Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Economic Policy
Energy and the electrical system
Silvester van KotenCERGE-EI, Prague
Florence School of RegulationLEE, VŠE
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Mettlen-Lavorgo
Sils-Soazza
03:01-03.16
Huge blackout cripples Italy!
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Mettlen-Lavorgo
Sils-Soazza
03:01
Tree flashover!
Transmission lines limits
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Net Withdrawal:
50MW
Physical flow: 50MW
A B
Net Injection: 50MW ∆ -10MW
40MW
∆-10MW
40MW
∆ -10MW
40MW
Dispatch
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
03:11
The Swiss TSO operator asks the Italian TSO for countermeasures
Dispatch is done by national TSOs
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
A:+10 MW
A: 20MW
A
B
Injection: 60MW30$/MWh
С
Withdrawal: 120MW
Limit: 500MWLimit: 20MW
A: 40MW
A: 20MW
Limits+30 MW
B: +10 MW
+30 MW70$/MWh
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
http://www.dynamicdemand.co.uk/grid.htm
Frequency and Synchronicity
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
All generators are synchronized
UCTE = Continental Synchronous Area
•Azerbaijan, Belarus, Georgia, Kazakhstan, Moldova,
Mongolia, Ukraine•Armenia•Latvia, Lithuania, Estonia•Uzbekistan, Tajikistan & Kazakhstan, Kyrgyzstan?
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
1. Transmission lines limits
2. Dispatch
3. Frequency and synchronicity
4. Transmission shortage in the EU
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
03:26
Interconnectors very high loaded at night!
The future of the EU transmission network
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Internal EU market induces increase in cross-border trading
The future of the EU transmission network
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Massive deployment of wind and solar energy
The future of the EU transmission network
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
European Climate
Foundation
Increase of almost
400%
The future of the EU transmission network
2050 Increase from 34 GW to 127
GW
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Power Plants
Transmission
Industrial consumers
Distributors
Residential consumers: Households
Other countries
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
2. Power plants
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Hydro-plant
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
VIDWednesday 2_ Hydroelectic Power - How it Works (hq).mp4
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Large coal plants
Baseload
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Nuclear plants
Baseload
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Oil burning plants
Peaker
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Wind turbines
Solar panels
Renewable energies
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
VIDWednesday 2_ Wind Turbines - How does it actually work- Investment- (hq).mp4
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Renewable energies
Concentrated solar power
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Gas burning plants
Peaker
http://iea-etsap.org/web/Highlights%20PDF/E02-gas_fired_power-GS-AD-gct%201.pdf
OCGT
CCGT
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
OCGT
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
VIDWednesday 2_ Gas Turbine Basics (hq).mp4
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
CCGT
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Multitude of generation types
Trade-off:Economics of scale
High fixed costLow variable costs
FlexibilityLow fixed costsHigh variable costs
Baseload power plants
Peaker power plants
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Market equilibrium&
Setting of the wholesale electricity Price
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
P
Q (units)q1*
P*
Demand faced by individual firm
s1
D
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
P
Q (Thousands of units)
P*
Demand in the total market
D
Q*
S
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
P
P*
Demand faced by individual firm
D
Q* Q (Thousands of units)
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
P
P*
Demand faced by individual firm
D
Q* Q (Thousands of units)Q (Hunderds of units)
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
P
P*
Demand faced by individual firm
D
Q* Q (Hunderds of units)
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
P
P*
Demand faced by individual firm
D
Q* Q (Hunderds of units)Q (Tenths of units)
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
P
Q (units)Q1*
P*
Demand faced by individual firm
S1
D
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Costs and
Revenue
Quantity0
MC1
Q1
MC
AVC
Q MAX
MC2
Q 2
P = MR1 = MR2 P = AR = MRATC
Figure 14-1: Profit Maximization for a Competitive Firm
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Price
Quantity0
MC
AVC
ATC
Firm shuts down
Figure 14-3: The Competitive Firm’s Short-Run Supply Curve
Firm produces (at a loss)
Firm produces (with profit)
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Setting of the wholesale electricity Price
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
D S
$/MWHUniform price auction
Baseload plants (MC=0)
Peaker plants
80PROFITS!
