Lecture 1: Power Market Structure And Capacity Adequacy Flashcards
Spotify Market clearing Conditions for efficient power markets Pricing power and energy - screening curves Short-run and long-run competition Reliability and price peaking Duration curve method for sizing of power plants Demand elasticity
What is the course content? (7 bullets)
- Security of supply and investments in power markets
- Demand flexibilty
- Ancillary services
- Variable renewable energy in the power market
- Competition and market power
- Transmission pricing and handling of bottlenecks
- Modelling of the European power market
What are the conditions for an effektive Market?
Many buyers and sellers Good information Homogenous commodities Free flow of goods Rational (economic) market participants No externalities
Natural monopolies vs competitive market
- What properties of generation economics could make it more preferable with monopoly?
Economics of scale
Efficiency gains from operation of multiple power plants
- a central schedule can coordinate start/stop across all power plants
What is the regulators dilemma?
Competitive market
- a)hold price down to marginal cost
- b)Minimize cost
Can regulated markets do both?
- Perfect cost of service fulfills only a)
- Perfect price cap fulfills only b)
What are the two demand-side flaws?
- Lack of metering and real-time billing
2. Lack of real-time control of power to specific customers
What is the annuity formula?
A = (1 - (1 + r)^-n)/r
By multiplying a yearly payment (starting in one year) with this number, you get the present value
What is ACE an abbreviation for?
Average cost of energy
What is ACC an abbreviation for?
Average cost of capacity
ACE formula
ACE = VC + FC/cf
ACC formula
ACC = FC + cf* AC
What are the characteristics of competitive equilibrium in short run competition?
Price taking traders
Well behaved costs
Good information
What are the characteristics of competitive equilibrium in long run competition?
Short run characteristics +
Limited economics of scale
Free entry
Long run competitive equilibrium ensures that the right investments are made
What are the profits in the short run?
Revenues - short run costs
What are the profits in the long run?
Revenues - minus total costs
What will eventually happen in a market with a surplus of generating capacity
The most expensive generator will set the price, and therefore not be able to recover its investment cost. Therefore it will eventually have to exit the market.
What is scarcity rent?
Revenue - variable operating costs
How is the interactions between the short term and long term equilibrium?
The market gives energy, reserve and capacity prices
- which determines investment and retirement decisions
- which determines how much capacity is available to the market
What are the other things that impact the market?
Demand side flaws
- demand elasticity
- demand fluctuations
Reliability policy
- operating reserve requirement
- price caps
- capacity reserve requirement
Outages
What is the ‘regulatory solution’ to the problem of cost recovery for peaked power plants?
Build enough capacity to cover peak load
Set price to average cost
What is the ‘optimal solution’?
Only add a MW of peaker capacity if it produces less cost than the value for the customer
What is the equation for average cost of peaker energy?
ACE_PS= FC_peaker/D_PS + VC_peaker
PS= price spike
What is ‘the competitive solution’?
In the long run, suppliers recovers their fixed costs. This is equal to the optimal solution.
What are the characteristics of regulated electricity trade?
- Price is fixed by central administration or negotiations
- Different market segments may have different prices
