomics.tk ,
Peaker
                    Gas burning plants

                                                  OCGT
                                                 CCGT



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

Silvester van Koten, www.energyeconomics.tk ,
OCGT




Silvester van Koten, www.energyeconomics.tk ,
VID
  Wednesday 2_ Gas Turbine Basics (hq).mp4




Silvester van Koten, www.energyeconomics.tk ,
CCGT




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Multitude of generation types
    Trade-off:
       Economics of scale         Baseload power plants
                     High fixed cost
                     Low variable costs


       Flexibility
                                  Peaker power plants
                     Low fixed costs
                     High variable costs




Silvester van Koten, www.energyeconomics.tk ,
Market equilibrium
              &
     Setting of the wholesale electricity
                    Price



Silvester van Koten, www.energyeconomics.tk ,
Demand faced by individual firm


     P                                          s1




P*                                                       D




                         q1*                         Q (units)
Silvester van Koten, www.energyeconomics.tk ,
Demand in the total market


     P

                                                S



P*


                                                     D




                               Q*         Q (Thousands of units)
Silvester van Koten, www.energyeconomics.tk ,
Demand faced by individual firm


     P




P*


                                                     D




                               Q*         Q (Thousands of units)
Silvester van Koten, www.energyeconomics.tk ,
Demand faced by individual firm


     P




P*


                                                    D




                               Q*         Q (Thousandsof units)
                                            (Hunderds of units)
Silvester van Koten, www.energyeconomics.tk ,
Demand faced by individual firm


     P




P*


                                                     D




                               Q*         Q (Hunderds of units)
Silvester van Koten, www.energyeconomics.tk ,
Demand faced by individual firm


     P




P*


                                                     D




                               Q*         Q (Tenths of units)
                                            (Hunderds of units)
Silvester van Koten, www.energyeconomics.tk ,
Demand faced by individual firm


                                                S1
     P




P*                                                       D




                         Q1*                         Q (units)
Silvester van Koten, www.energyeconomics.tk ,
Figure 14-1: Profit Maximization for a Competitive Firm


        Costs
         and
     Revenue



                                                               MC
          MC2


                                                                    ATC
P = MR1 = MR2                                                    P = AR = MR
                                                               AVC

          MC1




                0                Q1        Q MAX          Q2
                                                                               Quantity


Silvester van Koten, www.energyeconomics.tk ,
Figure 14-3: The Competitive Firm’s Short-Run Supply Curve


        Price



                                                             MC


                                  Firm
                                  produc
                                  es
                                  (with                          ATC
                                  profit)
                    Firm                                   AVC
                    produces
                    (at a loss)



Firm shuts
down


                0
                                                                             Quantity


Silvester van Koten, www.energyeconomics.tk ,
Setting of the wholesale
        electricity Price




Silvester van Koten, www.energyeconomics.tk ,
Uniform price auction
$/MWH
             Baseload plants       Peaker plants
                 (MC=0)




                                       D        S
 80
                PROFITS!



Silvester van Koten, www.energyeconomics.tk ,
Uniform price auction
$/MWH
             Baseload plants       Peaker plants
                 (MC=0)




                                       D        S
 80




Silvester van Koten, www.energyeconomics.tk ,
Uniform price auction
$/MWH
             Baseload plants       Peaker plants
                 (MC=0)




                                       D        S
 80




Silvester van Koten, www.energyeconomics.tk ,
Uniform price auction
$/MWH
             Baseload plants       Peaker plants
                 (MC=0)




                                       D        S
 80
 60



Silvester van Koten, www.energyeconomics.tk ,
Uniform price auction
$/MWH
             Baseload plants       Peaker plants
                 (MC=0)




                                       D        S
 80
 60
             Quasi-PROFITS!


Silvester van Koten, www.energyeconomics.tk ,
1.Procuring ancillary reserves
     Uniform price auction
                                        Needed
                  Price                reserves
                                                                       Bids



       System
       Marginal
        Price                                       Profit
                                                      s
                                       Profit
                          Profit         s
                            s




                          1   2    3   4   5    6   7   8    9   10   11 12
Silvester van Koten, www.energyeconomics.tk ,                         Quantity
1.Procuring ancillary reserves
       Pay-as-bid auction
                                      Needed
               Price                 reserves
                                                                     Bids

   Zero
  profit!
                                                  Price
                                                       3


                                     Price
                                          2


                       Price 1

                       1    2    3   4   5    6   7   8    9   10   11 12
Silvester van Koten, www.energyeconomics.tk ,                       Quantity
1.Procuring ancillary reserves
       Pay-as-bid auction
                                     Needed
               Price                reserves
                                                                    Costs




                                                 Profit
                                                   s
                                    Profit
                       Profit         s
                         s




