POWER GENERATION ECONOMICS

Economics
of
Generation
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1. Cost of power generation :

a) Thermal.
b) Hydro.
c) Nuclear.

2. Types of consumers in a distribution system :

a) Domestic.
b) Commercial
c) Industrial etc.

3. Concept of load factor.

Load factor is an expression of how much energy was used in a time period, versus how much
energy would have been used, if the power had been left on during a period of peak demand. It is a
useful indicator for describing the consumption characteristics of electricity over a period of time.
Customers whose facilities are metered for demand can readily determine the load factor for any given
month. Facilities billed at highest peak demand during the billing period should avoid periods of
increased demand whenever possible.

HOW TO CALCULATE LOAD FACTOR :

The load factor percentage is derived by dividing the total kilowatt-hours (kWh) consumed in
a designated period by the product of the maximum demand in kilowatts (kW) and the number of
hours in the period. In the example below, the monthly kWh consumption is 36,000 and the peak
demand is 100 kW. There were 30 days in the billing period.

This load factor indicates the monthly energy consumption of 36,000 kWh used by the
customer was 50% of the total energy available (72,000 kWh) for use at the 100 kW level.

IMPORTANCE OF LOAD FACTOR :

Austin Energy must be able to meet customers’ peak demand for electricity at all times. The
annual load factor percentage for Austin Energy’s system is calculated in the same manner as
described above.
The demand rate structure automatically rewards customers for improving their load factor.
Since load factor is an expression of how much energy was actually used compared to the peak
demand, customers can use the same amount of electricity from one month to the next and still cause
their average cost per kilowatt-hour to drop as much as 40% simply by reducing the peak demand. For
instance, a 25% load factor in the summer would yield an average cost per kWh of 13.2 cents, while
an 80% load factor would yield an average cost per kWh of 7.9 cents. Remember, this is comparing
two months in which the customer used the same amount of electricity (kWh) with different peak
demands.
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4. Plant capacity factor.

The capacity factor is defined as the ratio of the total actual energy produced or supply over a
definite period, to the energy that would have been produced if the plant (generating unit) had
operated continuously at the maximum rating. The capacity factor mainly depends on the type of the
fuel used in the circuit.

The capacity factor is computed by dividing the total energy producing by the full load capacity of the
plant. Capacity factor is mostly used in generation studies. The annual capacity factor is expressed as

Capacity factor indicates the extent of the use of the generating station. If the power generation unit is
always running at its rated capacity, then their capacity factor is 100% or 1. It is also expressed
regarding peak load and load factor.

The power plant always has some reserve capacity for the future expansion like an increase in load
and maintenance. If the rate plant capacity is equal to the peak load, then the capacity factor and load
factor become identical, i.e. in the absence of reverse capacity.

Capacity factor = load factor

5. Plant use factor.

Plant Use Factor Formula

Plant use factor is the ratio of kWh generated to the product of plant capacity and the number
of hours for which the plant was in operation.  

Units generated per annum = average load in kW * hours in a year

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Average load = maximum demand * load factor (L.F.)

6. Diversity factor.

Diversity Factor Formula

The diversity factor is the ratio of the sum of individual maximum demands of the consumers
to the maximum demand on the power station. The diversity factor will be greater than 1.

The higher the diversity factor the lesser is the cost of generation of power on a power plant
and also the lesser is the maximum demand on the power station. Hence the capital investment on the
plant is reduced and less space is required.

7. Demand factor.

Demand Factor Formula

The demand factor is the ratio of the maximum demand on a power station to the connected
load. Maximum demand is the highest demand for loads during a period. The maximum demand
needs to determine the installed capacity of a power plant.

Connected load is the sum of the ratings of all equipment connected to the power station. The
connected load must be greater than the maximum demand. Therefore, the demand factor is always
less than 1.

8. Load factor.
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Load Factor Formula

The load factor is the ratio of the average load to the maximum demand during a period. The
average load is the average of different loads during a period. The load factor is always less than 1
because the average load is less than the maximum demand.

