Analysis of Pricing and Volumes in selective

Capacity Markets:

MOHAMMED AFZAL BIYABANI

G200904750
 CONTENTS:-
• Introduction
• Capacity Payments and Capacity Markets
• Selective Capacitive Market
• Peak Power Requirements
• On Bid Price for Reserve Power
• Benefits and Drawbacks
• Peak Power Requirement using Wind Power System
• Conclusion
 Introduction:-
• We need to have reliable Power system. Requirements
of reliability in P.S. are high.
• The challenge is the utilization of rarely used peak units
which is low but require high prices in order to be
profitable.
• There are several drawbacks of a system which involves
SO in financing of peak power plants.
• What happens with the prices of imbalances when there
is a LOLO.
• So lets analyze the relation between peak prices, system
reliability, required amount of subsidized capacity.
 Capacity Payments:-
• For a time interval, when demand exceeds generation, there
occurs price spikes and we need to have new generation in
order to avoid supply-load imbalance.
• In order to have new generation rather than paying occasionally
generators large amount of money it is preferable to pay
smaller amount on a regular basis called “capacity payments”.
• This payments should cover at least part of the capital cost for
new generating units and encourage generating companies to
increase generation.
• These payments reduce, but do not eliminate, shortages. Also
encourages competition and moderate prices in the market for
electrical energy.
 Capacity Markets:-
• Rather than fixing the total amount of the rate of
capacity payments, some regulatory authorities set a
generation adequacy target and determine the
amount of generation capacity required to achieve
this target called “Capacity Markets”.
• Then all the retailers and large consumers are
obligated to buy their share, while amount of capacity
to be purchased is determined administratively.
• Implementing a capacity market to achieve its
purpose is not simple.
 Capacity Markets:-
• Types of Capacity Markets:
(i) Long Term Contracts or Options for Energy:
Those who sell power to consumer should hold long term contracts of options for
energy
(ii) Payment Mechanism for Capacity:
SO provides a fixed or variable payment per MW of capacity.
(iii) Quantity Requirements for Capacity:
Includes ICAP which implies a target level of system generating reserves and meeting
the target.
(iv) Demand Curves for Capacity:
SO creates a downward sloping demand curve that pays more for capacity if reserves
are short and provides some payment even when there is more capacity than needed.
(v) Selective Capacity Market :
Only the units accepted after the tender process will receive payment
Peak Power Requirements:
Contd…..
On Bid Price for Reserve Power:-
Contd…..
Comments of Selective Capacity Markets:-
Benefits:
• The plants that do not receive the capacity payments are financed
by the market price.
• Can promote voluntary demand curtailment by using specification
in the tender process.
• It is possible to obtain low impact on the willingness for producers
to invest in purely energy-market financed generators.
Drawbacks:
• Risk for the investors
• Uncertainty of future volume which makes investment risky
• If subsidized reserve power is of low price then it competes with
market financed power
• If price cap is high then it may reduce consumers interest to
decrease their consumption during peak load.
Peak Power Requirement using Wind Power
System
Contd…..
 Comments on Results:
• When Data -2 was used, the amount of subsidized power
was decreased with the same amount as the capacity
credit of wind power. Thus, it reduces the costs for the SO
since the reserve power receives capacity payments.
• Data -3 can be interpreted as a futuristic system, where the
amount of purely market financed power is reduced with
810 MW because of the installed amount of wind power.
Here, the amount of reserve power, subsidized by the SO, is
increased by 70 MW compared to the case without wind
power. It increases the costs in selective capacity markets
since reserve capacity receives the capacity payments.
 Conclusion:
• it is shown that the volume at the capacity
market is strongly connected to the required
reliability level and accepted maximal price.
• In a system where wind power is added as
extra power to an existing power system the
required volume of reserve power decreases.
However in a system where the market installs
less power when wind power is expanded, the
required volume of reserve power increases.