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Electricity Economics

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Introduction to Electricity Economics: generators, transmission and regulation.

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Electricity Economics

  1. 1. International businessThe electricity industry Silvester van Koten PAHX CERGE-EI Florence School of Regulation
  2. 2. Transmission Principles of Transmission, applied to the EU transmission network1. Line limits2. Principles of dispatch3. Role of frequency in ac lines and stability requirements4. Transmission shortage, the internal market and the 2050 carbon targets
  3. 3. Power plants
  4. 4. Distributors
  5. 5. Transmission
  6. 6. Industrial consumers Transmission Other countries DistributorsPower Plants Residential consumers: Households
  7. 7. 1. Power plants
  8. 8. Hydro-plant
  9. 9. Baseload Large coal plants
  10. 10. Baseload Nuclear plants
  11. 11. Peaker Oil burning plants
  12. 12. Wind turbines Solar panels Renewable energies
  13. 13. Renewable energiesConcentrated solar power
  14. 14. Peaker Gas burning plants OCGT CCGThttp://iea-etsap.org/web/Highlights%20PDF/E02-gas_fired_power-GS-AD-gct%201.pdf
  15. 15. Multitude of generation types• Trade-off: – Economics of scale Baseload power plants • High fixed cost • Low variable costs – Flexibility • Low fixed costs Peaker power plants • High variable costs
  16. 16. Fixed cost per Variable cost MWh per MWhBaseload 40 0Peaker 10 50
  17. 17. Peaker6040 Baseload100 Capacity factor 60% 100% (=8760 hours/year) Fixed cost per Variable cost MWh per MWh Baseload 40 0 Peaker 10 50
  18. 18. Peaker6040 Baseload100 Capacity factor 60% 100% Use peakers Use baseload when capacity when capacity factor < 60% factor > 60%
  19. 19. PEAKER BASELOAD
  20. 20. Very expensive to built a plant for only 87 hours! Cost? $1050/MWH (=100*10+50)0 1% =87 hours
  21. 21. Price spike
  22. 22. Can price-spikes be avoided?- Cap the price, eg at $1000/MWH
  23. 23. Cost is $1050/MWH > price cap0 1% =87 hours ?
  24. 24. BLACKOUT
  25. 25. Cost is $1050/MWH > price cap0 1% =87 hours ?
  26. 26. Can price-spikes be avoided?- Cap the price, eg at $1000/MWH- Capacity market - Pay power plants for being prepared to generate, even if they are not called upon
  27. 27. Income of a power plant:- Price of electricity- Capacity payments (reserve)
  28. 28. Setting of the wholesale electricity Price
  29. 29. Uniform price auction$/MWH Baseload plants Peaker plants (MC=0) D S=MC80 PROFITS!
  30. 30. Uniform price auction$/MWH Baseload plants Peaker plants (MC=0) D S80
  31. 31. Uniform price auction$/MWH Baseload plants Peaker plants (MC=0) D S80
  32. 32. Uniform price auction$/MWH Baseload plants Peaker plants (MC=0) D S8060
  33. 33. Renewables
  34. 34. Wind turbines Solar panels Renewable energies
  35. 35. Greenhouse gasses heat up the earth Abate CO2
  36. 36. 2020 Targets: 20% decarbonization2050 Targets: 80% decarbonization
  37. 37. Wind turbines Solar panels Renewable energies
  38. 38. Retire 1 coal or CCGT plant =(500 MW conventional)Install over 1000 wind turbines =(3000-5000 MW wind or solar)
  39. 39. • Wind and solar needs conventional backup• Firm capacity 10%-15%http://ejournal.windeng.net/3/01/GGiebel-CapCredLit_WindEngEJournal_2005_right_links.pdf
  40. 40. Wind generation in Germanyhttp://www.pnl.gov/main/publications/external/technical_reports/PNNL-19225.pdf
  41. 41. Feed-in tariffs Case of Germany 2004 20120.50 €/kWh 0.20€/kWh Coal or gas plant costs 0.04€/kWh
  42. 42. €/kWH Uniform price auction D S=MC0.100-0.10
  43. 43. €/kWH Uniform price auction Negative electricity wholesale price in Germany! D S=MC0.100-0.10
  44. 44. German electricity wholesale market
  45. 45. Electricity prices 2001-2012 €24 billion deficit Czech Germany Spain Republichttp://epp.eurostat.ec.europa.eu/portal/page/portal/energy/data/main_tables
  46. 46. EU Electricity industry Association
  47. 47. Need for long-distance transmission
  48. 48. Hydro-plant and pumped storage
  49. 49. Hydro-plant and pumped storage
  50. 50. Hydro potentialNeed for long-distance transmission
  51. 51. Need for long-distance transmission
  52. 52. 2. Transmission lines
  53. 53. Industrial consumers Transmission Other countries DistributorsPower Plants Residential consumers: Households
  54. 54. September 28th, 2003Huge blackout cripples Italy!