The lesser the maximum demand the higher is the load factor. If the load factor is higher on a
power station, the cost per unit generated will be lesser.  

9. Plant Utilization factor.

10.Choice of size and number of generation units.

The engineers concern, draw the probable load curves, determine from it the other
characteristics of the load. The use of this data is made to determine the size and number of units of
generating plant. In order to calculate the size of the units, the station auxiliary load and the line losses
should also be taken into account.

The line losses and station auxiliary load may be taken as approximately 20% of the
consumer load. The capacity of the generator units must be so selected that it meets the peak load
demand.

The minimum number of generating units that can be chosen could be one, having capacity
equal to maximum demand on the system. When we select single unit to meet maximum demand, it
has the following drawbacks :

(i) As the load on the station varies from time to time its load factor is less than 100%, hence
during a considerable period of the day, the load on the station is less than M.D. During this period the
generating set is either working at half the load or even practically no load. Under such condition it is
not working to give its maximum efficiency, which is in most of machines at about its full-load
condition. It is also uneconomical to run the set under low load condition as fuel consumption would
be more.

(ii) For providing reliability of supply to consumers another set of equal capacity must be
installed for use, when the first set is out of order and is under repairs. This will increase the capital
cost; hence it is not practical and also economical.
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Hence, another method is to decide the size and number of generator units in such a way that
they are capable of supplying load as per the load curve as closely as possible. Each unit can be made
to operate at its full load, or at a load at which it gives maximum efficiency. The reserve maximum
reserve capacity required in case of a single unit plant. As the reserve capacity required would be less,
it results in better plant capacity factor.

When the number of generating units are more, we have to face the following difficulties :

(a) When number of units are more it requires more space for their erection, which increases
the cost of building.
(b) As number of units is more, it will increase the cost of maintenance.

(c) Due to more number of sets, it involves more starting, stopping, parallel operation of
equipment, which need more personnel for these operations.

(d) Capital cost of more number of units is greater than a single unit of same capacity.

Hence, at the time of selecting units (sets) for a generating plant following points should be considered
:

 Number of units be so selected that they work at high load factor.

 Number of units should not be many but they should not be less than two in any case.

 There should be a reserve unit of capacity equal to largest capacity of the units in the plant.

 If units selected are only two , then each must be capable of delivering maximum demand.

 The future demand and expansion should be considered.

 Mostly sets of equal capacity are selected, which have the following advantages :

(a) Less spares are to be stored.

(b) Parts can be interchanged.

(c) Maintenance will be easier.

(d) Working time of each unit can be well regulated.

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Tariff
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1. Tariffs.

Electricity Tariff :
The electricity tariff is defined as the rate at which the electrical energy is sold to a consumer.

However, the tariff should include the total cost of producing and supplying electrical energy
plus the profit to the power company. In practice, the tariff cannot be same for all types of consumers
because the cost of production of electrical energy depends upon the magnitude of electrical energy
consumed by the user and his load conditions. Therefore, the tariff is fixed by considering the different
types of consumers such as domestic, industrial and commercial, etc.

Objective of Tariff :
Like any other product, the electrical energy is also sold at such a rate so that it not only
returns cost of production and transmission but also earns reasonable profit. Hence, a tariff should
include the following factors −

 It should recover the cost of production of electrical energy at the power station.

 It should recover the cost on the investment in transmission and distribution of electrical energy.

 It should recover the cost of operation and maintenance of elements of power system such as
meters, equipment, bills, etc.

 It should also generate a profit on the investment.

Desirable Characteristics of Tariff :

The following are the desirable characteristics of an electricity tariff −

1. Proper Return - The tariff should be such that the total receipts from the consumers must be
equal to the cost of producing and supplying electrical energy plus reasonable profit. Therefore,
the tariff should be such that it ensures the proper return from each consumer so that each power
supply company can ensure the continuous and reliable service to the consumers.