                       1    2   3   4   5    6   7   8    9   10   11 12
Silvester van Koten, www.energyeconomics.tk ,                      Quantity
Multitude of generation types
    Trade-off:
       Economics of scale         Baseload power plants
                     High fixed cost
                     Low variable costs


       Flexibility
                                  Peaker power plants
                     Low fixed costs
                     High variable costs




Silvester van Koten, www.energyeconomics.tk ,
Demand
    in MW



            5

            3

            1

                0        9   12   15 17         24   TIME




Silvester van Koten, www.energyeconomics.tk ,
Demand
    in GW



        1.83

        1.20

        0.37


                                                   DURATION (%)
   Demand
    in MW



            5

            3

            1

                             12  15 17             TIME
Silvester van 0
              Koten, www.energyeconomics.tk , 24
                         9
Demand
    in GW

        1.83

        1.20


        0.37


                                    100            DURATION (%)
   Demand
    in MW

            5

            3

            1


                             12  15 17             TIME
Silvester van 0
              Koten, www.energyeconomics.tk , 24
                         9
Demand
    in GW

        1.83

        1.20


        0.37


                      25            100            DURATION (%)
   Demand
    in MW

            5

            3

            1


                             12  15 17             TIME
Silvester van 0
              Koten, www.energyeconomics.tk , 24
                         9
Demand
    in GW

        1.83

        1.20


        0.37


                0   16   25         100            DURATION (%)
   Demand
    in MW

            5

            3

            1


                             12  15 17             TIME
Silvester van 0
              Koten, www.energyeconomics.tk , 24
                         9
Fixed cost per          Variable cost
                            MWh                  per MWh
       Baseload                40                    0
        Peaker                 10                    50
Silvester van Koten, www.energyeconomics.tk ,
Peaker
60


40
                                     Baseload



10
0
                                        Capacity factor
                      60%           100% (=8760 hours/year)


                        Fixed cost per          Variable cost
                            MWh                  per MWh
       Baseload                40                    0
        Peaker                 10                    50
Silvester van Koten, www.energyeconomics.tk ,
Peaker
60


40
                                     Baseload



10
0
                                        Capacity factor
                      60%           100%



     Use peakers            Use baseload
     when capacity          when capacity
     factor < 60%           factor > 60%

Silvester van Koten, www.energyeconomics.tk ,
Demand
    in GW

        1.83

        1.20                         PEAKER

        0.37                                  BASELOAD

                0   16   25   60    100            DURATION (%)
   Demand
    in MW

            5

            3

            1


                             12  15 17             TIME
Silvester van 0
              Koten, www.energyeconomics.tk , 24
                         9
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
1.Procuring ancillary reserves
     Uniform price auction
                                       Needed
                  Price               reserves
                                                                    Bids



       System
       Marginal
        Price




                          1   2   3   4   5   6   7   8   9   10   11 12
Silvester van Koten, www.energyeconomics.tk ,                      Quantity
Silvester van Koten, www.energyeconomics.tk ,
PEAKER




                                                BASELOAD




Silvester van Koten, www.energyeconomics.tk ,
Very expensive to built a
                              plant for only 87 hours!
                              Cost?
                               $1050/MWH (=100*10+50)




                0        1%      =87 hours
Silvester van Koten, www.energyeconomics.tk ,
Price spike




Silvester van Koten, www.energyeconomics.tk ,
Can price-spikes be avoided?

  - Cap the price, eg at $1000/MWH




Silvester van Koten, www.energyeconomics.tk ,
Cost is $1050/MWH
                                                >
                                        price cap




            0        1%     =87 hours



                ?
Silvester van Koten, www.energyeconomics.tk ,
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




Silvester van Koten, www.energyeconomics.tk ,
Income of a power plant:
  Price of electricity
  Capacity payments (reserve)




Silvester van Koten, www.energyeconomics.tk ,
What price are people paying?




Silvester van Koten, www.energyeconomics.tk ,
CLIMATE CHANGE




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Greenhouse gasses heat up the earth




Silvester van Koten, www.energyeconomics.tk ,
Abate CO2




Silvester van Koten, www.energyeconomics.tk ,
UNCOP
      United Nations Framework Convention on Climate
       Change
  serving as the Meeting of the Parties to the
    Kyoto Protocol




Silvester van Koten, www.energyeconomics.tk ,
Tyoko protocol’s 1st phase
          ends in about 1 month




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
UNCOP 17:2011 Durban, South Africa

      Agreed...
      …to agree to a legally binding document in 2012




      To be signed in 2015

    And in force from 2020

Silvester van Koten, www.energyeconomics.tk ,
UNCOP 18, Doha, Qatar

               2nd commitment period 2012- 2020

         Japan, Russia, Belarus, Ukraine, New Zealand,
                  United States and Canada,

          15% of the global carbon dioxide emissions




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
2020 Targets: 20% decarbonization

