The impact of deregulation on the theory and practice of investment appraisal is addressed in this comprehensive treatment of the restructuring of the electricity supply industry. Demonstrating that the classical approach to generation investment appraisal is no longer valid, a new approach is developed using three economic models to represent differing market conditions. Highlighting the impact on the organisation of the utilities and their suppliers, Electricity Markets offers essential advice for survival in the deregulated environment worldwide. Features include:- Examination of the alternative market structures and their mechanisms- Methods for investment appraisal and market simulation to support the assessment of market strategies by generators, distributors and suppliers- Use of game theory to predict market behaviour and competitive interaction- Coverage of the analytical and technical aspects of grid deregulation plus a look ahead to the long term productivity and structure of the industry- Discussion of the regulatory framework and its limitations in improving efficiency and encouraging optimum levels of investment This timely book will enlighten a broad audience ranging from utility managers and suppliers involved in deregulation to consultants and academics concerned with managing change.
Author(s): Barrie Murray
Publisher: Wiley
Year: 1999
Language: English
Pages: 280
Cover.jpg......Page 1
Front Matter......Page 2
Dedication......Page 4
Glossary......Page 0
Symbols......Page 5
Preface......Page 7
Table of Contents......Page 8
Part I. A Review of Market Structures and Mechanisms......Page 16
1.1 Objectives......Page 17
1.2.1 England and Wales......Page 18
1.2.4 New Zealand and Australia......Page 19
1.2.5 Europe......Page 20
1.3 Commercial Arrangements......Page 21
1.4 Implications......Page 22
1.5 The Analysis......Page 23
2.1 The Gross Pool......Page 24
2.2 Bilateral Trading - The Net Pool......Page 26
2.3 The Single Buyer......Page 27
2.4 Zonal Pools......Page 28
2.6 State Utility......Page 29
2.7 Transmission Issues......Page 30
2.9 Stranded Assets......Page 31
2.10 Market Comparisons......Page 32
3.1.1 Ex-Ante Pricing......Page 34
3.2.1 LOLP......Page 35
3.3 Accommodating Transmission Constraints......Page 36
3.4 Enabling Demand Side Participation......Page 37
3.6.1 Spot Contract Market......Page 38
3.6.3 The Constrained Schedule......Page 39
3.6.4 Generator Payments......Page 40
3.6.7 Implementation......Page 41
3.7 Unit Commitment......Page 42
3.8 Conclusion......Page 43
4.1 Reliability......Page 45
4.2 Competition......Page 47
4.3 Price Trends......Page 50
4.4 SMP v Demand......Page 51
4.5.1 Plant Margin......Page 52
4.5.4 Use of Transmission Charging......Page 54
4.6.1 Staffing......Page 55
4.7 Conclusions......Page 56
5.1 Solution Process......Page 58
5.1.3 Model 3 - Interaction......Page 59
5.2 Production Modelling......Page 62
5.2.1 Typical Model......Page 64
5.3 Conclusions......Page 66
6.1 SMP Derivation......Page 68
6.2 Derivation of Optimal Plant Mix......Page 69
6.2.2 LP Formulation......Page 70
6.3 SMP Estimation......Page 72
6.4 Conclusions......Page 73
7.1 Theory......Page 75
7.2 LOLP v Margin......Page 76
7.4 LOLP and Pooling......Page 78
7.5 Optimum Investment Level......Page 80
7.6 Conclusion......Page 81
8.1 Basic Principle......Page 82
8.2 Ideal Price Derivation......Page 83
8.3 Actual SMP Prices......Page 84
8.4 LOLP and Capacity Charge......Page 85
8.5 BST......Page 87
8.6 Comparison of Actual PSP with BST......Page 88
8.7 The Open Supply Market......Page 89
8.8 Conclusions......Page 90
9.1 Marginal Pricing......Page 91
9.2 Plant Mix......Page 92
9.3 Plant Margins......Page 93
9.5 Consumers......Page 94
9.6 Security of Supply......Page 95
9.7 Conclusions......Page 96
10. A Medium Term Market Based on Lagrangian Relaxation......Page 97
10.1 The Requirements......Page 98
10.3 The Theory......Page 99
10.4 Commercial Arrangements......Page 102
10.5 Other Improvements......Page 103
10.7 Conclusion......Page 104
Part II. Generation Investment Appraisal......Page 106
11.1 Classical Approach......Page 107
11.2 Pre-Privatisation Approach......Page 108
11.3 Post-Privatisation Approach......Page 109
11.5 Conclusion......Page 111
12.1 Estimation of Income......Page 113
12.3 Generator Costs......Page 114
12.4 Profit Forecast......Page 115
12.5 Predicting Utilisation......Page 116
12.6 Predicting SMP......Page 119
12.7 Results......Page 120
12.8 Forward Pricing......Page 121
12.9 Conclusions......Page 125
13.1 The Profit Function......Page 126
13.2 Calculating Total Profit......Page 127
13.3.3 Phase 3. Calculating Total Profit Function......Page 130
13.4 Modelling Uncertainty......Page 131
13.5 Alternative Company Interaction Models......Page 133