2. Simplicity - The tariff should be simple so that it can easily be understood by an ordinary
consumer.

3. Fairness - The tariff should be fair so that different types of consumers are satisfied with the rate
of charge of electrical energy. Therefore, a big consumer should be charged at a lower rate than a
small consumer because the increased energy consumption spreads the fixed charges over a
greater number of units, which reduces the overall cost of production of electrical energy.
Similarly, the consumers whose load conditions are non-variable should be charged at lower rate
than the consumers whose load conditions change considerably from the ideal.

4. Attractive - The tariff should be attractive so that a large number of consumers are encouraged to
utilise the electrical energy.

5. Reasonable Profit - The tariff should be such that it also earns a reasonable profit.

Types of Electricity Tariff :

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The various types of electricity tariff are defined as follows −

1) Simple Tariff - When there is a constant rate per unit of electrical energy consumed, then it is
called the simple tariff or uniform rate tariff.

2) Flat Rate Tariff - When different types of consumers are charged at different fixed rate per unit
of electrical energy consumed, then it is called the flat rate tariff.

3) Block Rate Tariff - When a given block of electrical energy is charged at a specified rate and the
succeeding blocks of electrical energy are charged at progressively reduced rates, then it is called
the block rate tariff.

4) Two-Part Tariff - When the rate of electrical energy is charged on the basis of maximum
demand and the units consumed, then it is called the two-part tariff.

5) Maximum Demand Tariff - When the rate of electrical energy is charged on the basis of
maximum demand, then it is called maximum demand tariff. The maximum demand tariff is
similar to the two-part tariff with the only difference that the maximum demand of the consumer
is measured by installing maximum demand meter in the consumer's premises.

6) Power Factor Tariff - When the rate of electrical energy is charged on the basis of power factor
of the consumer's load, it is called the power factor tariff.

7) Three-Part Tariff - When the total charges made from the consumers are split into three parts
namely, fixed charges, semi-fixed charges and running charges, then it is called the three-part
tariff.

2. Subsidization and cross subsidization.

Cross subsidization :
Cross subsidization is the practice of charging higher prices to one type of consumers to
artificially lower prices for another group. State trading enterprises with monopoly control over
marketing agricultural exports are sometimes alleged to cross subsidize, but lack of transparency in
their operations makes it difficult, if not impossible, to determine if that is the case.

In many countries, telecommunications (including broadband accesses), postal services, electricity

tariffs, and collective traffic among others are cross-subsidized. In some cases, there is a universal
price ceiling for the services, leading to cross subsidies benefiting the areas for which the costs of
provision are high.

3. Availability tariff of generation companies.

The term Availability Tariff, particularly in the Indian context, stands for a rational tariff structure
for power supply from generating stations, on a contracted basis. The power plants have fixed and
variable costs. The fixed cost elements are interest on loan, return on equity, depreciation, O&M
expenses, insurance, taxes and interest on working capital. The variable cost comprises of the fuel
cost, i.e., coal and oil in case of thermal plants and nuclear fuel in case of nuclear plants. In the
Availability Tariff mechanism, the fixed and variable cost components are treated separately. The
payment of fixed cost to the generating company is linked to availability of the plant, that is, its
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capability to deliver MWs on a day-by-day basis. The total amount payable to the generating company
over a year towards the fixed cost depends on the average availability (MW delivering capability) of
the plant over the year. In case the average actually achieved over the year is higher than the specified
norm for plant availability, the generating company gets a higher payment. In case the average
availability achieved is lower, the payment is also lower. Hence the name ‘Availability Tariff’. This is
the first component of Availability Tariff, and is termed ‘capacity charge’.

4. Pool tariff of transmission companies.

Pooled tariff is the weigthed average of the tariff discovered in the competitive bidding
process for a specific time period. Some auctions result in very low bids than the others and it is
comparatively tough to sell power to DISCOMs at higher tariff rates.