    2050 Targets: 80% decarbonization

Silvester van Koten, www.energyeconomics.tk ,
Optimal production

                                           Production +
                                           social costs
       P          Demand
                   Curve




                                             social costs

                                                              Private
                                                            production
                                                              costs =
                                                             Supply
                                                               curve



                             Optimal   production              Q
                            production
Silvester van Koten, www.energyeconomics.tk ,
Optimal production

                                           Production +
                                           social costs
       P          Demand
                   Curve




                                             social costs

                                                              Private
                                                            production
                                                              costs =
                                                             Supply
                                                               curve



                             Optimal   production              Q
                            production
Silvester van Koten, www.energyeconomics.tk ,
Optimal emissions, by ETS

                                          Production +
                             Maximum
                                          social costs
                            emission we
       P         Demand      will allow
                  Curve




                                                           Private
                                                         production
                                                           costs =
                                                          Supply
                                                            curve



                             Optimal   emissions         Emissions
                                                           Q
                            Emissions
Silvester van Koten, www.energyeconomics.tk ,
Optimal emissions, by tax

                                          Production +
                                          social costs
       P         Demand
                  Curve




                                                   Add tax

                                                           Private
                                                         production
                                                           costs =
                                                          Supply
                                                            curve



                             Optimal   emissions             Q
                            Emissions
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
LESS
              Large coal plants




Silvester van Koten, www.energyeconomics.tk ,
MORE
                          ? plants
                        Nuclear




Silvester van Koten, www.energyeconomics.tk ,
MORE
                    Gas burning plants

                                                 CCGT



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

Silvester van Koten, www.energyeconomics.tk ,
Wind turbines
                              ?
   Why?
                                   Solar panels



            Renewable energies

Silvester van Koten, www.energyeconomics.tk ,
Why?
     1. Expensive




Silvester van Koten, www.energyeconomics.tk ,
Retire 1 coal or CCGT plant

                    =(500 MW conventional)


              Install over 1000 wind turbines

                  =(3000-5000 MW wind or solar)

Why?
1.Expensive
 2.Non-dispatchable
Silvester van Koten, www.energyeconomics.tk ,
Wind and solar needs conventional backup
  Firm capacity 10%-15%




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


Silvester van Koten, www.energyeconomics.tk ,
What is the hardest stress for the system to
   endure regarding wind generation?




Silvester van Koten, www.energyeconomics.tk ,
Power increases with wind speed up to
             a cut-off point




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Maybe we should not expect politicians to be the
  ones who can point out the solution.
In foreign trade politicians have a terrible track
  record


     2008 Nobel price winner Paul Krugman




Silvester van Koten, www.energyeconomics.tk ,
How to create a framework
     that leads to cleaner
          electricity?

           WITHOUT
          POLITICIANS
      PICKING “WINNERS”?
Silvester van Koten, www.energyeconomics.tk ,
Emissions:          2mT           4mT        5mT




                          A           B ,
Silvester van Koten, www.energyeconomics.tk
                                               C
Emissions:          2mT           4mT        5mT
  Abatement
  cost:
                    4$/T          5$/T        20$/T




                          A           B ,
Silvester van Koten, www.energyeconomics.tk
                                                C
Emissions:          1mT
                     2mT           4mT        5mT
  Abatement
  cost:
              7$/T
              4$/T                5$/T        20$/T
  Abatement
              1$/T
  -investment




                          A           B ,
Silvester van Koten, www.energyeconomics.tk
                                                C
?
 Emissions:
  Abatement
  cost:
  Abatement
  -investment




                          A           B ,
Silvester van Koten, www.energyeconomics.tk
                                              C
Silvester van Koten, www.energyeconomics.tk ,
Emissions:
  Abatement
  cost:
  Abatement
  -investment




                          A           B ,
Silvester van Koten, www.energyeconomics.tk
                                              C
Solution 1:
   EU Emission Trading Scheme (EU-ETS)
                      EMISSION PERMIT MARKET




  Competition
      for
    permits

                          A            B
Silvester van Koten, www.energyeconomics.tk ,   C
Kyoto Protocol
  2005- end 2007: Phase 1 (test phase)


  2007- end 2012: Phase 2 (6.5% below 2005 level)


  2012- end 2020: Phase 3 (linear 1.74% reduction/year)




Silvester van Koten, www.energyeconomics.tk ,
Reduction of 21%




Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
1999-2010




Silvester van Koten, www.energyeconomics.tk ,
Wind turbines
              ? yes
   Politicians say
                                   Solar panels



            Renewable energies

Silvester van Koten, www.energyeconomics.tk ,
Silvester van Koten, www.energyeconomics.tk ,
Wind generation in Germany




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




Silvester van Koten, www.energyeconomics.tk ,
Feed-in tariffs
                    Case of Germany

         2004                                   2012
     0.50 €/kWh                       0.20€/kWh

                                      Coal or gas plant
                                           costs
                                       0.04€/kWh
Silvester van Koten, www.energyeconomics.tk ,
Do the subsidies and feed-in
     tariffs lead to less CO2 emission
                 in the EU?




