EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr.
. Osman SEVAOLU, Page 1
METU Market Structure EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 2 METU Market Structure Factors Shaping Market Structure Definition In principle, structure of a market depends on; Model for the ownership of assets, Cost structure; Generation cost, Transmission cost, Distribution and service costs Technological tools and instruments employed for market operation Most of the above aspects, except the last, such as, stranded costs, fixed costs of the plants are difficult to take into account Discovery of the First Natural Gas Reserve in Gerler, Adatepe, Tekirda (2003) EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 3 METU Market Structure Difficulties in Designing Market Structure Main Difficulties Main difficulties in designing the market structure; The field is rather new and undiscovered, The field requires sophisticated technological hardware and software tools for an effective monitoring and control, The field is multi-disciplinary, i.e. there are a lot of technological knowledge to be gathered from engineering, economics and legislation, Market utilizes the grid, which is a regulated, sometimes shared asset EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 4 METU Market Structure The Effect of Technology on Market Structure Computer hardware, software and telecommunication technologies are used to monitor, control, meter, record, log, calculate, trade- off and billing the energy transactions in real time The Effect of Technology EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 5 METU Market Structure Two Demand-Side Flaws The First Demand-Side Flaw Demand characteristics of the customers in a regulated retail market is rather ridig, i.e., it is almost completely insensitive to the price fluctuations in the wholesale market, Two Demand Side Flaws Demand side has two important flaws that create difficulties in market design and operation The Second Demand-Side Flaw Parties in a bilateral agreement absorb / supply power to / from third party suppliers or to customers in grid without any contract EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 6 METU Market Structure The First Demand-Side Flaw Definition The first demand-side flaw is the situation that the demand characteristics of the customers in a (fully-regulated) retail market is almost independent of the prices in the retail or wholesale market Demand elasticity is significantly enhanced by employing three-rate tariff in real-time which dramatically reduce the market power and improve the stability of generation investments 4.5 5.0 5.5 6.0 6.5 7.0 7.5 1000 1050 1100 1150 1200 1250 1300 P r i c e
( C e n t / k W h ) This aspect determines the incentives for investment in the generation sector Demand (10 3 x kWh) EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 7 METU Market Structure Rigid Demand Price Elasticity of Demand Some customers may be more elastic, while some others rigid A customer with rigid demand characteristics does not agree to transfer its consumption in the peak loading period to other periods A rigid (inelastic) demand is the one with a certain daily or yearly characteristics that does not vary with price P r i c e
( C e n t / k W h ) 4.5 5.0 5.5 6.0 6.5 7.0 7.5 1000 1050 1100 1150 1200 1250 1300 Demand (10 3 x kWh) EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 8 METU Market Structure Price Elasticity of Demand Price Elasticity Curve or Demand Curve is a curve showing the sensitivity of electric consumption or customer demand on price Price Elasticity Curve depends on type and nature of the customer Price Elasticity Curve may be nonlinear P r i c e
( C e n t / k W h ) Elasticity of Demand Price Elasticity Curve shows how much the customer agrees to pay for the first kWh to be consumed, and then for the second, and so on 4.5 5.0 5.5 6.0 6.5 7.0 7.5 1000 1050 1100 1150 1200 1250 1300 Demand (10 3 x kWh) EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 9 METU Market Structure Example to Price Elasticity of Demand The First Demand-Side Flaw In New York, when operating reserves run extremely short, prices has driven up to 600 Cents / kWh In a regulated environment, where the retail prices is around only 6.0 cents / kWh, a customer will make only this amount of saving during the evening period, while the actual price was 600 Cents / kWh Hence, he will not respond to prices, unless he is not metered in real-time EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 10 METU Market Structure The Effect of Deregulation on the Elasticity of Demand Price Elasticity of Demand rigid in a regulated market, where wholesale prices are not reflected to retail prices, i.e. price is the same in all time periods, hence customers have no reason for shifting their consumptions to nights, elastic in a competitive market, where retail prices are influenced by the wholesale prices, Demand is; In the long run, a 10 % increase in retail prices results in 5-15 % decrease in demand P r i c e
