A new edition of the classic text explaining the fundamentals of competitive electricity markets—now updated to reflect the evolution of these markets and the large scale deployment of generation from renewable energy sources. The introduction of competition in the generation and retail of electricity has changed the ways in which power systems function. The design and operation of successful competitive electricity markets requires a sound understanding of both power systems engineering and underlying economic principles of a competitive market. This extensively revised and updated edition of the classic text on power system economics explains the basic economic principles underpinning the design, operation, and planning of modern power systems in a competitive environment. It also discusses the economics of renewable energy sources in electricity markets, the provision of incentives, and the cost of integrating renewables in the grid. Fundamentals of Power System Economics, Second Edition looks at the fundamental concepts of microeconomics, organization, and operation of electricity markets, market participants' strategies, operational reliability and ancillary services, network congestion and related LMP and transmission rights, transmission investment, and generation investment. It also expands the chapter on generation investments—discussing capacity mechanisms in more detail and the need for capacity markets aimed at ensuring that enough generation capacity is available when renewable energy sources are not producing due to lack of wind or sun. Retains the highly praised first edition's focus and philosophy on the principles of competitive electricity markets and application of basic economics to power system operating and planning. Includes an expanded chapter on power system operation that addresses the challenges stemming from the integration of renewable energy sources. Addresses the need for additional flexibility and its provision by conventional generation, demand response, and energy storage. Discusses the effects of the increased uncertainty on system operation. Broadens its coverage of transmission investment and generation investment. Supports self-study with end-of-chapter problems and instructors with solutions manual via companion website. Fundamentals of Power System Economics, Second Edition is essential reading for graduate and undergraduate students, professors, practicing engineers, as well as all others who want to understand how economics and power system engineering interact.
Author(s): Daniel Sadi Kirschen, Goran Strbac
Publisher: John Wiley & Sons
Year: 2019
Language: English
Pages: 347
Tags: Electric Utilities, Electric Power Distribution, Interconnected Electric Utility Systems
Fundamentals of Power System Economics......Page 1
Contents......Page 9
Preface to the First Edition......Page 15
Preface to the Second Edition......Page 17
1.1 Why Competition?......Page 19
1.2.1 Traditional Model......Page 20
1.2.2 Introducing Independent Power Producers......Page 22
1.2.3 Wholesale Competition......Page 23
1.2.5 Renewable and Distributed Energy Resources......Page 24
1.3 Dramatis Personae......Page 25
1.4 Competition and Privatization......Page 26
1.5 Experience and Open Questions......Page 27
1.6 Problems......Page 28
Further Reading......Page 29
2.2.1.1 Individual Demand......Page 31
2.2.1.2 Surplus......Page 32
2.2.1.3 Demand and Inverse Demand Functions......Page 33
2.2.2.1 Opportunity Cost......Page 36
2.2.2.2 Supply and Inverse Supply Functions......Page 37
2.2.2.4 Elasticity of Supply......Page 38
2.2.3 Market Equilibrium......Page 40
2.2.4 Pareto Efficiency......Page 42
2.2.5 Global Welfare and Deadweight Loss......Page 43
2.2.6 Time-varying Prices......Page 44
2.3.2 Long Run and Short Run......Page 45
2.3.3.1 Short-run Costs......Page 48
2.3.3.2 Long-run Costs......Page 50
2.5 Types of Markets......Page 52
2.5.2 Forward Contracts and Forward Markets......Page 53
2.5.3 Futures Contracts and Futures Markets......Page 55
2.5.4 Options......Page 56
2.5.5 Contracts for Difference......Page 57
2.5.6 Managing the Price Risks......Page 58
2.6.1 Market Power......Page 59
2.6.2 Monopoly......Page 60
2.7 Problems......Page 61
Further Reading......Page 67
3.1 What Is the Difference Between a Megawatt-hour and a Barrel of Oil?......Page 69
3.2 Trading Periods......Page 70
3.3 Forward Markets......Page 71
3.3.1 Bilateral or Decentralized Trading......Page 72
3.3.2.1 Principles of Centralized Trading......Page 75
3.3.2.2 Day-ahead Centralized Trading......Page 77
3.3.2.3 Formulation as an Optimization Problem......Page 78
3.3.2.4 Market Clearing Price......Page 79
3.3.2.5 Recovering the Fixed Costs......Page 81
3.3.3 Comparison of Centralized and Decentralized Trading......Page 85
3.4 Spot Markets......Page 86
3.4.1 Obtaining Balancing Resources......Page 87
3.4.3 Operation of the Spot Market......Page 88
3.4.4 Interactions Between the Spot Market and the Forward Market......Page 90
3.5 The Settlement Process......Page 91
3.6 Problems......Page 93
Further Reading......Page 104
4.2 The Consumer’s Perspective......Page 107
4.3 The Retailer’s Perspective......Page 109
4.4.1.1 Basic Dispatch......Page 116
4.4.1.2 Unit Limits......Page 117
4.4.1.3 Piecewise Linear Cost Curves......Page 118
4.4.1.4 No-load Cost......Page 119
4.4.1.5 Scheduling......Page 120
