Description
Book SynopsisThe impact of deregulation on the theory and practice of investment appraisal is addressed in this comprehensive treatment of the restructuring of the electricity supply industry. Demonstrating that the classical approach to generation investment appraisal is no longer valid, a new approach is developed using three economic models to represent differing market conditions. Highlighting the impact on the organisation of the utilities and their suppliers, Electricity Markets offers essential advice for survival in the deregulated environment worldwide. Features include:
* Examination of the alternative market structures and their mechanisms
* Methods for investment appraisal and market simulation to support the assessment of market strategies by generators, distributors and suppliers
* Use of game theory to predict market behaviour and competitive interaction
* Coverage of the analytical and technical aspects of grid deregulation plus a look ahead to the long term
Table of ContentsPreface xv
Symbols xvii
Part One A Review Of Market Structures And Mechanisms 1
Chapter 1 Introduction 3
Objectives 3
International Perspectives 4
Commercial Arrangements 7
Implications 8
The Analysis 9
Chapter 2 Alternative Market Structures 11
The Gross Pool 11
Bilateral Trading – The Net Pool 13
The Single Buyer 14
Zonal Pools 15
Mixed Generation 16
State Utility 16
Transmission Issues 17
Supply Issues 18
Stranded Assets 18
Market Comparisons 19
Chapter 3 Market Mechanisms 21
Price Setting 21
Securing Availability 22
Accommodating Transmission Constraints 23
Enabling Demand Side Participation 24
Capturing Data for Settlement 25
Calculating Payments 25
Unit Commitment 29
Conclusion 30
Chapter 4 Markets in Operation 33
Reliability 33
Competition 35
Price Trends 38
SMP V Demand 39
Investment 40
Efficiency in Operation 43
Conclusions 44
Chapter 5 Market Modelling 47
Solution Process 47
Production Modelling 51
Conclusions 55
Chapter 6 SMP Theory and Optimal Plant Mix 57
SMP Derivation 57
Derivation of Optimal Plant Mix 58
SMP Estimation 61
Conclusions 62
Chapter 7 LOLP Theory and Optimal Margin 65
Theory 65
Lolp V Margin 66
Comparison of Theory With Model And Actual 68
Lolp and Pooling 68
Optimum Investment Level 70
Conclusion 71
Chapter 8 Idealised Tariffs 73
Basic Principle 73
Ideal Price Derivation 74
Actual SMP Prices 75
Lolp and Capacity Charge 76
BST 78
Comparison of Actual PSP With BST 79
The Open Supply Market 80
Conclusions 81
Chapter 9 Review of Market Shortcomings 83
Marginal Pricing 83
Plant Mix 84
Plant Margins 85
Transmission Management 86
Consumers 86
Security of Supply 87
Conclusions 88
Chapter 10 A Medium-Term Market Based on Lagrangian Relaxation 89
The Requirements 90
The Process 91
The Theory 91
Commercial Arrangements 94
Other Improvements 95
Benefits 96
Conclusion 96
Part Two Generation Investment Appraisal 99
Chapter 11 Basic Principles 101
Classical Approach 101
Pre-Privatisation Approach 102
Post-Privatisation Approach 103
Shortcomings 105
Conclusion 105
Chapter 12 Predicting SMP and Income 107
Estimation of Income 107
Bidding Strategy 108
Generator Costs 108
Profit Forecast 109
Predicting Utilisation 110
Predicting SMP 113
Results 114
Forward Pricing 115
Conclusions 119
Chapter 13 Market Share and Appraisal Process 121
The Profit Function 121
Calculating Total Profit 122
Overview of Process 125
Modelling Uncertainty 126
Alternative Company Interaction Models 128
Comparison With Actual 130
Conclusions 130
Chapter 14 Predicting Multiple Company Interaction 133
The System Merit Order 133
Theoretical Derivation of Profit Function 134
Results 135
Changing Capacity and Demand 135
Multiple Interaction 136
Modelling Interactive Expansion 138
Risk and Option Evaluation 139
Conclusions 140
Part Three Transmission Investment Appraisal 143
Chapter 15 Review of International Structures 145
The Regulated Monopoly 145
Objectives of a Market Structure 146
International Practice 146
Discussion 151
Chapter 16 Cost Apportionment And Benefit 153
Cost Apportionment of Existing System 155
The Benefit Function 155
Assessment of Global Benefit 157
New Investment Types 160
Conclusions 161
Chapter 17 Interconnection Evaluation 163
Income and Costs 164
Effect of Interconnection 164
The Optimal Wheel 165
Example 166
Transmission Profit 168
System Wheeling 169
Consumer Reaction 170
Discussion 171
Chapter 18 Managing Constraints 173
Constraint Costs 174
Post-Market Settlement – Uplift Definition 175
Commercial Arrangements 176
Transaction Model 177
Theoretical Formulation 178
Modelling In Operation 180
Conclusion 182
Chapter 19 Optimal Investment and Outage Planning 183
Modelling 184
Loading Programme 184
The Cost Function 185
Derivation of Optimal Outage Pattern 186
Example 187
Full-Year Assessment 188
Investment Evaluation 189
Commercial Arrangements 190
Conclusion 191
Part Four The Impact On Utility Operations 193
Chapter 20 Impact on System Operation 195
Keeping The Lights On 196
Facilitating The Market 199
The Independent System Operator 201
Conclusions 202
Chapter 21 Impact on System Development 203
Generation Planning 203
Transmission 205
Distribution Planning 207
Conclusions 208
Chapter 22 The Commercial Infrastructure 209
Generation 210
Transmission 211
Distribution 212
Supplier Income 212
Licenced/Unlicenced 213
Culture 213
Take-Overs and Mergers 213
Conclusion 214
Chapter 23 The IT/Communications Infrastructure 215
Background 215
New Requirements 216
Design Considerations 217
Structure 217
Station Links 219
Conclusions 219
Part Five The Changing Market For Facility Providers 221
Chapter 24 New Businesses and Drivers 223
New Interfaces and Drivers 224
New Needs 224
Supplier Response 225
Future 226
Chapter 25 Primary Plant for Generation, Transmission and Distribution 229
Actual Developments 230
Projected Market Needs 233
Conclusions 237
Chapter 26 IT Metering And Telecommunications 239
Metering Systems 240
Commercial Data Handling Systems 242
Settlement Systems 242
Asset Management Systems 243
Operational Systems 244
Conclusions 245
Part Six The Market And The Future 247
Chapter 27 The Role And Effect Of Regulation 249
International Practice 250
Experience 251
Impact on Generation And Transmission 252
The Nuclear Position 252
Gas Electricity Arbitrage 253
Impact on Investment 254
Chapter 28 Conclusions 255
The Market 255
Generation Investment Appraisal 256
Transmission Investment Appraisal 258
The Impact on Utility Operations 259
The Changing Market for Facility Providers 260
Chapter 29 The Future 261
Are Markets Delivering Benefit? 261
The Economic Theory 262
Alternative Structures 263
Alternative Working Arrangements 264
The Way Forward 265
Further Developments 266
Conclusion 266
Select Bibliography 267
Glossary 271
Index 273