  55. 55. Rome’s “white night”
  56. 56. 110 trains stopped night” Rome’s “whiteThousands of people stuck
  57. 57. Sils-Soazza Tree flashover! “Cross-border transmission lines”Mettlen- “Interconnectors”Lavorgo 03:01
  58. 58. Sils-Soazza Tree flashover!Mettlen-Lavorgo 03:01
  59. 59. Sils-SoazzaMettlen-Lavorgo 03:01 03:01-03.16
  60. 60. The Swiss TSO operator asks theItalian TSO for countermeasuresTSO= Transmission System Operator 03:11
  61. 61. Sils-Soazza Tree flashover!Mettlen- Italy reducesLavorgo import by -300 MW 03:25 03:21
  62. 62. Sils-Soazza Tree flashover!Mettlen-Lavorgo 03:25
  63. 63. All interconnectors areautomatically disconnected 03:26
  64. 64. 1. Transmission lines limits2. Dispatch3. Frequency and synchronicity4. Transmission shortage in the EU
  65. 65. Transmission lines limits Sils-Soazza Tree flashover!Mettlen-Lavorgo 03:01
  66. 66. Transmission lines limits flashover
  67. 67. High voltage
  68. 68. Transmission lines limits High loadSagging of the line
  69. 69. 1. Transmission lines limits2. Dispatch
  70. 70. Dispatch Sils-SoazzaMettlen-Lavorgo 03:01
  71. 71. DispatchNet Injection: Injection: 50MW 100MW Injection: 20MW ? A B Withdrawal: Net Withdrawal: 50MW Withdrawal: 70MW 50MW
  72. 72. DispatchNet Injection: 50MW Physical flow: 50MW A B Net Withdrawal: 50MW
  73. 73. Dispatch ∆-10MWNet Injection: 50MW 40MW ∆ -10MW Physical flow: 50MW 40MW A B ∆ -10MW Net Withdrawal: 40MW 50MW
  74. 74. DispatchNet Injection: 40MW Physical flow: 40MW A B Electricity cannot just be “send” somewhere Net Withdrawal: Any flow is the RESULT of the 40MW injection and withdrawals
  75. 75. The Swiss TSO operator asks theItalian TSO for countermeasuresDispatch is done by national TSOs 03:11
  76. 76. Dispatch Sils-SoazzaMettlen- Italy reducesLavorgo import by -300 MW 03:25 03:21
  77. 77. 1. Transmission lines limits2. Dispatch3. Frequency and synchronicity
  78. 78. Frequency and SynchronicityDirect Current (DC) Alternating Current (AC)
  79. 79. Frequency and Synchronicity 50 Hertz AlternatingCurrent (AC)
  80. 80. Frequency and SynchronicityDoes a lamp in your house receive zero energy 100 times a secondand is thus blinking?Raise your hand if you think that this is indeed the case.
  81. 81. Frequency and Synchronicity50 Herz is the frequency in Europe
  82. 82. Frequency and SynchronicityA shortage of generationmakes the frequency fall Slight shortage
  83. 83. Frequency and SynchronicityA surplus of generationmakes the frequency rise Slight surplus
  84. 84. Frequency and Synchronicityhttp://www.dynamicdemand.co.uk/grid.htm
  85. 85. Frequency and Synchronicityhttp://www.dynamicdemand.co.uk/grid.htm
  86. 86. Russian frequency
  87. 87. All generators are synchronized UCTE = Continental Synchronous Area
  88. 88. UCTE = ContinentalSynchronous Area
  89. 89. •Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova, Mongolia, Ukraine•Armenia•Latvia, Lithuania, Estonia•Uzbekistan, Tajikistan•Kazakhstan, Kyrgyzstan? http://so-ups.ru/index.php?id=ees
  90. 90. Frequency and Synchronicity All interconnectors areautomatically disconnected 03:26
  91. 91. Frequency and SynchronicityMini circuit breakers
  92. 92. Frequency and SynchronicityHigh voltage circuit breakers
  93. 93. 1. Transmission lines limits2. Dispatch3. Frequency and synchronicity4. Transmission shortage in the EU
  94. 94. The future of the EU transmission networkInterconnectors very high loaded at night! 03:26
  95. 95. The future of the EU transmission networkInternal EU market induces increase in cross-border trading
  96. 96. The future of the EU transmission networkMassive deployment of wind and solar energy
  97. 97. The future of the EU transmission network European 2050 Climate Increase fromFoundation 34 GW to 127 GW Increase of almost 400%
  98. 98. Industrial consumers Transmission Other countries DistributorsPower Plants Residential consumers: Households
  99. 99. Market organization and regulation Industrial consumers Other countries Transmission DistributorsPower Plants Residential consumers: Households
  100. 100. 3. Market organization and regulation
  101. 101. Transmission: large returns to scale Natural monopoly State monopoly
  102. 102. Vertically integrated Power Plants electricity Utility StateTransmission monopolyDistributors
  103. 103. Vertically integrated Power Plants electricity Utility StateTransmission monopolyDistributors
  104. 104. Competitive Open to the Power Plants market! Remains a monopolyTransmission Needs regulation: • Cost+ • Tariff • BenchmarkingDistributors
  105. 105. 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
  106. 106. Most EU consumers no longer protected by electricity price regulation!