Silvester van Koten, www.energyeconomics.tk ,
ETS reduces CO2 emissions
   Power
  produced

 Electricity
  demand



   Coal




  Gas                                            CO2
                                                without
                                                 ETS
 Hydro &
 Nuclear


                                                    CO2
Silvester van Koten, www.energyeconomics.tk ,     produced
ETS reduces CO2 emissions
   Power
  produced                                Shortage
                                         of permits!
 Electricity
  demand


 Coal




 gas                                        CO2         CO2
                                            with       without
                                            ETS         ETS
 Hydro &
 Nuclear


                        Permits SUPPLY                     CO2
Silvester van Koten, www.energyeconomics.tk ,            produced
ETS reduces CO2 emissions
   Power
  produced                                Shortage
                                         of permits!
 Electricity
  demand

 Coal




 gas                                        CO2         CO2
                                            with       without
                                            ETS         ETS
 Hydro &
 Nuclear


                        Permits SUPPLY                     CO2
Silvester van Koten, www.energyeconomics.tk ,            produced
ETS affects generation choices
   Power
  produced

Electricity
 demand

 Coal




 gas


                         Wind & solar
                        with subsidies
 Hydro &
 Nuclear


                        Permits demand             CO2
Silvester van Koten, www.energyeconomics.tk ,    produced
ETS affects generation choices

 Coal
                                                Electricity
                                                 demand

 gas
                          Excess of
                           permits!
Wind &
 solar
                         Wind & solar
                        with subsidies
 Hydro &
 Nuclear


                        Permits demand                  CO2
Silvester van Koten, www.energyeconomics.tk ,         produced
ETS affects generation choices

 Coal
                                                Electricity
                                                 demand

 gas




Wind &
 solar
                         Wind & solar
                        with subsidies
 Hydro &
 Nuclear


                        Permits demand                  CO2
Silvester van Koten, www.energyeconomics.tk ,         produced
ETS affects generation choices


                                                Electricity
                                                 demand


 Coal


 Wind &
  solar
                         Wind & solar
                        with subsidies
 Hydro &
 Nuclear


                        Permits demand                  CO2
Silvester van Koten, www.energyeconomics.tk ,         produced
Silvester van Koten, www.energyeconomics.tk ,
“Europe is burning more coal, while demand for gas –
  which emits much less CO2 than coal – is declining ”
Silvester van Koten, www.energyeconomics.tk ,
Under a cap& trade program:

                subsidy to renewables
                           =
             subsidies to dirty production

  Net no effect on CO2



Silvester van Koten, www.energyeconomics.tk ,

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2. competition, markets, ets & renewables final

