2. competition, markets, ets & renewables final

Transcript of 2. competition, markets, ets & renewables final

Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr

Economic Policy

Energy and the electrical system

Silvester van KotenCERGE-EI, Prague

Florence School of RegulationLEE, VŠE

http://www.energyeconomics.tk/

http://www.slideshare.net/slvstr

Mettlen-Lavorgo

Sils-Soazza

03:01-03.16

Huge blackout cripples Italy!

Mettlen-Lavorgo

Sils-Soazza

03:01

Tree flashover!

Transmission lines limits

Net Withdrawal:

50MW

Physical flow: 50MW

A B

Net Injection: 50MW ∆ -10MW

40MW

∆-10MW

40MW

∆ -10MW

40MW

Dispatch

03:11

The Swiss TSO operator asks the Italian TSO for countermeasures

Dispatch is done by national TSOs

A:+10 MW

A: 20MW

A

B

Injection: 60MW30$/MWh

С

Withdrawal: 120MW

Limit: 500MWLimit: 20MW

A: 40MW

A: 20MW

Limits+30 MW

B: +10 MW

+30 MW70$/MWh

http://www.dynamicdemand.co.uk/grid.htm

Frequency and Synchronicity

http://www.dynamicdemand.co.uk/grid.htm

All generators are synchronized

UCTE = Continental Synchronous Area

•Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova,

Mongolia, Ukraine•Armenia•Latvia, Lithuania, Estonia•Uzbekistan, Tajikistan & Kazakhstan, Kyrgyzstan?

1. Transmission lines limits

2. Dispatch

3. Frequency and synchronicity

4. Transmission shortage in the EU

03:26

Interconnectors very high loaded at night!

The future of the EU transmission network

Internal EU market induces increase in cross-border trading

Massive deployment of wind and solar energy

European Climate

Foundation

Increase of almost

400%

2050 Increase from 34 GW to 127

GW

Power Plants

Transmission

Industrial consumers

Distributors

Residential consumers: Households

Other countries

2. Power plants

Hydro-plant

VIDWednesday 2_ Hydroelectic Power - How it Works (hq).mp4

Large coal plants

Baseload

Nuclear plants

Baseload

Oil burning plants

Peaker

Wind turbines

Solar panels

Renewable energies

VIDWednesday 2_ Wind Turbines - How does it actually work- Investment- (hq).mp4

Renewable energies

Concentrated solar power

Gas burning plants

Peaker

http://iea-etsap.org/web/Highlights%20PDF/E02-gas_fired_power-GS-AD-gct%201.pdf

OCGT

CCGT

OCGT

VIDWednesday 2_ Gas Turbine Basics (hq).mp4

CCGT

Multitude of generation types

Trade-off:Economics of scale

High fixed costLow variable costs

FlexibilityLow fixed costsHigh variable costs

Baseload power plants

Peaker power plants

Market equilibrium&

Setting of the wholesale electricity Price

P

Q (units)q1*

P*

Demand faced by individual firm

s1

D

P

Q (Thousands of units)

P*

Demand in the total market

D

Q*

S

P

P*

D

Q* Q (Thousands of units)

P

P*

D

Q* Q (Thousands of units)Q (Hunderds of units)

P

P*

D

Q* Q (Hunderds of units)

P

P*

D

Q* Q (Hunderds of units)Q (Tenths of units)

P

Q (units)Q1*

P*

S1

D

Costs and

Revenue

Quantity0

MC1

Q1

MC

AVC

Q MAX

MC2

Q 2

P = MR1 = MR2 P = AR = MRATC

Figure 14-1: Profit Maximization for a Competitive Firm

Price

Quantity0

MC

AVC

ATC

Firm shuts down

Figure 14-3: The Competitive Firm’s Short-Run Supply Curve

Firm produces (at a loss)

Firm produces (with profit)

Setting of the wholesale electricity Price

D S

$/MWHUniform price auction

Baseload plants (MC=0)

Peaker plants

80PROFITS!

D S

Peaker plants

80

D S

Peaker plants

80

D S

Peaker plants

8060

D S

Peaker plants

8060

Quasi-PROFITS!

3 6 9 12105421 7 8 11

Price

System Marginal

Price

Needed reserves Bids

Quantity

Uniform price auction

1.Procuring ancillary reserves

Profits

3 6 9 12105421 7 8 11

PriceNeeded reserves Bids

Quantity

Price 1

Price 2

Price 3

Zero profit!

Pay-as-bid auction

3 6 9 12105421 7 8 11

Price Costs

Quantity

Profits

Needed reserves

Pay-as-bid auction

Multitude of generation types

Trade-off:Economics of scale

High fixed costLow variable costs

FlexibilityLow fixed costsHigh variable costs

Baseload power plants

Peaker power plants

9 12 15 170 24 TIME

Demand in MW

1

3

5

9 12 15 170 24

Demand in MW

1

3

5

TIME

DURATION (%)

Demand in GW

0.37

1.20

1.83

9 12 15 170 24

Demand in MW

1

3

5

TIME

DURATION (%)

Demand in GW

0.37

1.20

1.83

100

9 12 15 170 24

Demand in MW

1

3

5

TIME

DURATION (%)

Demand in GW

0.37

1.20

1.83

10025

9 12 15 170 24

Demand in MW

1

3

5

TIME

DURATION (%)

Demand in GW

0.37

1.20

1.83

10025160

Fixed cost per MWh

Variable cost per MWh

Baseload 40 0

Peaker 10 50

0

60

40

Capacity factor

Baseload

Peaker

100%60%

Fixed cost per MWh

Variable cost per MWh

Baseload 40 0

Peaker 10 50

10

(=8760 hours/year)

Use baseload when capacity factor > 60%

Use peakers when capacity factor < 60%

0

60

40

Capacity factor

Baseload

Peaker

100%60%

10

9 12 15 170 24

Demand in MW

1

3

5

TIME

DURATION (%)

Demand in GW

0.37

1.20

1.83

10025160 60

BASELOAD

PEAKER

3 6 9 12105421 7 8 11

Price

System Marginal

Price

Needed reserves Bids

Quantity

Uniform price auction

BASELOAD

PEAKER

0 1% =87 hours

Very expensive to built a plant for only 87 hours!Cost?

