Power System Economics

Daniel Kirschen

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Money

What about money?

Minimizing costs
Operating costs
Fuel, personnel, maintenance

Investment costs
Generators, lines, transformers, switching devices,

Maximizing profits
Competitive electricity markets

Maximizing utility or benefits

Consumers perspective
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Reliability
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What about reliability?

Operational reliability
Withstand faults, failures, forecasting errors and other common operational problems Operate with a security margin

Planning reliability
Ability to handle long term problems
Units on long-term maintenance Droughts

Build enough spare capacity

Reliability

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Cost of reliability
Providing a security margin and spare capacity costs money
Run additional generating units to have some operating reserve Limit production of some generating units to avoid problems in case of a sudden outage Build additional generators and transmission lines to improve long term reliability

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Value of reliability
Poor reliability cause consumer outages Outages cause a loss of revenue or comfort Measured using surveys
Estimate of cost of latest outages or Willingness to pay extra to avoid outages

Value of Lost Load (VoLL)

Average value of a MWh not delivered Estimates range from $2,400 to $20,000
~ 100 times larger than the cost of energy
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Balancing the greed and the fear

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How do we model this balance?

Mathematical optimization problem

Cost minimization or profit maximization Reliability introduced through constraints
Explicit costing of reliability is still controversial
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Environmental impact

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Three-way balancing
More complex optimization problems Some environmental effects can be monetized
Operating cost of renewable generation is essentially zero Carbon tax or carbon trading to reflect the effect of CO2 emissions

Others cannot be monetized

Effect of hydro generation on salmons Modeled using additional operating constraints
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Government energy policy

Not pure economics
Markets and companies take a short term view

Long term or strategic considerations

Reduce dependence on imports

Introduction of competitive electricity markets Choice of primary energy sources

Promotion of wind and photovoltaic in Germany Nuclear power in France Energy conservation in the Pacific Northwest
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Course outline (1)

Organization of the electricity supply industry
What are the major economic functions? Who does what?

Introduction to optimization
Optimization with continuous variables Optimization with discrete variables

Traditional power system economics problems

Economic dispatch Unit commitment Optimal power flow
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Course outline (2)

Basic concepts from economics Organization of electricity markets Participating in electricity markets System security and ancillary services Effect of transmission networks on markets

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Textbook
A. Wood and B. Wollenberg, Power Generation, Operation and Control, Second Edition, Wiley-Interscience, 1996

D. Kirschen and G. Strbac, Fundamentals of Power System Economics, Wiley, 2004

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