4. Supply and Demand I - Contracting Price

Question 1

Capacity Factor

Answer 1

Utilization rate of an asset - the percentage of time that an asset produces at its maximum rate. Multiplying the CF by 8760 (# of hours in a year) results in Expected Annual Production. The CF can decrease over time.

Question 2

Heat Rate

Answer 2

Amount of fuel required to generate one unit of electricity. Measure of efficiency of conversion from fuel to electricity. Denominated as a rate in which energy fuel is converted to kWh (ex: MJ/kWh)

Question 3

Rate Case

Answer 3

Process by which PUCs set prices to be charged to customers. Usually a regulatory commission oversees the proceeding. Primary instrument of government regulation of utilities.

Question 4

Stranded Costs

Answer 4

Existing investments in infrastructure for incumbent utilities that may become redundant in a competitive environment.

Question 5

Emissions

Answer 5

Release of gases from energy production, often with adverse environmental effects

Question 6

CHP

Answer 6

Cogeneration or combined heat and power (CHP) is the use of a power station to simultaneously generate electricity and useful heat. CHP can be compared with energy sources that provide both power generation and another service. It is an opportunity for savings in costs and energy as it recovers heat; in some case efficiency has been improved from 30% to 80%

Question 7

Capacity Markets

Answer 7

Forward markets set up to ensure supply is available when needed most and have the effect of encouraging investments in additional assets. Owners of generating capacity (i.e. power plants or demand response providers) make their capacity available to forward markets for future delivery at 3 or more years out. Providers are paid on a KW per year basis for the capacity. Prices can vary as they are bid in at AC (Total not VC)

Question 8

Organized Market

Answer 8

Market allowing buyers to offer to participate and sellers to bid for their services and then ensures that the most willing participants on each side are the ones that end up transacting or “clearing the market” at some reasonable price. Can be in the form of forward markets, day-ahead markets, and real-time markets

Question 9

Discount Rate

Answer 9

Rate used to determine the present value of future cash flows over a period of time. Measure of the time value of money as well as the risk or uncertainty of future cash flows

Question 10

Supply Stack

Answer 10

Collection and aggregation of bids. Electricity generators bid into the wholesale market the amount of electricity they produce at their marginal cost.

Question 11

Merit Order

Answer 11

Prioritization by lowest cost. Ensures the lowest cost producers are the first ones called on, followed by the next lowest until load is met

Question 12

Market Clearing Price

Answer 12

Equilibrium price where all profit opportunities for sellers and all benefit opportunities for buyers have been exhausted. Electricity markets use a reverse Dutch auction

Question 13

Marginal Cost

Answer 13

Cost to produce one more or one less unit of something. Generators are willing to sell into the market as long as the price received is more than costs

Question 14

LCOE

Answer 14

Levelized Cost of Electricity: sums all cost elements on a consistent basis involved in the creation, operation, and fueling of an asset and divides that total cost evenly over the output of the asset. Often denominated as cents/kWh. Key errors are the assumptions about performance of an asset and false comparisons to other generators

Question 15

Busbar

Answer 15

A substation connection device where electricity is priced and delivered into the grid

Question 16

Busbar Costs

Answer 16

Also referred to as the LCOE. Once electricity reaches the grid, it is difficult to further directly attribute additional costs of transformation to the output of that single generator

Question 17

Overnight Cost

Answer 17

The cost of completing the generation asset and putting it into service as if it were to happen overnight. Denominated in units of power ($/W) and incurred once. Known at the time of construction.

Question 18

Fixed O&M Cost

Answer 18

The operating and maintenance costs required to keep the asset at full operating capacity before it is used to produce the first unit of output. Includes site maintenance, staffing, cleaning, etc. Denominated as a cost per unit of capacity that must be incurred each year ($/W per year)

Question 19

Variable O&M Cost

Answer 19

Maintaining the plant becomes costlier as it is used. Maintenance will be determined on a marginal basis. Typically determined on a cent/kWh basis

Question 20

Prime Mover

Answer 20

Machines used to transfer primary kinetic and potential energy sources into directed and concentrated forms to produce mechanical work

Question 21

Bid Stack

Answer 21

Bids arranged by merit order form bid stacks. The spot price is set by finding the highest bid stack needed to match demand

Question 22

Load Duration Curve

Answer 22

Illustrates the relationship between generating capacity requirements and capacity utilization. Similar to a load curve, but the demand data is ordered in descending order of magnitude. The height of each slice is a measure of capacity, and the width of each slice is a measure of the utilization rate or capacity factor. The product of the two is a measure of electrical energy (kWH)

Question 23

Induced Seismicity

Answer 23

Earthquake activity resulting from human activity (often tied to fracking)

Question 24

Run-of-river

Answer 24

Applied to hydro plants: a low-head plant using the flow of a stream as it occurs and having little or no reservoir capacity for storage

Question 25

Flood control

Answer 25

All methods used to reduce or prevent detrimental effects of flood waters

Question 26

LCOE - Subsidized/Un-subsidized

Answer 26

Government subsidies range from 0% (coal) to 100% (solar). Newer technologies tend to need subsidies to compete (as does nuclear)

Question 27

Reprocessing

Answer 27

Chemical seperations of fuel in order to re-use it

Question 28

Fungibility

Answer 28

Property of a commodity whose individual units are capable of mutual substitution. WHAT, WHERE, WHEN, HOW CERTAIN

Question 29

Power Take-Off

Answer 29

A device that transfers mechanical power from an engine to another piece of equipment

Question 30

Credit Rating

Answer 30

An estimate of the ability of an organization to fulfill their financial commitment based on previous dealings

Question 31

WACC

Answer 31

Weighted Avg Cost of Capital: Combines costs of debt financing and equity financing on projects. Approximates overall risk. Factors into calculating the Discount Rate

Question 32

Wholesale Market

Answer 32

“Bid-based, security-constrained, merit-order/economic dispatch that ensures short-term reliability, and defines the financial incentives and rules of eligibility for investment in resources that ensure long-term reliability”. The continuing evolution of policy objectives and emergence of new technologies is dramatically changing the nature of wholesale market design. Includes competitive suppliers and marketers affiliated with utilities, IPPS, and excess generation sold by traditional vertically integrated utilities.