Lecture Review of World Electricity Market Economics

Prévia do material em texto

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Electricity Market Economics
Worldwide Review + Green Energy 
Economics Review
Kevin Davis
(c) KDavis CIT 2014 1
References
• Renewable Energy in Power Systems (Leon 
Freris and David Infield, Wiley publications)
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T1
R2R1
T3T2
R3
G1 G3G2
Tie lines
Circuit 
Breakers
consumers
Power
Plants
© KDavis CIT 2011 3
Generators
Suppliers
Types of market structures
• Centrally Planned and Fully Regulated 
Monopoly; ESB in Ireland , Central Electricity 
Generating Board in UK.
• Centrally Planned and partially Deregulated
Current system in Ireland. (SEMO and 
EIRGRID still centrally balance expected demand 
with scheduled generation capacity)
• Fully Deregulated Current system in UK 
(suppliers and generators balance their 
expected outputs)
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Case study: UK
• Before 1990 Centrally Planned and Fully Regulated 
(monopoly). Regional electricity companies (REC) acted as 
suppliers and were responsible for lower voltage networks in their 
area.
• Privatisation. National Power & Powergen purchased
generation stations (except Nuclear plants which remained 
state owned) REC’s given ownership of National Grid 
Company
• Pooling and Settlement agreement to select generation 
plants. (same as Irish market now! Note Nuclear plants could 
bid a zero value to ensure they would be selected as they 
would still be given the pool purchase price when selected)
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Case study: UK
• Pool Purchase Price (PPP): Price paid to all in-merit generators for 
a half hour period
• Pool Selling Price; Supplier paid a little more that the PPP (difference 
due to costs of running the grid and costs associated with standby generation). 
• Deregulation. 1992-1999 customer could select their supplier (1992 
only large consumers, 1999 all consumers). New generators also allowed 
enter the market (including RE generators) National Grid Company (NGC) 
became independent.
• New Electricity Trading Arrangements (NETA) “following criticisms of 
how pool prices could be manipulated by a few key generators” Bilateral 
contracts between generators and suppliers now possible.
• Each supplier is now forecasting their hourly demand from 
their customers and purchasing output capacity from 
generators up to a month ahead. The NGC must be notified of 
all forecasts and bilateral agreements.
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Case study: UK
• Bilateral contracts: straight contracts between two 
parties for a given volume of electricity at a given 
price.
• Now accounts for 90% of volume of wholesale 
electricity sold in UK
• Contracts can be for several months
• Power exchange: as forecasts of demand improve 
(usually a day or hours before power is provided) 
surplus capacity or lack of capacity can be purchased 
or sold on the power exchange)
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Case study: UK
• IMBALANCE MARKET: If the Supplier under-estimates
demand, they must buy additional supply at the System Buy 
Price (SBP) If the Supplier over-estimates demand, they can 
sell surplus capacity at the System Sell Price (SSP). Generators 
must also buy capacity if there are unable to fulfil their 
contracts. 
• BALANCING MARKET. NGC still must balance supply and 
demand to maintain grid frequency. Generators with the ability to 
rapidly change their output bid to provide this service to NGC. NGC 
evaluates these bids and notifies successful generators. (these costs 
are then passed onto the generators/suppliers that caused the 
imbalance). Flexible Suppliers can also bid in this market
• After 2005, NETA became BETTA (British Electricity Transmission 
and Trading Arrangement). 
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Case study: Scandinavian Nord Pool
• Countries Sweden, Norway, Finland and parts of 
Denmark.
• Most electricity traded using bilateral contracts.
• A day ahead spot market (similar to power exchange) also 
operates
• Prices on the spot market depend on the number of bids 
to sell surplus capacity (supply) and number of bids to 
looking for increased capacity (demand).
• Within each country there is also a balancing market. 
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Case study: other countries
• Australia mandatory National Electricity Market…very 
similar to the Irish market
• New Zealand traded using bilateral contracts and the 
spot market (NZEM). The centralise NZEM is the more 
popular choice
• Similar markets are operated in Argentina and California. 
• France, Greece; (Single Buyer Model) This SBM is the 
only authority that can sell electricity to consumers.
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Green Energy Economics
Economic support mechanisms needed by RE plants to 
compete in electricity market due to 
• Cost of production with these technologies is higher (at 
present). There is an expectation that as these 
technologies mature and plant sizes increase, their 
operating costs will decrease
• Variability of output. More difficult to enter into bilateral 
agreements to supply a demand when forecasting is not 
100% accurate
The benefits to society in the avoidance of external costs 
(such as costs associated with damage to health and the 
environment due to pollution) is given as the justification for 
these support schemes
(c) KDavis CIT 2014 12
Types of Support Mechanisms for RE
• Feed in Law ; RE generation paid a fixed price for 
output and suppliers are obliged to take this output. 
Examples; Refit in Ireland, similar scheme in Germany
• Quote System: Supplier must provide a certain 
fraction of their output from RE sources. Proof that 
this is achieved can be by issuing green certificate 
when RE is produced. Example; Renewable 
Obligation (RO) in UK. Suppliers have to pay a “buy-
out” obligation if they are unable to meet their target 
(€45/MWh). Suppliers use Renewable Energy 
Certificates (ROCs) to proof compliance. The “buy-
out” money paid is redistributed to compliant 
suppliers.
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Types of Support Mechanisms for RE
• Carbon Tax: simple tax on electricity output based on 
CO2 emissions level per output. The higher costs of 
RE are then offset by a zero tax rate. Example; 
Climate change levy in UK
• Tax Relief: available on the capital investment in new 
RE plants. Example. Germany 10% of investment 
costs can be offset against income tax over a 10 year 
period
Revision Questions
1. Explain the term “Bilateral agreements”
2. How does the British Electricity and Trading 
Arrangements (BETTA) differ from the single 
electricity market (SEM) in Ireland? What are 
the implications for generators \suppliers 
operating using BETTA?
3. “the cost of balancing the electricity market in 
the UK targets those participants that are out of 
balance with their contracted position”. Discuss 
this statement and compare to the Irish 
electricity pool system.
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Revision Questions
4. Describe the four types of support 
mechanisms used to encourage the use of 
renewable energy in international electricity 
markets
5. Explain the terms “Imbalance market” and 
“balancing market” as applied to the UK 
electricity grid.
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