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Energy Economics
http://www.economist.com/news/briefing/21587782-europes-electricity-providers-face-existential-threat-how-lose-half-trillion-euros
• Commercial and industrial customers are increasingly separating from the grid to avoid the tax to pay for renewable energy expansion.
• Wall Street Journal, 2014.03.02:– 16 percent of German companies are now
energy self-sufficient – Another 23 percent of businesses say they
plan to become energy self-sufficient in the near future.
• companies that avoid the surcharge and receive subsidies can cut their electricity bills by around 50%.
Michael Salcher, head of the energy and natural-resources practice at consultancy KPMG Germany
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• Electrical self-reliance has its share of drawbacks.– requires large initial investments – manage equipment unrelated to core
business
• Organization of electricity markets1. Liberalization
2. Transmission pricing
• Nodal and zonal dispatch in meshed networks
• Peak-load pricing
900MW@20$/MWh
800MW@50$/MWh
900MW@20$/MWh
800MW@50$/MWh
Nodal pricing Zonal pricing
A B
400MW 300MW 400MW 300MW
A B
A B
900MW@20$/MWh
+ @35$/MWh- (@-10$/MWh
400MW 300MW
@20$/MWh @20$/MWh
300MW400MW 300MW
@20$/MWh @20$/MWh
300MW
Nodal pricing Zonal pricing
800MW@50$/MWh
+ @70$/MWh- (@-20$/MWh
A B
Bids for ancillary market (balancing market)
900MW@20$/MWh
+ @35$/MWh- (@-10$/MWh
800MW@50$/MWh
+ @70$/MWh- (@-20$/MWh
A B
900MW@20$/MWh
+ @35$/MWh- (@-10$/MWh
400MW 300MW
@20$/MWh @50$/MWh
200MW400MW 300MW
@20$/MWh @20$/MWh
300MW
Nodal pricing Zonal pricing
800MW@50$/MWh
+ @70$/MWh- (@-20$/MWh
A B
900MW@20$/MWh
+ @35$/MWh- (@-10$/MWh
800MW@50$/MWh
+ @70$/MWh- (@-20$/MWh
Max: 200MWMax: 200MW
@30$/MWh
Price of transmission?
20
50
900 1700700
1st dispatch
Cost of $20x600+$50x100 =17.000
A B
900MW@20$/MWh
+ @35$/MWh- (@-10$/MWh
400MW 300MW
@20$/MWh @50$/MWh
200MW400MW 300MW
@20$/MWh @20$/MWh
200MW
Nodal pricing Zonal pricing
800MW@50$/MWh
+ @70$/MWh- (@-20$/MWh
A B
900MW@20$/MWh
+ @35$/MWh- (@-10$/MWh
800MW@50$/MWh
+ @70$/MWh- (@-20$/MWh
Max: 200MWMax: 200MW
@30$/MWh
Price of transmission?
20
50
900 1700700
-100MW @-10$= +1.000$
+100MW @70$= -7.000$
Cost of 6.000
1st dispatch
2nd dispatch
Cost of 14.000
A B
900MW@20$/MWh
+ @35$/MWh- (@-10$/MWh
400MW 300MW
@20$/MWh @50$/MWh
200MW400MW 300MW
@30$/MWh @30$/MWh
200MW
Nodal pricing Zonal pricing
800MW@50$/MWh
+ @70$/MWh- (@-20$/MWh
A B
900MW@20$/MWh
+ @35$/MWh- (@-10$/MWh
800MW@50$/MWh
+ @70$/MWh- (@-20$/MWh
Max: 200MWMax: 200MW
@30$/MWh
Price of transmission?
20
50
900 1700700
2nd dispatch
-100MW @-10$= +1.000$
+100MW @70$= -7.000$
1st dispatch
Cost of 14.000
Total costs 1st +2nd dispatch=20.000
• The difference between the cost of 20.000 in the zonal system and the 17.000 in the nodal system is $3.000
• This is:1. the cost of dispatching the cheap generator for 300MW and
then reducing him for 100MW: this costs 100MW * $10=$1000• The $10 is the difference between what the generator charges if
dispatched ahead and what he gives for a decrease in the balancing period (real-time).