  • 1. Economic Policy Energy and the electrical system Silvester van Koten CERGE-EI, Prague Florence School of Regulation LEE, VŠE Silvester van Koten, www.energyeconomics.tk ,
  • 2. Huge blackout cripples Italy! Sils-Soazza Mettlen- Lavorgo 03:01-03.16 Silvester van Koten, www.energyeconomics.tk ,
  • 3. Transmission lines limits Sils-Soazza Tree flashover! Mettlen- Lavorgo 03:01 Silvester van Koten, www.energyeconomics.tk ,
  • 4. Dispatch ∆-10MW Net Injection: 50MW 40MW ∆ -10MW Physical flow: 50MW 40MW A B ∆ -10MW Net Withdrawal: 40MW 50MW Silvester van Koten, www.energyeconomics.tk ,
  • 5. The Swiss TSO operator asks the Italian TSO for countermeasures Dispatch is done by national TSOs 03:11 Silvester van Koten, www.energyeconomics.tk ,
  • 6. Limits Injection: 60MW +30 MW 30$/MWh B: +10 MW A A:+10 MW A: 40MW A: 20MW Limit: 500MW Limit: 20MW С B A: 20MW 70$/MWh Withdrawal: 120MW +30 MW Silvester van Koten, www.energyeconomics.tk ,
  • 7. Frequency and Synchronicity http://www.dynamicdemand.co.uk/grid.htm Silvester van Koten, www.energyeconomics.tk ,
  • 8. All generators are synchronized UCTE = Continental Synchronous Area •Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Mongolia, Ukraine •Armenia •Latvia, Lithuania, Estonia •Uzbekistan, Tajikistan & Kazakhstan, Kyrgyzstan? Silvester van Koten, www.energyeconomics.tk ,
  • 9. 1. Transmission lines limits 2. Dispatch 3. Frequency and synchronicity 4. Transmission shortage in the EU Silvester van Koten, www.energyeconomics.tk ,
  • 10. The future of the EU transmission network Interconnectors very high loaded at night! 03:26 Silvester van Koten, www.energyeconomics.tk ,
  • 11. The future of the EU transmission network Internal EU market induces increase in cross-border trading Silvester van Koten, www.energyeconomics.tk ,
  • 12. Silvester van Koten, www.energyeconomics.tk ,
  • 13. The future of the EU transmission network Massive deployment of wind and solar energy Silvester van Koten, www.energyeconomics.tk ,
  • 14. The future of the EU transmission network European 2050 Climate Increase from Foundation 34 GW to 127 GW Increase of almost 400% Silvester van Koten, www.energyeconomics.tk ,
  • 15. Silvester van Koten, www.energyeconomics.tk ,
  • 16. Industrial consumers Transmission Other countries Distributors Power Plants Residential consumers: Households Silvester van Koten, www.energyeconomics.tk ,
  • 17. 2. Power plants Silvester van Koten, www.energyeconomics.tk ,
  • 18. Hydro-plant Silvester van Koten, www.energyeconomics.tk ,
  • 19. VID Wednesday 2_ Hydroelectic Power - How it Works (hq).mp4 Silvester van Koten, www.energyeconomics.tk ,
  • 20. Silvester van Koten, www.energyeconomics.tk ,
  • 21. Baseload Large coal plants Silvester van Koten, www.energyeconomics.tk ,
  • 22. Silvester van Koten, www.energyeconomics.tk ,
  • 23. Baseload Nuclear plants Silvester van Koten, www.energyeconomics.tk ,
  • 24. Silvester van Koten, www.energyeconomics.tk ,
  • 25. Peaker Oil burning plants Silvester van Koten, www.energyeconomics.tk ,
  • 26. Wind turbines Solar panels Renewable energies Silvester van Koten, www.energyeconomics.tk ,
  • 27. VID Wednesday 2_ Wind Turbines - How does it actually work- Investment- (hq).mp4 Silvester van Koten, www.energyeconomics.tk ,
  • 28. Silvester van Koten, www.energyeconomics.tk ,
  • 29. Renewable energies Concentrated solar power Silvester van Koten, www.energyeconomics.tk ,
  • 30. Peaker Gas burning plants OCGT CCGT http://iea-etsap.org/web/Highlights%20PDF/E02-gas_fired_power-GS-AD-gct%201.pdf Silvester van Koten, www.energyeconomics.tk ,
  • 31. OCGT Silvester van Koten, www.energyeconomics.tk ,
  • 32. VID Wednesday 2_ Gas Turbine Basics (hq).mp4 Silvester van Koten, www.energyeconomics.tk ,
  • 33. CCGT Silvester van Koten, www.energyeconomics.tk ,
  • 34. Silvester van Koten, www.energyeconomics.tk ,
  • 35. Multitude of generation types Trade-off: Economics of scale Baseload power plants High fixed cost Low variable costs Flexibility Peaker power plants Low fixed costs High variable costs Silvester van Koten, www.energyeconomics.tk ,
  • 36. Market equilibrium & Setting of the wholesale electricity Price Silvester van Koten, www.energyeconomics.tk ,
  • 37. Demand faced by individual firm P s1 P* D q1* Q (units) Silvester van Koten, www.energyeconomics.tk ,