5. Availability based tariff (abt).

Availability Based Tariff (ABT) is a frequency based pricing mechanism applicable in India
for unscheduled electric power transactions. The ABT falls under electricity market mechanisms to
charge and regulate power to achieve short term and long term network stability as well as incentives
and dis-incentives to grid participants against deviations in committed supplies as the case may be.
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Unit
Commitment
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1. Constraints in unit commitment.

 Many constraints can be placed on the unit commitment problem. The list presented here is by no
means exhaustive.

 Each individual power system, power pool, reliability council, and so forth, may impose
different rules on the scheduling of units, depending on the generation makeup, load-curve
characteristics, and such.

2. Spinning reserve.

Ø   Spinning reserve is the term used to describe the total amount of generation
available from all units synchronized (i.e., spinning) on the system, minus the present
load and losses being supplied.
 
Ø   Spinning reserve must be carried so that the loss of one or more units does not cause
too far a drop in system frequency.
 
Ø   Quite simply, if one unit is lost, there must be ample reserve on the other units to
make up for the loss in a specified time period.
 
Ø   Spinning reserve must be allocated to obey certain rules, usually set by regional
reliability councils (in the United States) that specify how the reserve is to be allocated to
various units.
 
Ø   Typical rules specify that reserve must be a given percentage of forecasted peak
demand, or that reserve must be capable of making up the loss of the most heavily loaded
unit in a given period of time.
 
Ø   Others calculate reserve requirements as a function of the probability of not having
sufficient generation to meet the load.
 
Ø   Not only must the reserve be sufficient to make up for a generation-unit failure, but
the reserves must be allocated among fast-responding units and slow-responding units.
 
Ø   This allows the automatic generation control system to restore frequency and
interchange quickly in the event of a generating-unit outage.
 
Ø   Beyond spinning reserve, the unit commitment problem may involve various classes
of
 
“scheduled reserves” or “off-line” reserves.
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Ø   These include quick-start diesel or gas-turbine units as well as most hydro-units and
pumped-storage hydro-units that can be brought on-line, synchronized, and brought up to
full capacity quickly.
 
Ø   As such, these units can be “counted” in the overall reserve assessment, as long as
their time to come up to full capacity is taken into account.
 
Ø   Reserves, finally, must be spread around the power system to avoid transmission
system limitations (often called “bottling” of reserves) and to allow various parts of the
system to run as “islands,” should they become electrically disconnected.

3. Thermal unit constraints.

Ø     Thermal units usually require a crew to operate them, especially when

turned on and turned off.
 
Ø     A thermal unit can undergo only gradual temperature changes, and this
translates into a time period of some hours required to bring the unit on-line.
 
Ø     As a result of such restrictions in the operation of a thermal plant,
various constraints arise, such as:
 
1.  Minimum up time: once the unit is running, it should not be turned
off immediately
 
2.  Minimum down time: once the unit is decommitted, there is a
minimum time before it can be recommitted.

Cc = cold-start cost (MBtu) 

F = fuel cost
Cf= fixed cost (includes crew expense, maintenance expenses) (in R) 
α = thermal time constant for the unit
t = time (h) the unit was cooled
 
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Start-up cost when banking = Ct x t x F+Cf

 
Where, 
Ct = cost (MBtu/h) of maintaining unit at operating temperature

Up to a certain number of hours, the cost of banking will be less than

the cost of cooling, as is illustrated in Figure.
 
Finally, the capacity limits of thermal units may change frequently, due to
maintenance or unscheduled outages of various equipment in the plant; this
must also be taken.

4. Hydro constraints.

Ø   Unit commitment cannot be completely separated from the scheduling of

hydro-units.
 
Ø   In this text, we will assume that the hydrothermal scheduling (or
“coordination”) problem can be separated from the unit commitment
problem.
 
Ø   We, of course, cannot assert flatly that our treatment in this fashion will
always result in an optimal solution.
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5. Must run.
Ø Some units are given a must-run status during certain times of the
year for reason of voltage support on the transmission network or for such
purposes as supply of steam for uses outside the steam plant itself.