2. the cost of not dispatching the expensive generator and then increasing him for 100MW: this costs 100MW * $20=$1000
• The $20 is the difference between what the generator charges if dispatched ahead and what he charges in the balancing period (real-time).
• When– A can inject maximally 90MW? – And B increases demand with 10MW
• what is then the MC and AC?
Adverse flows
• Nodal & Zonal
• Peak-load pricing
Peak-load pricingExample: Transmission interconnector line
ST-MC
Off-peak
Peak
LT-MCPpeak
POff-peak=0
25
Peak-load pricingGives clear economic signals!
ST-MC
Off-peak
Peak
LT-MCPpeak
POff-peak=0
26
ST-MC
Off-peak
Peak
LT-MC
Ppeak
POff-peak=0
Invest in expansion of transmission capacity on the line
Do not invest in expansion
(wait or even remove a line)
Zonal pricing -> averaging
(EU)
Nodal pricing (also Locational Marginal Pricing) -> peak-load pricing
(USA)
Peak-load pricingExample: Transmission interconnector line
ST-MC
Off-peak
Peak
LT-MC
POff-peak
Ppeak
PAVERAGE
28
3 node network
40MW
A B
40MW
Limit: 50MW
Limit: 50MW
Net Withdraw: 80MW
Net Injection:80MW
A
B
Injection: 120MW
С
Demand: 120MWWithdrawal: 120MW
70$/MWh
40MW80MW
40MW
Marginal Cost?
Dispatch with 3 nodes
30$/MWh
30$/MWh
A
B
Injection: 120MW
С
Demand: 120MWWithdrawal: 120MW
70$/MWh
40MW80MW
40MW
Dispatch with 3 nodes
30$/MWh
Limit: 500MWLimit: 20MW
Limits
Demand: 120MWWithdrawal: 120MW
A
B
Injection: 120MW
С
Limit: 500MWLimit: 20MW
40MW80MW
40MW
Injection: 60MW
20MW
20MW
60MW30$/MWh 60MWh is shed!
Solution 1?: lower injection
40MW
70$/MWh
30$/MWhLimits
Demand: 120MWWithdrawal: 120MW
A: 40MW
A
B
Injection: 120MW30$/MWh
С
Limit: 500MWLimit: 20MW
70$/MWh
A: 80M
W
A: 40MW
Solution 2?: Add counter flow
Inject 60 MW
B: 20MWB: 2
0MW
B: 40MW180MW
A NET: 20MW
Limits
A: 40MW
A
B
Injection: 120MW30$/MWh
С
Limit: 500MWLimit: 20MW
70$/MWh
A: 80M
W
A: 40MW
Solution 3: Counter flow & proportional downturning
Inject 60 MW
B: 20MWB: 2
0MW
B: 40MW
Injection: 80MW30$/MWh
A: 53.33 M
W A: 26.67 MW
A: 26.67 MW
Inject 40 MW
B: 13.33 MW
B: 13.3
3 MW
B: 26.67 MWDemand: 120MW
Withdrawal: 180MW120MW
• Up till 60MW from A no problem
A
B
Injection: 60MW30$/MWh
С
Limit: 500MWLimit: 20MW
70$/MWh
A:20MWA:40MW
A: 20MW
Limits
Demand: 120MWWithdrawal: 60MW
A: +⅓ MW
A: 20MW
A
B
Injection: 60MW30$/MWh
С
Limit: 500MWLimit: 20MW
70$/MWh
A: 40MW
A: 20MW
Limits+1 MW
B: + ⅓ MW
+1 MWDemand: 120MW
Withdrawal: 60MW
A:+10 MW
A: 20MW
A
B
Injection: 60MW30$/MWh
С
Limit: 500MWLimit: 20MW
A: 40MW
A: 20MW
Limits+30 MW
B: +10 MW
+30 MW70$/MWhDemand: 120MW
Withdrawal: 60MW
A: 30MW
A: 60MW
B: 20MW
B: 10MW
90MW120MWMarginal Cost? 50$/MWh