  • 38. Demand in the total market P S P* D Q* Q (Thousands of units) Silvester van Koten, www.energyeconomics.tk ,
  • 39. Demand faced by individual firm P P* D Q* Q (Thousands of units) Silvester van Koten, www.energyeconomics.tk ,
  • 40. Demand faced by individual firm P P* D Q* Q (Thousandsof units) (Hunderds of units) Silvester van Koten, www.energyeconomics.tk ,
  • 41. Demand faced by individual firm P P* D Q* Q (Hunderds of units) Silvester van Koten, www.energyeconomics.tk ,
  • 42. Demand faced by individual firm P P* D Q* Q (Tenths of units) (Hunderds of units) Silvester van Koten, www.energyeconomics.tk ,
  • 43. Demand faced by individual firm S1 P P* D Q1* Q (units) Silvester van Koten, www.energyeconomics.tk ,
  • 44. Figure 14-1: Profit Maximization for a Competitive Firm Costs and Revenue MC MC2 ATC P = MR1 = MR2 P = AR = MR AVC MC1 0 Q1 Q MAX Q2 Quantity Silvester van Koten, www.energyeconomics.tk ,
  • 45. Figure 14-3: The Competitive Firm’s Short-Run Supply Curve Price MC Firm produc es (with ATC profit) Firm AVC produces (at a loss) Firm shuts down 0 Quantity Silvester van Koten, www.energyeconomics.tk ,
  • 46. Setting of the wholesale electricity Price Silvester van Koten, www.energyeconomics.tk ,
  • 47. Uniform price auction $/MWH Baseload plants Peaker plants (MC=0) D S 80 PROFITS! Silvester van Koten, www.energyeconomics.tk ,
  • 48. Uniform price auction $/MWH Baseload plants Peaker plants (MC=0) D S 80 Silvester van Koten, www.energyeconomics.tk ,
  • 49. Uniform price auction $/MWH Baseload plants Peaker plants (MC=0) D S 80 Silvester van Koten, www.energyeconomics.tk ,
  • 50. Uniform price auction $/MWH Baseload plants Peaker plants (MC=0) D S 80 60 Silvester van Koten, www.energyeconomics.tk ,
  • 51. Uniform price auction $/MWH Baseload plants Peaker plants (MC=0) D S 80 60 Quasi-PROFITS! Silvester van Koten, www.energyeconomics.tk ,
  • 52. 1.Procuring ancillary reserves Uniform price auction Needed Price reserves Bids System Marginal Price Profit s Profit Profit s s 1 2 3 4 5 6 7 8 9 10 11 12 Silvester van Koten, www.energyeconomics.tk , Quantity
  • 53. 1.Procuring ancillary reserves Pay-as-bid auction Needed Price reserves Bids Zero profit! Price 3 Price 2 Price 1 1 2 3 4 5 6 7 8 9 10 11 12 Silvester van Koten, www.energyeconomics.tk , Quantity
  • 54. 1.Procuring ancillary reserves Pay-as-bid auction Needed Price reserves Costs Profit s Profit Profit s s 1 2 3 4 5 6 7 8 9 10 11 12 Silvester van Koten, www.energyeconomics.tk , Quantity
  • 55. Multitude of generation types Trade-off: Economics of scale Baseload power plants High fixed cost Low variable costs Flexibility Peaker power plants Low fixed costs High variable costs Silvester van Koten, www.energyeconomics.tk ,
  • 56. Demand in MW 5 3 1 0 9 12 15 17 24 TIME Silvester van Koten, www.energyeconomics.tk ,
  • 57. Demand in GW 1.83 1.20 0.37 DURATION (%) Demand in MW 5 3 1 12 15 17 TIME Silvester van 0 Koten, www.energyeconomics.tk , 24 9
  • 58. Demand in GW 1.83 1.20 0.37 100 DURATION (%) Demand in MW 5 3 1 12 15 17 TIME Silvester van 0 Koten, www.energyeconomics.tk , 24 9
  • 59. Demand in GW 1.83 1.20 0.37 25 100 DURATION (%) Demand in MW 5 3 1 12 15 17 TIME Silvester van 0 Koten, www.energyeconomics.tk , 24 9
  • 60. Demand in GW 1.83 1.20 0.37 0 16 25 100 DURATION (%) Demand in MW 5 3 1 12 15 17 TIME Silvester van 0 Koten, www.energyeconomics.tk , 24 9
  • 61. Fixed cost per Variable cost MWh per MWh Baseload 40 0 Peaker 10 50 Silvester van Koten, www.energyeconomics.tk ,
  • 62. Peaker 60 40 Baseload 10 0 Capacity factor 60% 100% (=8760 hours/year) Fixed cost per Variable cost MWh per MWh Baseload 40 0 Peaker 10 50 Silvester van Koten, www.energyeconomics.tk ,
  • 63. Peaker 60 40 Baseload 10 0 Capacity factor 60% 100% Use peakers Use baseload when capacity when capacity factor < 60% factor > 60% Silvester van Koten, www.energyeconomics.tk ,
  • 64. Demand in GW 1.83 1.20 PEAKER 0.37 BASELOAD 0 16 25 60 100 DURATION (%) Demand in MW 5 3 1 12 15 17 TIME Silvester van 0 Koten, www.energyeconomics.tk , 24 9
  • 65. Silvester van Koten, www.energyeconomics.tk ,
  • 66. Silvester van Koten, www.energyeconomics.tk ,
  • 67. Silvester van Koten, www.energyeconomics.tk ,
  • 68. Silvester van Koten, www.energyeconomics.tk ,
  • 69. Silvester van Koten, www.energyeconomics.tk ,
  • 70. Silvester van Koten, www.energyeconomics.tk ,
  • 71. Silvester van Koten, www.energyeconomics.tk ,
