SUMITTED BY-AAKANKSHA DUGAR2008UEE101E-1

Long-run Incremental Cost Pricing for Negative Growth Rate

ContentsRestructuring Power sector

Electricity market components

Components of cost

Transmission Pricing Objectives

Long Run Incremental Cost(LRIC)

LRIC for Negative Growth Rate

Conclusions

References

Restructuring Power Sector

Earlier Scenario

Vertically integrated system

Government monopoly

Lack of competition- making market inefficient

non-payment, theft, overstaffing

ReformsPrivatizing generation

Not attracted investment

Finally unbundling all sectorsGenco

Transmission Owners

Disco

Customer

Unbundling of Utilities

Benefits-Introduced competition

Lower tariffs

Power Transactions based on Price rather than Cost

Quality improved

Revenue increased

Electricity market components

GENCOs

DISCOs

Transmission Owners

Power Exchange (PX)

Independent System Operator (ISO)

Functions of PX

Receive bids from producer and customers

Match bids and decide market clearing price

Provides schedules to ISO

Adjust scheduling when system congested

Functions of ISO

Security maintenance

Assure service quality

Promote economic efficiency and equity

Components and Function

Transmission pricing Objectives It should compensate for the costs of operation

and maintenance of the transmission system;

Encourage the efficient use and development of the network;

Establish a price structure which is economically sound, simple enough for users to understand and transparent to administer;

Provide pricing stability over time;

Long Run Incremental Cost(LRIC)

LRIC charges help to realize constraints and congestion in the network, considering network expansion.

The approach examines how a nodal increment of generation/demand might impact the time to reinforce system assets and then translate the time change into charges.

It can produce cost-effective charges, reflect both the extent of the network needed to serve the generation or demand and the degree to which the network is utilized

Parameters Influencing LRIC Pricing

Load Growth Rate: Represents the increase in energy demand over time

Discount rate: The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.

Present value of future investment cost: future investment can be discounted back to its present value.

Modern equivalent asset cost: It is the current worth of a transmission line system.

Mathematical Formulation of LRIC for Negative Growth Rates

Deriving the Time Horizon to Reach Network Benefit:

For very small value of rs and rd

Using rs

Time to reach benefit is

Evaluating the Present Value of the Future Benefit:

Evaluating the cost of an additional Power Injection or Withdrawal at node N:

If power flow changes by ΔPl due to nodal injection ΔPin

the new investment horizon nlnew is

the new present value of future reinforcement is

the change in present value as a result of the injection is

Calculating the Long-Run Incremental Cost:

annuitizing the incremental cost and calculating the charges for a node

Bus 1 Lf Bus 2

D

Two Busbar Network with demand D

Assumptions:

The circuit Lf connecting busbars 1 and 2 is rated at

45 MW and costs £31293400 at its modern

equivalent asset value. Discount rate of 6.9% and a

load growth rate of ±1%

Demonstration on 2 Bus Network

1% Negative Growth Rate

1% Positive Growth Rate

X 104

3.6

3.3

3.0

2.7

2.4

2.1

1.8

1.5

1.2

0.9

0.6

0.30 20 40 60 80 100

£/MW/Year

% Utilization

ConclusionsLRIC Pricing

does not need to assume the size and siting of future generation or demand.

is based on forward-looking costs.

reflects the extent of the network used .

reflects the degree of component utilization.

The Proposed LRIC model seeks to directly relate a nodal power perturbation to its benefit to the network.

References:1. Furong Li, Chenghong Gu, “Long-Run Incremental Cost Pricing for Negative

Growth Rates”, IEEE Transactions on Power Systems, Article in Press.

2. Chenghong Gu, Furong Li, Lihong Gu , "Application of long-run network charging to large scale systems",2010 7th International Conference on the European  pp.1–5,2010.

3. Loi Lai Lei Power System Restructuring and Deregulation, (Edited), John WileySons Limited, 2001.

4. D. Shirmoharnmadi, X.V. Filho, B. Gorenstin et al., "Some fundamental, technical concepts about cost based transmission pricing , IEEE Transactions on Power Systems , vol. 11, no. 2, pp. 1002-1008,1996.

5. F. Li, and D. L. Tolley, "Long-Run Incremental Cost Pricing Based on Unused Capacity," Power Systems, IEEE Transactions on Power Systems, vol. 22, no.4, pp. 1683-1689, 2007.

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