6. Fuel constraints.
Ø   We will treat the “fuel scheduling” problem system in which some
units have limited fuel, or else have constraints that require them to burn a
specified amount of fuel in a given time, presents a most challenging unit
commitment problem.

7. Unit commitment solution methods.

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Economic
Dispatch
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1. Transmission loss formulae and its application in economic

load scheduling.
Transmission loss (TL) in general describes the accumulated decrease in intensity of a
waveform energy as a wave propagates outwards from a source, or as it propagates through a certain
area or through a certain type of structure.

It is a terminology frequently used in optics and acoustics. Measures of TL are very important in the
industry of acoustic devices such as mufflers and sonars.

Definition :
Measurement of transmission loss can be in terms of decibels.

Mathematically, transmission loss is measured in dB scale and in general it can be defined

using the following formula:

where:

 Wi is the power of incident wave coming towards a defined area (or structure);
 Wt is the power of transmitted wave going away from the defined area (or structure).

Applications :
Transmission loss may refer to a more specific concept in one of the fields below:

 Transmission loss in electrical engineering describes the decrease of electrical power along an
electrical cable. The term has its origins in telephony.

 Transmission loss in duct acoustics describes the acoustic performances of a muffler like system.

 Transmission loss in room acoustics describes the decrease of sound intensity that is reduced by
a wall or other structure at a given frequency.

 Transmission loss in underwater acoustics describes the decrease of sound intensity that is
reduced by a bubble curtain or other damping structure at a given frequency. The same term is
sometimes used to mean propagation loss, which is a measure of the reduction in sound
intensity between the sound source and a receiver, defined as the difference between the
source level and the sound pressure level at the receiver.
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2. Computational methods in economic load scheduling.

3. Active and reactive power optimization.
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State
Estimation
and Load
Forecasting
in Power
System
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1. Introduction,
2. State estimation methods.
3. Concept of load forecasting.
Load forecasting minimizes utility risk by predicting future consumption of commodities
transmitted or delivered by the utility. Techniques include price elasticity, weather and demand
response/load analysis, and renewable generation predictive modeling. Forecasts must use regional
customer load data, with time series customer load profiles. Accurate forecasts require adjustments for
seasonality. Distribution load forecasting must be reconciled with distribution network configuration
as part of the distribution circuit load measurements.

4. Load forecasting technique and application in power

system.
Energy demand forecasting has developed over time from a very basic and simplistic exercise
into a complex procedure. Numerous methods have been developed over the history of energy
forecasting.

The types of forecasting procedure can be classified into five broad categories :

1. Subjective :
In this approach, forecasts is made on a subjective basis using
• Judgment,
• Intuition,
• Commercial knowledge and
• any other relevant information.
Forecasters may or may not take the past information into consideration.

2. Univariate :
Univariate forecasts are based entirely on past observation in a given time series. This
approach is also known as naive or projection forecasting technique. Many forecasting procedures fall
into this group, such as
• extrapolation of trend curves,
• exponential smoothing,
• Holt-Winters and
• Box-Jenkins techniques.

3. Multivariate :
This approach attempt to establish casual or explanatory relationship with other variables. It
depends on methods of measuring whether variables co-relate or move in relation to each other in
some clearly established way. As an example, electricity sales may depend on other variables such as
price and income. Regression models as well as econometric models fall into this category.
Multivariate models are sometimes called ‘casual’ or ‘prediction’ models.

4. End use
This methodology is based on specifying those activities that give rise to sales or
consumption of electricity demand. This method, decomposes the sales of electricity into its elemental
component of consumption, For example, in the case of domestic, the demand is decomposed into
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• space heating,
• water heating,
• cooking,
• refrigeration and others.
These components are explained in terms of physical and technical parameters as economic factors.
End user models are sometimes called ‘ disaggregated’ or ‘bottom-up’ or physically based modeling
approaches.

5. Combination of the above :

Different techniques are used in combination to produce new and in many cases better
forecasting results. Obtained by combining two or more forecasts, following various combination
procedures.