( C e n t / k W h ) Demand (10 3 x kWh) 4.5 5.0 5.5 6.0 6.5 7.0 7.5 1000 1050 1100 1150 1200 1250 1300 Demand curve in a deregulated market Demand curve in a regulated market EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 11 METU Market Structure Establish competitive retail markets to support the wholesale markets Remedies for the First Demand Side Flaw Remedies The general principle is quite simple and obvious; Implement meters with three-rate tariff structure at retail level in order to; a) Discourage consumption during the evening period by imposing a relatively high price, b) Encourage consumption during other periods, particularly, during the night period, by imposing relatively low prices, Three-Rate Tariff 0 500 1000 1500 2000 2500 3000 3500 4000 4500 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Time (Hours) P o w e r
D e m a n d
P ( t )
( M W ) Daily Period Evening Period Night Period Night Period EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 12 METU Market Structure Three-Rate Tariff Area under each segment of the curve correspond to the total energy consumed within that period Three-Rate Tariff Three-Rate Metering 0 500 1000 1500 2000 2500 3000 3500 4000 4500 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Time (Hours) P o w e r
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P ( t )
( M W ) Daily Period Evening Period Night Period Night Period EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 13 METU Market Structure Single and Three-Rate Tariffs (*),(**) (TL/kWh) Customer Type Single Rate Tariff Evening (17:00- 22:00) Night (22:00- 06:00) Daily (06:00- 17:00) Industrial (**) 119.800 202.740 58.240 113.810 Spring Water 123.300 206.450 61.300 117.150 Sewage Treatment 119.800 202.740 58.240 113.810 Commercial 151.950 277.250 61.300 144.350 Residential 127.800 201.350 61.300 115.000 Agricultural 115.250 186.550 61.300 109.500 Government Inst. 119.500 186.550 61.300 109.500 Single and Three-Rate Tariffs -------------------------------------------------- (*) TEDAS (64 cities +1 associated share), January 01, 2004 (**) No incentive 0 500 1000 1500 2000 2500 3000 3500 4000 4500 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Time (Hours) P o w e r
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P ( t )
( M W ) Daily Period Evening Period Night Period Night Period EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 14 METU Market Structure Three-Rate Tariff Reshaped Daily Loading Curve Reshaping the Daily Loading Curve Total area under the curve is the overall demand, hence it does not vary with reshaping In other words, the area reduced within the peak period is the same as the area increased within the off- peak period P o w e r
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P ( t )
( M W ) 500 1000 1500 2000 2500 3000 3500 4000 0 New Curve Old Curve 0 2 4 6 8 10 12 14 16 18 20 22 24 Time (Hours) Total area under the curve is unchanged after reshaping Daily Period Evening Period Night Period Night Period EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 15 METU Market Structure Time (Hours) 500 1000 1500 2000 2500 3000 3500 4000 0 New Curve Old Curve 0 2 4 6 8 10 12 14 16 18 20 22 24 Daily Period Evening Period Night Period Night Period P o w e r
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P ( t )
( M W ) Reshaping Daily Loading Curve Total area under the curve is unchanged after shaping Reshaping the Daily Loading Curve EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 16 METU Market Structure Example Reshaped Daily Loading Profile Period Residential Consumption (Before Reshaping) Peak Demand (kWh) (%) (MW) 17:00 - 22:00 8.330.000.000 49 4.000 22:00 - 06:00 3.570.000.000 21 3.300 06:00 - 17:00 5.100.000.000 30 3.250 Total 17.000.000.000 Period Residential Consumption (After Reshaping) Peak Demand (kWh) (%) (MW) 17:00 - 22:00 6.800.000.000 40 3.400 22:00 - 06:00 5.100.000.000 30 3.000 06:00 - 17:00 5.100.000.000 30 2.950 Total 17.000.000.000 Time (Hours) P o w e r
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P ( t )
( M W ) Reshaping the Daily Loading Curve Only (49-40)/49 = 18.3 % of the evening load is shifted to night Daily Period Evening Period Night Period Night Period 500 1000 1500 2000 2500 3000 3500 4000 0 New Curve Old Curve 0 2 4 6 8 10 12 14 16 18 20 22 24 EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 17 METU Market Structure Reshaping; Reshaped Load Duration Curve will clip peak portion of the Load Duration Curve, thus resulting in a Re-shaped Load Duration Curve, will raise the lower part of the curve Total area under the curve is unchanged after reshaping Reshaping the Daily Loading Curve P o w e r
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P ( t )
