1. Energy Economics

6. http://www.economist.com/news/briefing/21587782-europes-electricity-providers-face-existential-threat-how-lose-half-trillion-euros

8. • Commercial and industrial customers are
increasingly separating from the grid to
avoid the tax to pay for renewable energy
expansion.
• Wall Street Journal, 2014.03.02:
– 16 percent of German companies are now
energy self-sufficient
– Another 23 percent of businesses say they
plan to become energy self-sufficient in the
near future.

9. • companies that avoid
the surcharge and
receive subsidies can
cut their electricity bills
by around 50%.
Michael Salcher, head of the energy and natural-
resources practice at consultancy KPMG Germany
http://webcache.googleusercontent.com/search?q=cache%3Aonline.wsj.com%2Fnews%2Farticles%2FSB10001424052702304

10. • Electrical self-reliance has its share of
drawbacks.
– requires large initial investments
– manage equipment unrelated to core
business

12. • Organization of electricity markets
1. Liberalization
2. Transmission pricing

13. • Nodal and zonal dispatch in meshed
networks
• Peak-load pricing

14. 900MW
@20$/MWh
800MW
@50$/MWh
900MW
@20$/MWh
800MW
@50$/MWh
Nodal pricing Zonal pricing
A B
400MW 300MW 400MW 300MW
A B

15. A B
900MW
@20$/MWh
+ @35$/MWh
- (@-10$/MWh
400MW 300MW
@20$/MWh @20$/MWh
300MW
400MW 300MW
@20$/MWh @20$/MWh
300MW
Nodal pricing Zonal pricing
800MW
@50$/MWh
+ @70$/MWh
- (@-20$/MWh
A B
Bids for ancillary market
(balancing market)
900MW
@20$/MWh
+ @35$/MWh
- (@-10$/MWh
800MW
@50$/MWh
+ @70$/MWh
- (@-20$/MWh

16. A B
900MW
@20$/MWh
+ @35$/MWh
- (@-10$/MWh
400MW 300MW
@20$/MWh @50$/MWh
200MW
400MW 300MW
@20$/MWh @20$/MWh
300MW
Nodal pricing Zonal pricing
800MW
@50$/MWh
+ @70$/MWh
- (@-20$/MWh
A B
900MW
@20$/MWh
+ @35$/MWh
- (@-10$/MWh
800MW
@50$/MWh
+ @70$/MWh
- (@-20$/MWh
Max: 200MWMax: 200MW
@30$/MWh
Price of transmission?
20
50
900 1700700
1st
dispatch
Cost of $20x600+
$50x100 =17.000

17. A B
900MW
@20$/MWh
+ @35$/MWh
- (@-10$/MWh
400MW 300MW
@20$/MWh @50$/MWh
200MW
400MW 300MW
@20$/MWh @20$/MWh
200MW
Nodal pricing Zonal pricing
800MW
@50$/MWh
+ @70$/MWh
- (@-20$/MWh
A B
900MW
@20$/MWh
+ @35$/MWh
- (@-10$/MWh
800MW
@50$/MWh
+ @70$/MWh
- (@-20$/MWh
Max: 200MWMax: 200MW
@30$/MWh
Price of transmission?
20
50
900 1700700
-100MW @-10$
= +1.000$
+100MW @70$
= -7.000$
Cost of 6.000
1st
dispatch
2nd dispatch
Cost of 14.000

18. A B
900MW
@20$/MWh
+ @35$/MWh
- (@-10$/MWh
400MW 300MW
@20$/MWh @50$/MWh
200MW
400MW 300MW
@30$/MWh @30$/MWh
200MW
Nodal pricing Zonal pricing
800MW
@50$/MWh
+ @70$/MWh
- (@-20$/MWh
A B
900MW
@20$/MWh
+ @35$/MWh
- (@-10$/MWh
800MW
@50$/MWh
+ @70$/MWh
- (@-20$/MWh
Max: 200MWMax: 200MW
@30$/MWh
Price of transmission?
20
50
900 1700700
2nd dispatch
-100MW @-10$
= +1.000$
+100MW @70$
= -7.000$
1st
dispatch
Cost of 14.000
Total costs 1st +2nd
dispatch=20.000

19. • The difference between the cost of 20.000 in the zonal
system and the 17.000 in the nodal system is $3.000
• This is:
1. the cost of dispatching the cheap generator for 300MW and
then reducing him for 100MW: this costs 100MW * $10=$1000
• The $10 is the difference between what the generator charges if
dispatched ahead and what he gives for a decrease in the
balancing period (real-time).
2. the cost of not dispatching the expensive generator and then
increasing him for 100MW: this costs 100MW * $20=$1000
• The $20 is the difference between what the generator charges if
dispatched ahead and what he charges in the balancing period
(real-time).