13.5.2 Stackelburg Equilibrium......Page 134
13.7 Conclusions......Page 135
14.1 The System Merit Order......Page 137
14.2 Theoretical Derivation of Profit Function......Page 138
14.4 Changing Capacity and Demand......Page 139
14.5 Multiple Interaction......Page 140
14.6 Modelling Interactive Expansion......Page 142
14.7 Risk and Option Evaluation......Page 143
14.8 Conclusions......Page 144
Part III. Transmission Investment Appraisal......Page 146
15.1 The Regulated Monopoly......Page 147
15.3.1 England and Wales......Page 148
15.3.2 Australia......Page 149
15.3.3 USA......Page 150
15.3.5 Norway......Page 151
15.3.8 Sweden......Page 152
15.4 Discussion......Page 153
16. Cost Apportionment and Benefit......Page 154
16.2 The Benefit Function......Page 156
16.3.1 Operating Costs......Page 158
16.3.2 Improved Security......Page 159
16.3.4 Losses......Page 160
16.4.2 Optional Interconnection......Page 161
16.5 Conclusions......Page 162
17. Interconnection Evaluation......Page 164
17.2 Effect of Interconnection......Page 165
17.3 The Optimal Wheel......Page 166
17.4 Example......Page 167
17.5 Transmission Profit......Page 169
17.6 System Wheeling......Page 170
17.7 Consumer Reaction......Page 171
17.8 Discussion......Page 172
18. Managing Constraints......Page 174
18.1 Constraint Costs......Page 175
18.2 Post-Market Settlement - Uplift Definition......Page 176
18.3 Commercial Arrangements......Page 177
18.4 Transaction Model......Page 178
18.5.1 No Contracts......Page 179
18.5.2 Contracts......Page 180
18.6 Modelling in Operation......Page 181
18.7 Conclusion......Page 183
19. Optimal Investment and Outage Planning......Page 184
19.2 Loading Programme......Page 185
19.3 The Cost Function......Page 186
19.4 Derivation of Optimal Outage Pattern......Page 187
19.5 Example......Page 188
19.6 Full Year Assessment......Page 189
19.7.1 Cost Uplift......Page 190
19.8 Commercial Arrangements......Page 191
19.9 Conclusion......Page 192
Part IV. The Impact on Utility Operations......Page 194
20. Impact on System Operation......Page 195
20.1.2 Demand Prediction......Page 196
20.1.3 Unit Commitment......Page 197
20.1.4 Unit Dispatch......Page 198
20.2.1 Bid Data Management......Page 199
20.2.3 Ancillary Services......Page 200
20.3 The Independent System Operator......Page 201
20.4 Conclusions......Page 202
21. Impact on System Development......Page 203
21.1 Generation Planning......Page 204
21.2 Transmission......Page 205
21.2.1 The Planning Code......Page 206
21.3 Distribution Planning......Page 207
21.4 Conclusions......Page 208
22. The Commercial Infrastructure......Page 209
22.1 Generation......Page 210
22.2 Transmission......Page 211
22.4 Supplier Income......Page 212
22.7 Take-overs and Mergers......Page 213
22.8 Conclusion......Page 214
23.1 Background......Page 215
23.2.4 Metering and Monitoring......Page 216
23.4 Structure......Page 217
23.6 Conclusions......Page 219
Part V. The Changing Market for Facility Providers......Page 221
24. New Businesses and Drivers......Page 222
24.2 New Needs......Page 223
24.3 Supplier Response......Page 224
24.4 Future......Page 225
25. Primary Plant for Generation Transmission and Distribution......Page 227
25.1.2 Generation......Page 228
25.1.3 Transmission......Page 229
25.1.4 Distribution......Page 230
25.2.1 Generation......Page 231
25.2.2 Transmission......Page 232
25.2.3 Distribution......Page 234
25.3 Conclusions......Page 235
26. IT Metering and Telecommunications......Page 237
26.1 Metering Systems......Page 238
25.1.3 Transmission......Page 239
26.3 Settlement Systems......Page 240
26.4 Asset Management Systems......Page 241
26.5 Operational Systems......Page 242
26.6 Conclusions......Page 243
Part VI. The Market and the Future......Page 244
27. The Role and Effect of Regulation......Page 245
27.1 International Practice......Page 246
27.2 Experience......Page 247
27.4 The Nuclear Position......Page 248
27.5 Gas Electricity Arbitrage......Page 249
27.6 Impact on Investment......Page 250
28.1 The Market......Page 251
28.2 Generation Investment Appraisal......Page 252
28.3 Transmission Investment Appraisal......Page 254
28.4 The Impact on Utility Operations......Page 255
28.5 The Changing Market for Facility Providers......Page 256
29.1 Are Markets Delivering Benefit?......Page 257
29.2 The Economic Theory......Page 258
29.3 Alternative Structures......Page 259
29.4 Alternative Working Arrangements......Page 260
29.5 The Way Forward......Page 261
29.7 Conclusion......Page 262
Select Bibliography......Page 263
Glossary......Page 266
C......Page 268
E......Page 270
H......Page 271
L......Page 272
N......Page 273
O......Page 274
P......Page 275
S......Page 276
T......Page 277
U......Page 278
Z......Page 279