( M W ) 0 500 1000 1500 2000 2500 3000 3500 4000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Time (Hours) + - Shaped Load Duration Curve Unshaped Load Duration Curve EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 18 METU Market Structure Advantages of Load Reshaping Advantages Gained By re-shaping the load duration curve; a) Investment for the generation, transmission and distribution facilites to meet the same amount of energy demand will be reduced, Hence, the generation, transmission and distribution facilities will be utilized more efficiently, since they will be more uniformly loaded, 0 500 1000 1500 2000 2500 3000 3500 4000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Time (Hours) + - Shaped Load Duration Curve Unshaped Load Duration Curve EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 19 METU Market Structure Advantages of Load Reshaping Advantages Gained b) Overall tariff will be reduced since; No peaker plant with expensive fuel costs will be utilized, i.e. only base plants will be utilized, Expensive power exchange with the third parties (ref. to next section; Second Demand Side Flaw) will be reduced, Capacity cost is reduced since less capacity is utilized No payment for scarsity rents 0 500 1000 1500 2000 2500 3000 3500 4000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Time (Hours) + - Shaped Load Duration Curve Unshaped Load Duration Curve EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 20 METU Market Structure Advantages of Load Reshaping Price Elasticity of Demand d) Consumption will be more uniform and stable and hence investors, who plan to make investment in the generation sector will gain more confidence about the loading characteristics, e) Market power will be curbed, since there will be no power shortage during evenings 0 500 1000 1500 2000 2500 3000 3500 4000 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Time (Hours) + - Shaped Load Duration Curve Unshaped Load Duration Curve EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 21 METU Market Structure P gTPn Wholesale Company P gTP1 The Second Demand Side Flaw The Second Demand Side Flaw An exact match between generation and consumption as written in Bilateral Agreements can never be achieved Hence, depending upon power balance condition, consumers may absorb and generators may submit power to grid without contract Parties in a bilateral agreement absorb / supply power to / from third party suppliers or to customers in grid without any contract Third Party Supplier(s) Main Supplier Eligible Customer P L Transmission and/or Distribution System Third Party Customer(s) P g1 P LTP P gk Wholesale Company EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 22 METU Market Structure The Second Demand-Side Flaw Daily Mismatch between Supply and Demand Please note that for a wholesale company with healty balancing and settlement characteristics, the payments made for the energies in these areas (not the energies themselves) must be equal after a certain period of time, such as one month Energy supplied to third parties Energy absorbed from third parties Generator power output (MW) 0 500 1000 1500 2000 2500 3000 3500 4000 4500 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Time (Hours) Daily Period Evening Period Night Period Night Period EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 23 METU Market Structure Bilateral Agreements Definition The general principle in designing Bilateral Agreements in competitive markets is that the parties are completely free on the technical and commercial conditions in the Contract Definition: Bilateral Agreement is an electricity trading contract made between a supplier and a customer on; the amount, price, duration, and other conditions of trading Main Supplier Eligible Customer P L Bilateral Agreement P gk Wholesale Company P g1 Transmission and/or Distribution System EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 24 METU Market Structure Application All Bilateral Agreements (Electricity Sale Agreements) (Bilateral Agreement) concerning power trades among all market participants are submitted to BSC for approval and recording BSC examines the agreements in terms of; amount, feasibility, system security, (congestion possibility), system stability, load frequency control, resulting increase in system losses Bilateral Agreements EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 25 METU Market Structure Formation of Supplier Portfolio Bilateral Agreements with two or more suppliers Suppliers Wholesale Companies or Independent Producers Bilateral Agreement concerning; Amount Price Duration Supplier-1 Supplier-2 Supplier-3 Supplier-n Transmission and/or Distribution System Eligible Customer - 1 Eligible Customer - 2 Eligible Customer - 3 Eligible Customer - n EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 26 METU Market Structure The Second Demand-Side Flaw Balancing market structure is designed in order to meet the power absorbed or supplied from / to the third parties, Price spikes due to power unbalance, in real-time resulting in invaluntary load shedding, treating customers are reduced These aspects determine the incentives for investment in Generation sector The Second Demand-Side Flaw EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 27 METU Market Structure Mismatch between Supply and Demand Load characteristics follows the daily loading curve, while the generation follows a flat linear profile, hence the two curves never match exactly Eligible Customer P o w e r
D e m a n d
( M W ) Summer Winter Time (Hours) Consumption Characteristics Time (Hours) G e n e r a t i o n