  107. 107. How is the electricity price then determined? CompetitionBut… Competition must work
  108. 108. Concentration Generators
  109. 109. Well-developed financial electricity market- Exchanges and OTC- risk management
  110. 110. Financial market manipulation• US hedge fund, Amaranth Advisors LLC held 1. gas derivates at ICE and OTC markets 2. Gas futures on NYMEX• Then sold the gas futures on NYMEX to affect the settlement price at ICE and OTC markets• Profit: $60m-$170m
  111. 111. REMIT• Regulation on Energy Market Integrity and Transparency• Forbids: – Market abuse – Insider trading• Monitoring task for National Regulaturs and “EU regulator” ACER
  112. 112. 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
  113. 113. Greenhouse gasses heat up the earth Abate CO2
  114. 114. EMISSION PERMIT MARKETCompetition for permitsDecisions on abatement A B C
  115. 115. • United Power System (UPS): 4-th largest electricity market in the World.• 700 generating plants Installed generating capacity 220 GW
  116. 116. Electricity generation Russia, 2006
  117. 117. 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
  118. 118. RAO UES split up in 2008• OGK 1: http://www.ogk1.com/en/ • TGK 7: http://en.votgk.com/• OGK 2: • TGK 8: http://www.tgk-8.ru/ http://www.ogk2.ru/eng/index.wbp • TGK 9: http://www.tgk9.ru• OGK 3: http://www.ogk3.ru/en- main/ • TGK 10: http://www.fortum.ru/company/• • TGK 11: http://eng.tgk11.com/about/ OGK 4: http://eng.ogk-4.ru/ • TGK 12: http://www.kuzbassenergo.ru/eng/• OGK 5: http://www.ogk-5.com/en/ • TGK 13: http://eng.tgk13.ru/• OGK 6: http://www.ogk6.ru/en/ • TGK 14: http://www.tgk-14.com/• GidroOGK: http://www.eng.rushydro.ru/ • IDGC North-West: http://eng.mrsksevzap.ru/• TGK 1: • IDGC Ural: http://www.mrsk- http://www.tgc1.ru/en/home/ ural.ru/eng/company/• • IDGC South: http://www.mrsk-yuga.ru/ TGK 2: http://www.tgc- 2.ru:8101/en/index.shtml • IDGC Center: http://www.mrsk-1.ru/• TGK 3: • IDGC Center and Volga Region: http://www.mosenergo.ru/Eng/Defa http://www.mrsk-cp.ru/ ult.aspx • Manager of the unified transport network:• TGK 4: http://www.quadra.ru/ http://www.fsk-ees.ru/• TGK 5: http://www.tgc5.ru/rus.html • Rosenergoatom: http://www.rosenergoatom.ru/• TGK 6: http://www.tgc6.ru/index.php? id=news&L=1
  119. 119. Largest 3 foreign investors:• E.ON (Germany)• Enel (Italy)• Fortum (Finland)
  120. 120. 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
  121. 121. Electricity consumption Russia, 2007 Gigantic losses
  122. 122. Growth of electricity demand
  123. 123. 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
  124. 124. Regulation• regulatory authority: the Market Council• But not independent, government: – control over most pricing issues – Veto over Market Council decisions
  125. 125. Industrial consumers Transmission Other countries DistributorsPower Plants Residential consumers: Households

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