Power System Economics
Daniel Kirschen
2012 D. Kirschen & University of Washington
Money
What about money?
Minimizing costs
Operating costs
Fuel, personnel, maintenance
Investment costs
Generators, lines, transformers, switching devices,
Maximizing profits
Competitive electricity markets
Maximizing utility or benefits
Consumers perspective
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Reliability
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What about reliability?
Operational reliability
Withstand faults, failures, forecasting errors and other common operational problems Operate with a security margin
Planning reliability
Ability to handle long term problems
Units on long-term maintenance Droughts
Build enough spare capacity
Reliability
2012 D. Kirschen & University of Washington
Cost of reliability
Providing a security margin and spare capacity costs money
Run additional generating units to have some operating reserve Limit production of some generating units to avoid problems in case of a sudden outage Build additional generators and transmission lines to improve long term reliability
2012 D. Kirschen & University of Washington
Value of reliability
Poor reliability cause consumer outages Outages cause a loss of revenue or comfort Measured using surveys
Estimate of cost of latest outages or Willingness to pay extra to avoid outages
Value of Lost Load (VoLL)
Average value of a MWh not delivered Estimates range from $2,400 to $20,000
~ 100 times larger than the cost of energy
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Balancing the greed and the fear
2012 D. Kirschen & University of Washington
How do we model this balance?
Mathematical optimization problem
Cost minimization or profit maximization Reliability introduced through constraints
Explicit costing of reliability is still controversial
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Environmental impact
2012 D. Kirschen & University of Washington
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Three-way balancing
More complex optimization problems Some environmental effects can be monetized
Operating cost of renewable generation is essentially zero Carbon tax or carbon trading to reflect the effect of CO2 emissions
Others cannot be monetized
Effect of hydro generation on salmons Modeled using additional operating constraints
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Government energy policy
Not pure economics
Markets and companies take a short term view
Long term or strategic considerations
Reduce dependence on imports
Introduction of competitive electricity markets Choice of primary energy sources
Promotion of wind and photovoltaic in Germany Nuclear power in France Energy conservation in the Pacific Northwest
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Course outline (1)
Organization of the electricity supply industry
What are the major economic functions? Who does what?
Introduction to optimization
Optimization with continuous variables Optimization with discrete variables
Traditional power system economics problems
Economic dispatch Unit commitment Optimal power flow
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Course outline (2)
Basic concepts from economics Organization of electricity markets Participating in electricity markets System security and ancillary services Effect of transmission networks on markets
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Textbook
A. Wood and B. Wollenberg, Power Generation, Operation and Control, Second Edition, Wiley-Interscience, 1996
D. Kirschen and G. Strbac, Fundamentals of Power System Economics, Wiley, 2004
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