20. • When
– A can inject maximally 90MW?
– And B increases demand with 10MW
• what is then the MC and AC?

21. Adverse flows

24. • Nodal & Zonal
• Peak-load pricing

25. Peak-load pricing
Example: Transmission interconnector line
ST-MC
Off-peak
Peak
LT-MC
Ppeak
POff-peak=0
25

26. Peak-load pricing
Gives clear economic signals!
ST-MC
Off-peak
Peak
LT-MC
Ppeak
POff-peak=0
26
ST-MC
Off-peak
Peak
LT-MC
Ppeak
POff-peak=0
Invest in expansion
of transmission
capacity on the line
Do not invest in expansion
(wait or even remove a line)

27. Zonal pricing -> averaging
(EU)
Nodal pricing (also Locational Marginal
Pricing) -> peak-load pricing
(USA)

28. Peak-load pricing
Example: Transmission interconnector line
ST-MC
Off-peak
Peak
LT-MC
POff-peak
Ppeak
PAVERAGE
28

29. 3 node network

30. 40MW
A B
40MW
Limit: 50MW
Limit: 50MW
Net
Withdraw:
80MW
Net
Injection:
80MW

31. A
B
Injection: 120MW
С
Demand: 120MW
Withdrawal: 120MW
70$/MWh
40MW80MW
40MW
Marginal Cost?
Dispatch with 3
nodes
30$/MWh
30$/MWh

32. A
B
Injection: 120MW
С
Demand: 120MW
Withdrawal: 120MW
70$/MWh
40MW80MW
40MW
Dispatch with 3
nodes
30$/MWh
Limit: 500MW
Limit: 20MW
Limits

33. Demand: 120MW
Withdrawal: 120MW
A
B
Injection: 120MW
С
Limit: 500MW
Limit: 20MW
40MW80MW
40MW
Injection: 60MW
20MW
20MW
60MW
30$/MWh 60MWh is shed!
Solution 1?:
lower injection
40MW
70$/MWh
30$/MWh
Limits

34. Demand: 120MW
Withdrawal: 120MW
A:40M
W
A
B
Injection: 120MW
30$/MWh
С
Limit: 500MW
Limit: 20MW
70$/MWh
A:80M
W
A: 40MW
Solution 2?: Add
counter flow
Inject 60 MWB:20M
W
B:20M
W
B: 40MW180MW
ANET:20M
W
Limits

35. A:40M
W
A
B
Injection: 120MW
30$/MWh
С
Limit: 500MW
Limit: 20MW
70$/MWh
A:80M
W
A: 40MW
Solution 3:
Counter flow &
proportional
downturning
Inject 60 MWB:20M
W
B:20M
W
B: 40MW
Injection: 80MW
30$/MWh
A:53.33
M
W
A:26.67M
W
A: 26.67 MW
Inject 40 MW
B:13.33M
W
B:13.33M
W
B: 26.67 MW
Demand: 120MW
Withdrawal: 180MW120MW

36. • Up till 60MW from A no problem

37. A
B
Injection: 60MW
30$/MWh
С
Limit: 500MW
Limit: 20MW
70$/MWh
A:20MWA:40MW
A: 20MW
Limits
Demand: 120MW
Withdrawal: 60MW

38. A: +⅓ MW
A: 20MW
A
B
Injection: 60MW
30$/MWh
С
Limit: 500MW
Limit: 20MW
70$/MWh
A: 40MW
A: 20MW
Limits
+1 MW
B: + ⅓ MW
+1 MW
Demand: 120MW
Withdrawal: 60MW

39. A:+10 MW
A: 20MW
A
B
Injection: 60MW
30$/MWh
С
Limit: 500MW
Limit: 20MW
A: 40MW
A: 20MW
Limits
+30 MW
B: +10 MW
+30 MW
70$/MWhDemand: 120MW
Withdrawal: 60MW
A: 30MW
A: 60MW
B: 20MW
B: 10MW
90MW120MW
Marginal Cost? 50$/MWh