  • 72. Silvester van Koten, www.energyeconomics.tk ,
  • 73. Silvester van Koten, www.energyeconomics.tk ,
  • 74. Silvester van Koten, www.energyeconomics.tk ,
  • 75. 1.Procuring ancillary reserves Uniform price auction Needed Price reserves Bids System Marginal Price 1 2 3 4 5 6 7 8 9 10 11 12 Silvester van Koten, www.energyeconomics.tk , Quantity
  • 76. Silvester van Koten, www.energyeconomics.tk ,
  • 77. PEAKER BASELOAD Silvester van Koten, www.energyeconomics.tk ,
  • 78. Very expensive to built a plant for only 87 hours! Cost? $1050/MWH (=100*10+50) 0 1% =87 hours Silvester van Koten, www.energyeconomics.tk ,
  • 79. Price spike Silvester van Koten, www.energyeconomics.tk ,
  • 80. Can price-spikes be avoided? - Cap the price, eg at $1000/MWH Silvester van Koten, www.energyeconomics.tk ,
  • 81. Cost is $1050/MWH > price cap 0 1% =87 hours ? Silvester van Koten, www.energyeconomics.tk ,
  • 82. 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 Silvester van Koten, www.energyeconomics.tk ,
  • 83. Income of a power plant: Price of electricity Capacity payments (reserve) Silvester van Koten, www.energyeconomics.tk ,
  • 84. What price are people paying? Silvester van Koten, www.energyeconomics.tk ,
  • 85. CLIMATE CHANGE Silvester van Koten, www.energyeconomics.tk ,
  • 86. Silvester van Koten, www.energyeconomics.tk ,
  • 87. Silvester van Koten, www.energyeconomics.tk ,
  • 88. Greenhouse gasses heat up the earth Silvester van Koten, www.energyeconomics.tk ,
  • 89. Abate CO2 Silvester van Koten, www.energyeconomics.tk ,
  • 90. UNCOP United Nations Framework Convention on Climate Change serving as the Meeting of the Parties to the Kyoto Protocol Silvester van Koten, www.energyeconomics.tk ,
  • 91. Tyoko protocol’s 1st phase ends in about 1 month Silvester van Koten, www.energyeconomics.tk ,
  • 92. Silvester van Koten, www.energyeconomics.tk ,
  • 93. Silvester van Koten, www.energyeconomics.tk ,
  • 94. UNCOP 17:2011 Durban, South Africa Agreed... …to agree to a legally binding document in 2012 To be signed in 2015 And in force from 2020 Silvester van Koten, www.energyeconomics.tk ,
  • 95. UNCOP 18, Doha, Qatar 2nd commitment period 2012- 2020 Japan, Russia, Belarus, Ukraine, New Zealand, United States and Canada, 15% of the global carbon dioxide emissions Silvester van Koten, www.energyeconomics.tk ,
  • 96. Silvester van Koten, www.energyeconomics.tk ,
  • 97. 2020 Targets: 20% decarbonization 2050 Targets: 80% decarbonization Silvester van Koten, www.energyeconomics.tk ,
  • 98. Optimal production Production + social costs P Demand Curve social costs Private production costs = Supply curve Optimal production Q production Silvester van Koten, www.energyeconomics.tk ,
  • 99. Optimal production Production + social costs P Demand Curve social costs Private production costs = Supply curve Optimal production Q production Silvester van Koten, www.energyeconomics.tk ,
  • 100. Optimal emissions, by ETS Production + Maximum social costs emission we P Demand will allow Curve Private production costs = Supply curve Optimal emissions Emissions Q Emissions Silvester van Koten, www.energyeconomics.tk ,
  • 101. Optimal emissions, by tax Production + social costs P Demand Curve Add tax Private production costs = Supply curve Optimal emissions Q Emissions Silvester van Koten, www.energyeconomics.tk ,
  • 102. Silvester van Koten, www.energyeconomics.tk ,
  • 103. Silvester van Koten, www.energyeconomics.tk ,
  • 104. Silvester van Koten, www.energyeconomics.tk ,
  • 105. Silvester van Koten, www.energyeconomics.tk ,
  • 106. LESS Large coal plants Silvester van Koten, www.energyeconomics.tk ,
  • 107. MORE ? plants Nuclear Silvester van Koten, www.energyeconomics.tk ,
  • 108. MORE Gas burning plants CCGT http://iea-etsap.org/web/Highlights%20PDF/E02-gas_fired_power-GS-AD-gct%201.pdf Silvester van Koten, www.energyeconomics.tk ,
  • 109. Wind turbines ? Why? Solar panels Renewable energies Silvester van Koten, www.energyeconomics.tk ,
  • 110. Why? 1. Expensive Silvester van Koten, www.energyeconomics.tk ,
  • 111. Retire 1 coal or CCGT plant =(500 MW conventional) Install over 1000 wind turbines =(3000-5000 MW wind or solar) Why? 1.Expensive 2.Non-dispatchable Silvester van Koten, www.energyeconomics.tk ,
