Class 1Economic 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?

DeregulationPrivatization

Vertical disaggregation Functional unbundling

Introduced marketsBrought competition

When did this happen?

Apr 1990: UK Pool

opens

Jan. 1991: Norway launches Nordpool

Jan. 1996: Sweden in Nordpool

Oct 1996: New

Zealand NZEM

Jan 1998: PJM ISO created

Mar 1998: Cal ISO opens

Jan. 1998: Finland in Nordpool

Dec 1998: Australia

NEM opens

Nov 1999: NY ISO launches

May 1999: ISO-NE

opens

Jan. 2000: Denmark in

Nordpool

Mar 2001: NETA

replaces UK Pool

July 2001: ERCOT becomes

one control

area May 2002:

Ontario IMO

launches

North America

1990 1992 2000 1998 1996 1994

Jan. 2001: Alberta Pool opens

Overseas

2002 2004 2006

Dec 2001 MISO becomes first RTO

Feb 1996 MISO formed.

April 2005 MISO Markets Launch

1996: ERCOT becomes ISO.

Jan 2002 ERCOT opens retail zonal mrket

2008 Feb 2007 SPP Markets Launch

Dec 2008 ERCOT Nodal Market

Launched

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

What was it before?

A monopolistic, and regulated, industryIn 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

Four 250 MW Plants1000 MW Plant

$40/MWhr $50/MWhr

And this drove all thinking in the electric industry from 1900 until the early 1960’s.And then what happened?

Three things1. 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 things2. 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

1900-199?

G G G

G

G

G

G G

Transmission and System Operator

Vertically Integrated Utility

1900-199?

G G

G

G

G

G

G

G

TransmissionOperator

IndependentSystem

Operator

TransmissionOperator

TransmissionOperator

Today

G G G

G

G

G

G G

Transmission and System Operator

Vertically Integrated Utility

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.