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
D S
$/MWHUniform price auction
Baseload plants (MC=0)
Peaker plants
80
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
D S
$/MWHUniform price auction
Baseload plants (MC=0)
Peaker plants
80
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
D S
$/MWHUniform price auction
Baseload plants (MC=0)
Peaker plants
8060
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
D S
$/MWHUniform price auction
Baseload plants (MC=0)
Peaker plants
8060
Quasi-PROFITS!
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
3 6 9 12105421 7 8 11
Price
System Marginal
Price
Needed reserves Bids
Quantity
Uniform price auction
1.Procuring ancillary reserves
Profits
Profits
Profits
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
3 6 9 12105421 7 8 11
PriceNeeded reserves Bids
Quantity
Price 1
Price 2
Price 3
Zero profit!
Pay-as-bid auction
1.Procuring ancillary reserves
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
3 6 9 12105421 7 8 11
Price Costs
Quantity
Profits
Profits
Profits
Needed reserves
Pay-as-bid auction
1.Procuring ancillary reserves
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Multitude of generation types
Trade-off:Economics of scale
High fixed costLow variable costs
FlexibilityLow fixed costsHigh variable costs
Baseload power plants
Peaker power plants
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
9 12 15 170 24 TIME
Demand in MW
1
3
5
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
9 12 15 170 24
Demand in MW
1
3
5
TIME
DURATION (%)
Demand in GW
0.37
1.20
1.83
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
9 12 15 170 24
Demand in MW
1
3
5
TIME
DURATION (%)
Demand in GW
0.37
1.20
1.83
100
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
9 12 15 170 24
Demand in MW
1
3
5
TIME
DURATION (%)
Demand in GW
0.37
1.20
1.83
10025
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
9 12 15 170 24
Demand in MW
1
3
5
TIME
DURATION (%)
Demand in GW
0.37
1.20
1.83
10025160
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Fixed cost per MWh
Variable cost per MWh
Baseload 40 0
Peaker 10 50
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
0
60
40
Capacity factor
Baseload
Peaker
100%60%
Fixed cost per MWh
Variable cost per MWh
Baseload 40 0
Peaker 10 50
10
(=8760 hours/year)
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Use baseload when capacity factor > 60%
Use peakers when capacity factor < 60%
0
60
40
Capacity factor
Baseload
Peaker
100%60%
10
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
9 12 15 170 24
Demand in MW
1
3
5
TIME
DURATION (%)
Demand in GW
0.37
1.20
1.83
10025160 60
BASELOAD
PEAKER
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
3 6 9 12105421 7 8 11
Price
System Marginal
Price
Needed reserves Bids
Quantity
Uniform price auction
1.Procuring ancillary reserves
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
BASELOAD
PEAKER
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
0 1% =87 hours
Very expensive to built a plant for only 87 hours!Cost?
$1050/MWH (=100*10+50)
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Price spike
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Can price-spikes be avoided?
- Cap the price, eg at $1000/MWH
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
0 1% =87 hours
Cost is $1050/MWH
>
price cap
?
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Can price-spikes be avoided?
Cap the price, eg at $1000/MWHCapacity market
Pay power plants for being prepared to generate, even if they are not called upon
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Income of a power plant:Price of electricityCapacity payments (reserve)
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
What price are people paying?
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
CLIMATE CHANGE
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Greenhouse gasses heat up the earth
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Abate CO2
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
UNCOP United Nations Framework Convention on Climate
Change
serving as the Meeting of the Parties to the Kyoto Protocol
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Tyoko protocol’s 1st phase ends in about 1 month
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
UNCOP 17:2011 Durban, South Africa
Agreed...…to agree to a legally binding document in 2012
To be signed in 2015
And in force from 2020
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
UNCOP 18, Doha, Qatar
2nd commitment period 2012- 2020
Japan, Russia, Belarus, Ukraine, New Zealand, United States and Canada,
15% of the global carbon dioxide emissions
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
2020 Targets: 20% decarbonization
2050 Targets: 80% decarbonization
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
productionOptimal production
Optimal production
Private production
costs = Supply curve
Production + social costs
social costs
P
Q
Demand Curve
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
productionOptimal production
Private production
costs = Supply curve
Production + social costs
social costs
P
Q
Demand Curve
Optimal production
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
QemissionsOptimal Emissions
Optimal emissions, by ETS
Private production
costs = Supply curve
Production + social costs
P
Emissions
Demand Curve
Maximum emission we
will allow
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Private production
costs = Supply curve
Production + social costs
P
Q
Demand Curve
Optimal emissions, by tax
Add tax
emissionsOptimal Emissions
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Large coal plants
LESS
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Nuclear plants
MORE?