( M W ) Generation Characteristics 4.5 5 5.5 6 6.5 7 7.5 0 6:00 12:00 18:00 24:00 P L P L Transmission and/or Distribution System Third Party Customer(s) The Second Demand-Side Flaw P g1 P gk Wholesale Company P gTPn Wholesale Company P gTP1 Main Supplier Third Party Supplier(s) EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 28 METU Market Structure The Second Demand-Side Flaw Definition The second demand-side flaw is the situation that the parties in a Bilateral Agreement absorb or supply power from / to third party suppliers or to customers in grid without any contract In practice, an exact match of the generation to consuption in a Bilateral Agreement can never be achieved P gTPn Wholesale Company P gTP1 Third Party Supplier(s) Main Supplier Eligible Customer P L Transmission and/or Distribution System Third Party Customer(s) P g1 P LTP P gk Wholesale Company Hence, consumers always absorb from and generators submit power to grid without contract EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 29 METU Market Structure Daily Loading Curves Daily Loading Curves A basic characteristics of electrical loads is that the demand is not constant, but a function of time. In other words the demand varies wrt hours, days, weeks and season. As seen from the figure, the peak level of demand in the winter season is about 4000 MW, while the off-peak level is 2610 MW, which is 0.65 of the peak level Time (Hours) Off-Peak level Peak level P o w e r
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( M W ) Summer Winter EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 30 METU Market Structure Daily Loading Curves Daily Loading Curves This situation creates serious difficulties in system operation, as electricity cannot be stored, hence the total supply must always be matching the total demand and losses in in the system The system operator therefore, spends a considarable amount of care and effort to follow the balance between the total supply and demand Off-Peak level Peak level P o w e r
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( M W ) Summer Winter EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 31 METU Market Structure The Second Demand-Side Flaw where, P L is the power consumed by the customer, P g is the power generated by the supplier, P gTP , P LTP is the power generated or absorbed by the third party P L < P g or P L > P g hence P L = P g - P LTP or P L = P g + P gTP Mismatch between Supply and Demand An exact match between supply and demand is never possible and hence, the customer sometimes absorbes power from third party supplier(s) through grid without any contract Third Party Supplier(s) Main Supplier Eligible Customer P L Transmission and/or Distribution System Third Party Customer(s) P g1 P LTP P gk Wholesale Company P gTPn Wholesale Company P gTP1 EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 32 METU Market Structure The Second Demand-Side Flaw Mismatch between Supply and Demand Hence; An exact match of supply to demand in a Bilateral Agreement is never possible, Customer sometimes absorbes power from third party supplier(s) through grid without any contract, Customer sometimes absorbes less power than the written amount in the contract, hence the supplier may be supplying a third party customer in the system through grid, hence, an accounting mechanism is needed among the supplier, demand and the third party supplier(s) and the customers Third Party Supplier(s) Main Supplier Eligible Customer P L Transmission and/or Distribution System Third Party Customer(s) P g1 P LTP P gk Wholesale Company P gTPn Wholesale Company P gTP1 EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 33 METU Market Structure The Second Demand-Side Flaw Mismatch between Supply and Demand Sometimes power consumed by the customer from third party supplier(s) through grid without any contract may be so high that, the system operator may find himself in a situation that he has no other solution, except; a) some consumers are to be blacked out, hence, a rotating blackout program is to be implemented without regarding the contracts or consumption levels of customers, b) some extra power is to be purchased at a very expensive price Third Party Supplier(s) Main Supplier Eligible Customer P L Transmission and/or Distribution System Third Party Customer(s) P g1 P LTP P gk Wholesale Company P gTPn Wholesale Company P gTP1 EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 34 METU Market Structure The Second Demand-Side Flaw Mismatch between Supply and Demand The system operator may prefer; purchasing power from third party suppliers, if the price is reasonable, i.e. it is within the limits of up to 10 times the long-range average, blacking out customers by implementing a rotating black out program to all customers without regarding the contracts or consumption levels of customers, Third Party Supplier(s) Main Supplier Eligible Customer P L Transmission and/or Distribution System Third Party Customer(s) P g1 P LTP P gk Wholesale Company P gTPn Wholesale Company P gTP1 EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 35 METU Market Structure