Class 1

Economic systems for electric

power planning
Professors Jim McCalley and
Leigh Tesfatsion
 WEBSITES
Dr. McCalley’s: http://home.eng.iastate.edu/~JDM/ee458_2011/ee458schedule.htm

Dr. Tesfatsion’s:
http://www2.econ.iastate.edu/classes/econ458/tesfatsion/Home458Team.htm

General rule: Use the site of the instructor giving the lectures.
Comments:
•Links on each will take you to the other.
•Generally consistent although differences exist and reflect
the different orientations of the instructors.
•Different orientations of instructors reflect economic
/engineering requirements of electricity markets 
 Assignments for this week
1. Read Paper on JDM website linked by the name of
“California Crisis Explained.” Complete HW1 (also on
JDM website) to turn in on Friday 8/26.
2. Read notes on JDM website linked by “Market
Summary ,” called “Overview of Electricity Markets.”
3. Read chapter 1 in Textbook.
4. Read “Notes on cost curves” from JDM website.
 What this course is about

The electric industry and ….

Its characteristics before,

but mainly its characteristics after

Before, and after what?

 What happened?

Deregulation
Privatization
Vertical disaggregation
Functional unbundling

Introduced markets
Brought competition
 When did this happen?
Apr 1990: Oct 1996: Dec 1998: Mar 2001:
UK Pool
Overseas New Australia NETA
opens Zealand NEM opens replaces UK
NZEM Pool

Jan. 1991: Jan. 1996: Jan. 1998: Jan. 2000:

Norway Sweden in Finland in Denmark in
launches Nordpool Nordpool Nordpool
Nordpool

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
Feb 1996 Jan 1998: May 1999: July 2001: Jan 2002 April 2005 Feb 2007
MISO PJM ISO ISO-NE ERCOT ERCOT MISO SPP
formed. created opens becomes opens retail Markets Markets
North one zonal mrket Launch Launch
America Mar 1998: Nov 1999:
control
1996: area May
Cal ISO NY ISO Dec 2008
ERCOT 2002:
opens launches ERCOT
becomes Jan. 2001: Ontario
ISO. Alberta IMO Nodal
Pool opens launches Market
Launched
Dec 2001
MISO
becomes
first RTO

Well, sort of, actually, it all started much earlier…

 What was it before?

A monopolistic, and regulated, industry

In any given region, there is only one
organization from which to buy.
Other organizations are blocked.
 Reasons for giving monopoly status can vary,
but in the electric industry, the main reason was…
Economies of scale…
when average cost of production, $/MWhr, decreases as
generation plant gets larger.
 Economies of scale

And this drove all thinking in the electric industry from 1900 until the early 1960’s.
And then what happened?
 Three things
1. Smaller plants began to look more economic . Why?

a) Large plants takes years to build, often must be located far away, and
create havoc when they outage. Smaller plants
• are built more quickly and their construction costs are consequently subject to
less economic uncertainty;
• can be located more closely to load centers, an attribute that avoids
transmission, decreases system losses, & is advantageous for system security;
• are generally more reliable, and less consequential when they do outage.
b) Combined cycle units, attractive because of high efficiency, have to
account for design complexities due to coupling between CTs & HRSGs
driven by waste heat from the CTs, and so tend to be lower in rating.
c) Cogeneration facilities, attractive because of high efficiency, typically
have lower ratings as a result of their interdependency with the
industrial steam processes supported by them.
d) Plants fueled by renewable energy sources (biomass, wind, solar, and
independent hydro), attractive because of their low operating
expenses and environmental appeal, also tend to have lower ratings .
 Three things
2. Reaganomics – and public approval of less tax, less
government, less regulation and being competitive.
3. Fred Schweppe:
• F. Schweppe, “Power Systems 2000,” IEEE Spectrum, Vol. 15, No. 7, July 1978.
• F. Schweppe, R. Tabors, J. Kirtley, H. Outhred, F. Pickel, and A. Cox, “Homeostatic Utility
Control,” IEEE Trans. Pwr. App. And Sys., Vol. PAS-99, No. 3, May/June 1980.
• M. Caramanis, R. Bohn, and F. Schweppe, Optimal spot pricing: practice & theory, IEEE
Transactions on Power Apparatus and Systems, Vol. PAS-101, No. 9 September 1982.
• F. Schweppe, M. Caramanis, R. Tabors, R. Bohn, “Spot Pricing of Electricity,” Kluwer, 1988.
And this is what it looks like today…
 But what do these mean?

Vertical disaggregation
Functional unbundling
 Transmission and
System Operator
G G G

G G

G G G

Vertically Integrated Utility

1900-199?
 Transmission and G G G
System Operator
G G G Transmission
Operator
G
G G
Transmission
Operator
G G G
Independent
System
Operator G
G
Transmission
Operator

Vertically Integrated Utility

1900-199? G G Today
And the ISO/RTO runs the markets
 Which leads to the course objectives
• characterize existing electric industry structure and market systems;
• solve linear programming and integer programming problems using commercial
optimization software packages;
• use the two basic electric energy market computational tools: security constrained
optimal power flow and security constrained unit commitment;
• determine electricity and transmission prices, how they affect the transmission
expansion of electric power systems;
• be conversant with transmission and resource planning tools and procedures used by
today’s industry.