$1050/MWH (=100*10+50)

Price spike

Can price-spikes be avoided?

- Cap the price, eg at $1000/MWH

0 1% =87 hours

Cost is $1050/MWH

>

price cap

?

Can price-spikes be avoided?

Cap the price, eg at $1000/MWHCapacity market

Pay power plants for being prepared to generate, even if they are not called upon

Income of a power plant:Price of electricityCapacity payments (reserve)

What price are people paying?

CLIMATE CHANGE

Greenhouse gasses heat up the earth

Abate CO2

UNCOP United Nations Framework Convention on Climate

Change

serving as the Meeting of the Parties to the Kyoto Protocol

Tyoko protocol’s 1st phase ends in about 1 month

UNCOP 17:2011 Durban, South Africa

Agreed...…to agree to a legally binding document in 2012

To be signed in 2015

And in force from 2020

UNCOP 18, Doha, Qatar

2nd commitment period 2012- 2020

Japan, Russia, Belarus, Ukraine, New Zealand, United States and Canada,

15% of the global carbon dioxide emissions

2020 Targets: 20% decarbonization

2050 Targets: 80% decarbonization

productionOptimal production

Optimal production

Private production

costs = Supply curve

Production + social costs

social costs

P

Q

Demand Curve

productionOptimal production

Private production

social costs

P

Q

Demand Curve

Optimal production

QemissionsOptimal Emissions

Optimal emissions, by ETS

Private production

P

Emissions

Demand Curve

Maximum emission we

will allow

Private production

P

Q

Demand Curve

Optimal emissions, by tax

Add tax

emissionsOptimal Emissions

Large coal plants

LESS

Nuclear plants

MORE?

Gas burning plants

CCGT

MORE

Wind turbines

Solar panels

Renewable energies

?Why?

Why?

1. Expensive

Retire 1 coal or CCGT plant

=(3000-5000 MW wind or solar)

Install over 1000 wind turbines

=(500 MW conventional)

Why?

1.Expensive

2.Non-dispatchable

Wind and solar needs conventional backupFirm capacity 10%-15%

http://ejournal.windeng.net/3/01/GGiebel-CapCredLit_WindEngEJournal_2005_right_links.pdf

What is the hardest stress for the system to endure regarding wind generation?

Power increases with wind speed up to a cut-off point

Maybe we should not expect politicians to be the ones who can point out the solution.

In foreign trade politicians have a terrible track record

2008 Nobel price winner Paul Krugman

How to create a framework that leads to cleaner

electricity?

WITHOUT POLITICIANS

PICKING “WINNERS”?

2mT 4mT 5mT

A B C

Emissions:

2mT 4mT 5mT

A B C

Emissions:

4$/T 5$/T 20$/TAbatement cost:

2mT

A B C

4$/T 5$/T 20$/TAbatement cost:Abatement-investment

7$/T

5mT4mT1mT

1$/T

Emissions:

A B C

Abatement cost:Abatement-investment ?Emissions:

A B C

Abatement cost:Abatement-investment

Emissions:

A B C

EMISSION PERMIT MARKET

Competition for

permits

Solution 1:EU Emission Trading Scheme (EU-ETS)

2005- end 2007: Phase 1 (test phase)

2007- end 2012: Phase 2 (6.5% below 2005 level)

2012- end 2020: Phase 3 (linear 1.74% reduction/year)

Kyoto Protocol

Reduction of 21%

1999-2010

Wind turbines

Solar panels

Renewable energies

?Politicians say yes

http://www.pnl.gov/main/publications/external/technical_reports/PNNL-19225.pdf

Wind generation in Germany

http://www.pnl.gov/main/publications/external/technical_reports/PNNL-19225.pdf

Feed-in tariffs

0.50 €/kWh 0.20€/kWh

Coal or gas plant costs

0.04€/kWh

2004 2012

Case of Germany

Do the subsidies and feed-in tariffs lead to less CO2 emission

in the EU?

CO2 produced

Electricity demand

Power produced

Hydro & Nuclear

Gas

Coal

CO2 without

ETS

ETS reduces CO2 emissions

Permits SUPPLY CO2 produced

Electricity demand

Power produced

Hydro & Nuclear

gas

Coal

CO2 without

ETS

CO2 with ETS

Shortage of permits!

Permits SUPPLY CO2 produced

Electricity demand

Power produced

Hydro & Nuclear

gas

Coal

CO2 without

ETS

CO2 with ETS

Shortage of permits!

Electricity demand

Permits demand

Power produced

Hydro & Nuclear

gas

Coal

ETS affects generation choices

CO2 produced

Wind & solar with subsidies

Electricity demand

Permits demand

Hydro & Nuclear

gas

Coal

CO2 produced

Wind & solar

Excess of permits!

Electricity demand

Permits demand

Hydro & Nuclear

gas

Coal

CO2 produced

Wind & solar

Electricity demand

Permits demand

Hydro & Nuclear

Coal

CO2 produced

Wind & solar

“Europe is burning more coal, while demand for gas – which emits much less CO2 than coal – is declining ”

Under a cap& trade program:

subsidy to renewables =

subsidies to dirty production

Net no effect on CO2

2. competition, markets, ets & renewables final

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