4.4.1.6 Startup Cost......Page 121
4.4.1.7 Operating Constraints......Page 122
4.4.2 The Produce Vs Purchase Decision......Page 123
4.4.3 Imperfect Competition......Page 125
4.4.3.1 Bertrand Model......Page 126
4.4.3.2 Cournot Model......Page 127
4.4.3.3 Supply Functions Equilibria......Page 134
4.5 Perspective of Plants That Do Not Burn Fossil Fuels......Page 135
4.5.2 Hydroelectric Power Plants......Page 136
4.5.3.2 Government Policies and Subsidies......Page 137
4.5.3.3 Effect on the Markets......Page 138
4.6.1 Self-scheduling......Page 139
4.6.2 Centralized Operation......Page 140
4.7.1 Flexible Demand Vs Storage......Page 143
4.7.3 Implementation Issues......Page 144
4.9.1 Clearing the Market......Page 149
4.9.2 Exercising Market Power......Page 151
4.9.3 Dealing with Market Power......Page 153
4.10 Problems......Page 154
Further Reading......Page 156
5.2 Decentralized Trading over a Transmission Network......Page 159
5.2.1 Physical Transmission Rights......Page 160
5.2.2.1 Parallel Paths......Page 161
5.2.2.2 Example......Page 162
5.2.2.3 Physical Transmission Rights and Market Power......Page 165
5.3.1 Centralized Trading in a Two-Bus System......Page 166
5.3.1.1 Unconstrained Transmission......Page 167
5.3.1.2 Constrained Transmission......Page 168
5.3.1.3 Congestion Surplus......Page 171
5.3.2 Centralized Trading in a Three-Bus System......Page 173
5.3.2.1 Economic Dispatch......Page 174
5.3.2.2 Correcting the Economic Dispatch......Page 177
5.3.2.3 Nodal Prices......Page 180
5.3.2.5 Economically Counterintuitive Flows......Page 185
5.3.2.6 Economically Counterintuitive Prices......Page 187
5.3.2.8 Nodal Pricing and Market Power......Page 189
5.3.2.9 A Few Comments on Nodal Marginal Prices......Page 191
5.3.3.2 Marginal Cost of Losses......Page 192
5.3.3.3 Effect of Losses on Generation Dispatch......Page 194
5.3.3.5 Combining Losses and Congestion......Page 196
5.3.4.1 Network with a Single Busbar......Page 197
5.3.4.2 Network of Infinite Capacity with Losses......Page 198
5.3.4.3 Network of Finite Capacity with Losses......Page 200
5.3.4.4 Network of Finite Capacity, DC Power Flow Approximation......Page 202
5.3.4.5 AC Modeling......Page 205
5.3.5.1 The Need for Network-Related Contracts......Page 206
5.3.5.2 Financial Transmission Rights......Page 207
5.3.5.3 Point-to-Point Financial Transmission Rights......Page 209
5.4 Problems......Page 213
Further Reading......Page 220
6.1.1 The Need for Operational Reliability......Page 221
6.1.3 The Cost of Reliability......Page 222
6.1.5 Outline of the Chapter......Page 224
6.2.1 Balancing Issues......Page 225
6.2.1.1 Balancing Resources......Page 228
6.2.2.1 Limits on Power Transfers......Page 230
6.2.2.2 Voltage Control and Reactive Support......Page 232
6.2.3 System Restoration......Page 236
6.3.1 Compulsory Provision......Page 237
6.3.2 Market for Reliability Resources......Page 238
6.3.3 System Balancing with a Significant Proportion of Variable Renewable Generation......Page 239
6.3.4 Creating a Level-playing Field......Page 240
6.4.1 Quantifying the Needs......Page 241
6.4.2 Co-optimization of Energy and Reserve in a Centralized Electricity Market......Page 242
6.4.3 Allocation of Transmission Capacity Between Energy and Reserve......Page 250
6.4.4.1 Who Should Pay for Reserve?......Page 255
6.5 Selling Reliability Resources......Page 256
6.6 Problems......Page 261
References......Page 264
Further Reading......Page 265
7.2.1 Building New Generation Capacity......Page 267
7.2.2 Retiring Generation Capacity......Page 273
7.2.3 Effect of a Cyclical Demand......Page 275
7.3 Generation Capacity from the Customers’ Perspective......Page 278
7.3.1 Expansion Driven by the Market for Electrical Energy......Page 279
7.3.2 Capacity Payments......Page 281
7.3.3 Capacity Market......Page 282
7.3.4 Reliability Contracts......Page 283
7.4.1 The Investors’ Perspective......Page 284
7.5 Problems......Page 285
References......Page 287
Further Reading......Page 288
8.1 Introduction......Page 289
8.2 The Nature of the Transmission Business......Page 290
8.3 Cost-Based Transmission Expansion......Page 291
8.3.2 Allocating the Cost of Transmission......Page 292
8.3.2.2 Contract Path Method......Page 293
8.4 The Arbitrage Value of Transmission......Page 294
8.4.1 The Transmission Demand Function......Page 296
8.4.2 The Transmission Supply Function......Page 298
8.4.3 Optimal Transmission Capacity......Page 299
8.4.4 Balancing the Cost of Constraints and the Cost of Investments......Page 300
8.4.5 Effect of Load Fluctuations......Page 301
8.4.5.1 Load-duration Curve......Page 302
8.4.5.2 Recovery of Variable Transmission Investment Costs......Page 305
8.4.6 Revenue Recovery for Suboptimal Transmission Capacity......Page 306
8.4.7 Economies of Scale......Page 308
8.4.8 Transmission Expansion in a Meshed Network......Page 310
8.4.9.1 Notations......Page 316
8.4.9.3 Implementation......Page 318
8.5.1 Sharing Reserve......Page 321
8.5.2 Sharing Balancing Capacity......Page 324
8.5.3 Sharing Generation Capacity Margin......Page 326
8.6.1 Concept......Page 328
8.6.2 Illustration on a Two-bus System......Page 329
8.7 Non-wires Alternatives for Transmission Expansion......Page 332
8.8 Problems......Page 333
References......Page 334
Further Reading......Page 335
Index......Page 337
End User License Agreement......Page 347