  • 112. Wind and solar needs conventional backup Firm capacity 10%-15% http://ejournal.windeng.net/3/01/GGiebel- CapCredLit_WindEngEJournal_2005_right_links.pdf Silvester van Koten, www.energyeconomics.tk ,
  • 113. What is the hardest stress for the system to endure regarding wind generation? Silvester van Koten, www.energyeconomics.tk ,
  • 114. Power increases with wind speed up to a cut-off point Silvester van Koten, www.energyeconomics.tk ,
  • 115. Silvester van Koten, www.energyeconomics.tk ,
  • 116. Maybe we should not expect politicians to be the ones who can point out the solution. In foreign trade politicians have a terrible track record 2008 Nobel price winner Paul Krugman Silvester van Koten, www.energyeconomics.tk ,
  • 117. How to create a framework that leads to cleaner electricity? WITHOUT POLITICIANS PICKING “WINNERS”? Silvester van Koten, www.energyeconomics.tk ,
  • 118. Emissions: 2mT 4mT 5mT A B , Silvester van Koten, www.energyeconomics.tk C
  • 119. Emissions: 2mT 4mT 5mT Abatement cost: 4$/T 5$/T 20$/T A B , Silvester van Koten, www.energyeconomics.tk C
  • 120. Emissions: 1mT 2mT 4mT 5mT Abatement cost: 7$/T 4$/T 5$/T 20$/T Abatement 1$/T -investment A B , Silvester van Koten, www.energyeconomics.tk C
  • 121. ? Emissions: Abatement cost: Abatement -investment A B , Silvester van Koten, www.energyeconomics.tk C
  • 122. Silvester van Koten, www.energyeconomics.tk ,
  • 123. Emissions: Abatement cost: Abatement -investment A B , Silvester van Koten, www.energyeconomics.tk C
  • 124. Solution 1: EU Emission Trading Scheme (EU-ETS) EMISSION PERMIT MARKET Competition for permits A B Silvester van Koten, www.energyeconomics.tk , C
  • 125. Kyoto Protocol 2005- end 2007: Phase 1 (test phase) 2007- end 2012: Phase 2 (6.5% below 2005 level) 2012- end 2020: Phase 3 (linear 1.74% reduction/year) Silvester van Koten, www.energyeconomics.tk ,
  • 126. Reduction of 21% Silvester van Koten, www.energyeconomics.tk ,
  • 127. Silvester van Koten, www.energyeconomics.tk ,
  • 128. 1999-2010 Silvester van Koten, www.energyeconomics.tk ,
  • 129. Wind turbines ? yes Politicians say Solar panels Renewable energies Silvester van Koten, www.energyeconomics.tk ,
  • 130. Silvester van Koten, www.energyeconomics.tk ,
  • 131. Wind generation in Germany http://www.pnl.gov/main/publications/external/technical_reports/PNNL-19225.pdf Silvester van Koten, www.energyeconomics.tk ,
  • 132. Feed-in tariffs Case of Germany 2004 2012 0.50 €/kWh 0.20€/kWh Coal or gas plant costs 0.04€/kWh Silvester van Koten, www.energyeconomics.tk ,
  • 133. Do the subsidies and feed-in tariffs lead to less CO2 emission in the EU? Silvester van Koten, www.energyeconomics.tk ,
  • 134. ETS reduces CO2 emissions Power produced Electricity demand Coal Gas CO2 without ETS Hydro & Nuclear CO2 Silvester van Koten, www.energyeconomics.tk , produced
  • 135. ETS reduces CO2 emissions Power produced Shortage of permits! Electricity demand Coal gas CO2 CO2 with without ETS ETS Hydro & Nuclear Permits SUPPLY CO2 Silvester van Koten, www.energyeconomics.tk , produced
  • 136. ETS reduces CO2 emissions Power produced Shortage of permits! Electricity demand Coal gas CO2 CO2 with without ETS ETS Hydro & Nuclear Permits SUPPLY CO2 Silvester van Koten, www.energyeconomics.tk , produced
  • 137. ETS affects generation choices Power produced Electricity demand Coal gas Wind & solar with subsidies Hydro & Nuclear Permits demand CO2 Silvester van Koten, www.energyeconomics.tk , produced
  • 138. ETS affects generation choices Coal Electricity demand gas Excess of permits! Wind & solar Wind & solar with subsidies Hydro & Nuclear Permits demand CO2 Silvester van Koten, www.energyeconomics.tk , produced
  • 139. ETS affects generation choices Coal Electricity demand gas Wind & solar Wind & solar with subsidies Hydro & Nuclear Permits demand CO2 Silvester van Koten, www.energyeconomics.tk , produced
  • 140. ETS affects generation choices Electricity demand Coal Wind & solar Wind & solar with subsidies Hydro & Nuclear Permits demand CO2 Silvester van Koten, www.energyeconomics.tk , produced
  • 141. Silvester van Koten, www.energyeconomics.tk ,
  • 142. “Europe is burning more coal, while demand for gas – which emits much less CO2 than coal – is declining ” Silvester van Koten, www.energyeconomics.tk ,
  • 143. Under a cap& trade program: subsidy to renewables = subsidies to dirty production Net no effect on CO2 Silvester van Koten, www.energyeconomics.tk ,