Remedies for The Second Demand-Side Flaw Remedies In principle remedies for the Second Demand Side Flaw are two folded: Flattening the daily loading Characteristics by; a) wholesale trading, b) employing a Three-rate Tariff structure, Establishing a Balancing Market The first remedy does not completely eliminate the flaw, but only reduces the amount of power taken / given from / to the third parties Third Party Supplier(s) Main Supplier Eligible Customer P L Transmission and/or Distribution System Third Party Customer(s) P g1 P LTP P gk Wholesale Company P gTPn Wholesale Company P gTP1 EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 36 METU Market Structure Basic Principle of Wholesaling: Try to market the unsold energy remaining above the daily loading curve by offering a cheaper rate Flattening the Daily Loading Curve Flattening the Daily Loading Curve by Wholesale Trading Time (Hours) 24 Total Demand P(t) (MW) 0 2 4 6 8 10 12 14 16 18 20 22 Peak demand Average demand 15 30 45 60 75 90 105 120 Sold Energy Unsold Energy EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 37 METU Market Structure Flattening the Generation Characteristics River Plants Plants with irregular generation profile, such as river plants with no reservoir need to be regulated by the Balancing and Settlement Mechanism or by a third party plant Regulation of Generation M o n t h l y
G e n e r a t i o n
( k W h ) Months Energy that can not be supplied by the river plant Demand Characteristics Supply Characteristics EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 38 METU Market Structure Risk Management by Main and Standby Wholesalers Transmission and/or distribution system Eligible Customer Wholesaler Wholesaler Standby Wholesaler (confronts the risks) Main Wholesale Company Suppliers Suppliers Bilateral Agreement Amount, Price, Duration AFC = Annual Fixed Cost = FC / kWh * 8765 Hours AVC = Annual Variable Cost = VC / kWh * t Average Cost = (AFC + AVC) / t Cent /kWh EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 39 METU Market Structure Risk Management Three-Lateral Contracts Wind or river energy supplier Transmission and/or distribution system Suppliers Suppliers Standby Wholesaler (undertakes the risks) Main Wholesaler Wholesaler Eligible Customer Thermal or Hydroelectric energy Supplier AFC = Annual Fixed Cost = FC / kWh * 8765 Hours AVC = Annual Variable Cost = VC / kWh * t Average Cost = (AFC + AVC) / t Cent /kWh EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 40 METU Market Structure Increasing the Service Reliability by a Standby Supply Wholesale Company Supplier-1 Main Supplier - Three-Rate Tariff Standby Supplier, Diesel Gen. Set (Supplier-2) Uninteruptable Load (Hospital) Standby Supplier; has a higher tariff, provides stand-by energy in case of emergency AFC = Annual Fixed Cost = FC / kWh * 8765 Hours AVC = Annual Variable Cost = VC / kWh * t Average Cost = (AFC + AVC) / t Cent /kWh EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 41 METU Market Structure W h o l e s a l e C o m p a n y Suppliers . . . Eligible Customer-1 . . . 4 8 12 16 20 0 4 8 12 16 20 24 4 8 12 16 20 0 4 8 12 16 20 24 4 8 12 16 20 0 4 8 12 16 20 24 P(t) P(t) P(t) 40 80 120 160 200 0 4 8 12 16 20 24 Resulting Load Curve (Total power purchased) Daily Loading Curves . . . Transmission System Eligible Customer-2 Eligible Customer-k Formation of Customer Portfolio Formation of Customer Portfolio for Wholesale Trading Distribution System P(t) EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 42 METU Market Structure Wholesale Trading in a Competitive Market Wholesale Trader-1 GPRS GPRS Hourly Balancing and Settlement Center (NDUY) Wholesale Trader-2 Energy Flow Energy Flow EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 43 METU Market Structure Cost of Wholesale Electricity Enron Energy Trading Center Building (Houston) Cost (*) of bulk power generation (in Wholesale trading) is nearly half the cost of retail electricity ---------------------- (*) Not the price Suppliers . . . Eligible Customer-k . . . P(t) P(t) P(t) Daily Loading Curves . . . Transmission and/or Distribution System Eligible Customer-2 Eligible Customer-1 Resulting Load Curve (Total power purchased) 80 120 160 200 40 0 4 8 12 16 20 24 W h o l e s a l e
C o m p a n y 0 4 8 12 16 20 24 0 4 8 12 16 20 24 4 8 12 16 20 24 0 8 12 16 20 4 8 12 16 20 4 8 12 16 20 4 EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 44 METU Market Structure Non-Utility Generators (NUG) Definition: A generating plant that does not belong to distribution utility is called non-utility generator (NUG) The Effect of Non-utility Generators (NUG) on Tariff Fact: Non-uility generators (NUG): Adjust their tariffs according to variations in the worldwide oil prices, Hence, exhibit a tendency to raise their tariffs, as they are not responsible for providing electricity to customers in distribution regions at regulated prices California Case: Utilities are completely unbundled, resulting in distribution companies with no generating capability, hence they could not produce cheap electricity for reducing their tariffs in their distribution regions