topic 4

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

Units of input fuel adjusted to units of output electricity. This is very specific to the type of fuel being used by the specific generator designed. 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 (approval of cost of service recovery). Usually a regulatory commission oversees the proceeding.

case made by utilities about how much they should be allowed to charge customers, based on their investments and costs.

Question 4

Stranded Costs

Answer 4

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

A large, incumbent monopoly electric power utility will have made substantial investments over the years and will carry debt. The market cost of electricity includes payments on this debt.

For example, a power plant may have been built when prices were regulated and the utility was able to accurately predict the amount of money it would earn. However, if the market is deregulated shortly after a plant is built, and competition comes into the market, the rates that the company can charge will fall. As a result, future revenues won’t be enough to pay for the plant thereby stranding the costs.

Question 5

Emissions

Answer 5

The cost can be calculated using economic valuation of the damage caused or using the cost of alternatives to reduce emissions. Estimations from damage is controversial because different electricity sources pose different impacts. Monetary quantification is difficult because of the complexity.

Question 6

CHP

Answer 6

Combined heat & power produce heat for alternative purposes. CHP can be compared with energy sources that provide both power generation and another service. CHP is an opportunity for savings in costs and energy because it recovers heat; in some case efficiency has been improved from 30% to 80%

Question 7

Capacity Markets

Answer 7

Set payment mechanisms with visibility far enough out to induce necessary investments in additional assets. Typically buy forward capacity, 3 or more years out and owners of generators get contracts to sell capacity at future dates. The contracts provide revenue certainty which attracts financial capital. Wide variation in how sellers are compensated.; in spot market you buy kWh, in future markets you buy capacity

Question 8

Organized Market

Answer 8

Markets for buying capacity, primarily in the US, whose aim is to meet demand at the lowest possible cost. 3 most common types are forward markets, day-ahead markets, and real-time markets

Question 9

Wholesale Market

Answer 9

Market of buyers and sellers of electricity. Includes generators and utilities (consumers do not usually participate in wholesale market unless they are very large industrials)

A way for buyers and sellers to transact at reasonable prices. Market considerations include unpredictable loads, purchasing reliability and quality, location pricing, purchasing low-cost energy supply. These considerations help set the rules of the markets

Question 10

Discount Rate

Answer 10

Calculates the costs incurred in one period that need to be spread over many periods. Usually measured in WACC

Question 11

Supply Stack

Answer 11

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

Question 12

Merit Order

Answer 12

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 13

Market Clearing Price

Answer 13

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

Question 14

Marginal Cost

Answer 14

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 15

LCOE

Answer 15

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 16

Busbar

Answer 16

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

Question 17

Busbar Costs

Answer 17

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 18

Overnight Cost

Answer 18

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 19

Fixed O&M Cost

Answer 19

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 20

Variable O&M Cost

Answer 20

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 21

Prime Mover

Answer 21

A machine, such as a water wheel or steam engine, that receives and modifies energy as supplied by some natural source or fuel and transforms it into mechanical work.

Question 22

Bid Stack

Answer 22

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

The “stack” of bids to supply capacity made by generators. Bids are stacked in order of the bid price- lowest at the bottom of the stack. Utilities purchase in the auction starting with lowest price.

Question 23

Load Duration Curve

Answer 23

Illustrates the relationship between generating capacity requirements and capacity utilization. It puts in declining order the load for all 8760 hours of the year.

Question 24

Induced Seismicity

Answer 24

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

Question 25

Run-of-river

Answer 25

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 26

Flood control

Answer 26

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

Question 27

LCOE - Subsidized/Un-subsidized

Answer 27

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

Question 28

Reprocessing

Answer 28

Nuclear reprocessing technology was developed to chemically separate and recover fissionable plutonium from irradiated nuclear fuel

Question 29

Fungibility

Answer 29

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

Question 30

Power Take-Off

Answer 30

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

Question 31

Credit Rating

Answer 31

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

Question 32

WACC

Answer 32

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