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Gas burning plants
http://iea-etsap.org/web/Highlights%20PDF/E02-gas_fired_power-GS-AD-gct%201.pdf
CCGT
MORE
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Wind turbines
Solar panels
Renewable energies
?Why?
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Why?
1. Expensive
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Retire 1 coal or CCGT plant
=(3000-5000 MW wind or solar)
Install over 1000 wind turbines
=(500 MW conventional)
Why?
1.Expensive
2.Non-dispatchable
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Wind and solar needs conventional backupFirm capacity 10%-15%
http://ejournal.windeng.net/3/01/GGiebel-CapCredLit_WindEngEJournal_2005_right_links.pdf
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
What is the hardest stress for the system to endure regarding wind generation?
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Power increases with wind speed up to a cut-off point
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Maybe we should not expect politicians to be the ones who can point out the solution.
In foreign trade politicians have a terrible track record
2008 Nobel price winner Paul Krugman
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
How to create a framework that leads to cleaner
electricity?
WITHOUT POLITICIANS
PICKING “WINNERS”?
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
2mT 4mT 5mT
A B C
Emissions:
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
2mT 4mT 5mT
A B C
Emissions:
4$/T 5$/T 20$/TAbatement cost:
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
2mT
A B C
4$/T 5$/T 20$/TAbatement cost:Abatement-investment
7$/T
5mT4mT1mT
1$/T
Emissions:
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
A B C
Abatement cost:Abatement-investment ?Emissions:
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
A B C
Abatement cost:Abatement-investment
Emissions:
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
A B C
EMISSION PERMIT MARKET
Competition for
permits
Solution 1:EU Emission Trading Scheme (EU-ETS)
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
2005- end 2007: Phase 1 (test phase)
2007- end 2012: Phase 2 (6.5% below 2005 level)
2012- end 2020: Phase 3 (linear 1.74% reduction/year)
Kyoto Protocol
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Reduction of 21%
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
1999-2010
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Wind turbines
Solar panels
Renewable energies
?Politicians say yes
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
http://www.pnl.gov/main/publications/external/technical_reports/PNNL-19225.pdf
Wind generation in Germany
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Feed-in tariffs
0.50 €/kWh 0.20€/kWh
Coal or gas plant costs
0.04€/kWh
2004 2012
Case of Germany
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Do the subsidies and feed-in tariffs lead to less CO2 emission
in the EU?
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
CO2 produced
Electricity demand
Power produced
Hydro & Nuclear
Gas
Coal
CO2 without
ETS
ETS reduces CO2 emissions
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Permits SUPPLY CO2 produced
Electricity demand
Power produced
Hydro & Nuclear
gas
Coal
ETS reduces CO2 emissions
CO2 without
ETS
CO2 with ETS
Shortage of permits!
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Permits SUPPLY CO2 produced
Electricity demand
Power produced
Hydro & Nuclear
gas
Coal
ETS reduces CO2 emissions
CO2 without
ETS
CO2 with ETS
Shortage of permits!
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Electricity demand
Permits demand
Power produced
Hydro & Nuclear
gas
Coal
ETS affects generation choices
CO2 produced
Wind & solar with subsidies
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Electricity demand
Permits demand
Hydro & Nuclear
gas
Coal
ETS affects generation choices
CO2 produced
Wind & solar with subsidies
Wind & solar
Excess of permits!
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Electricity demand
Permits demand
Hydro & Nuclear
gas
Coal
ETS affects generation choices
CO2 produced
Wind & solar with subsidies
Wind & solar
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Electricity demand
Permits demand
Hydro & Nuclear
Coal
ETS affects generation choices
CO2 produced
Wind & solar with subsidies
Wind & solar
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
“Europe is burning more coal, while demand for gas – which emits much less CO2 than coal – is declining ”
Silvester van Koten, www.energyeconomics.tk, www.slideshare.net/slvstr
Under a cap& trade program:
subsidy to renewables =
subsidies to dirty production
Net no effect on CO2