Power Markets and Economics

From the author: I have specialised in power system development and economics for the last 40 years having worked for a distribution company and as a senior manager with a generator (CEGB), a transmission company (NGC) and a manufacturer (ABB). Prior to liberalisation I worked on the development of algorithms to optimise system planning and operation which led to my playing a lead role in the restructuring of the UK power sector in 1990. In 1998 I set up as an independent consultant with a company called ‘Electricity Market Services Ltd’ and published a book on early experiences with Wiley called ‘Electricity Markets’. Since then I have worked on projects throughout the world. I have advised government agencies and regulators in Belgium, the UK, South Africa, Sri Lanka, Oman, Namibia and Abu Dhabi. I have analysed markets for clients covering the UK, France, Germany, the Netherlands, Spain, Italy, Ireland, Poland, the Czech Republic, Romania, Greece, Turkey, Scandinavia, the Ukraine, Russia and Kazakhstan, Botswana and Mozambique. I have also undertaken assignments in the US, Trinidad and Tobago and Singapore, for banks in Europe, the World Bank and for oil and gas companies. This new book is based on the experience and understanding gained from this wide spectrum of assignments and international experience. It shows how power costs can be calculated and compares those from conventional sources with renewable and other alternatives. It also includes detailed calculations of distribution and transmission charges showing the makeup of end user charges and the impact of emission restrictions. Part three discusses the operation of markets and how they may be analysed while part four speculates on future developments. I was encouraged to write the book and record my understanding and experiences by universities and others who recognised the shortage of books in this area. I have included worked examples and endeavoured to keep abreast of the latest developments. The industry continues to face new challenges and it remains to be seen how well the market structures put in place will be able to deal with them.I originally trained as a power systems engineer with a first in Electrical Engineering. I subsequently took a Diploma in management Studies and completed a PhD in electricity markets. I am a fellow of the IEE, a senior member of the American IEEE and a member of the British Institute of Management.

• Contents ForewordPrefacePart One Industry InfrastructureChapter 1 Approach to Restructuring1.1 Introduction1.2 Industry Physical Structure1.3 Introduction of Competition1.4 Restructuring Options1.5 Comparison of Structures1.6 SummaryChapter 2 Market Mechanisms2.1 Introduction2.2 Market Participants2.3 Market Mechanisms2.4 Market Implementation2.5 Price Analysis2.6 SummaryPart Two The Cost ChainChapter 3 Basic Generation Energy Costs3.1 Introduction3.2 Cost Components3.3 Practical Operating Efficiencies3.4 Impact of Utilisation on Costs3.5 Comparison of Generation Costs3.6 International Comparisons3.7 SummaryChapter 4 Alternative Energy Sources4.1 Introduction4.2 Competing Sources4.3 Current Production Europe4.4 Incentive Schemes4.5 Market Pricing4.6 The Economics of Alternative Sources4.7 Comparisons4.8 SummaryChapter 5 Emissions5.1 Introduction5.2 Emission Trading Schemes (ETS)5.3 Large Combustion Plant Directive (LCPD)5.4 Generation CO2 Emissions5.5 Production Costs5.6 National Allocation Plans5.7 Market Operation5.8 Impact of Capacity Mix5.9 International Approach5.10 SummaryChapter 6 Transmission6.1 Introduction6.2 Impact of Transmission Constraints in Markets6.3 Transmission Charging6.4 Derivation of Use of System Charges6.5 International Tariff Comparisons6.6 Transmission Investment6.7 Interconnection Investment Appraisal6.8 International Practice6.9 SummaryChapter 7 Distribution7.1 Introduction7.2 Market Status7.3 Commercial Arrangements7.4 Metering and Balancing7.5 Cost of Distribution7.6 Distribution Tariffs7.7 OPEX Regulation7.8 Capex Regulation7.9 Business Risk7.10 Distributed Generation7.11 SummaryChapter 8 End User Charges and Prices8.1 Introduction8.2 Price Comparisons8.3 End user Energy Prices8.4 Total End User Prices8.5 Tariff Development8.6 Customer Switching8.7 SummaryPart Three Market OperationChapter 9 Market Trading9.1 Introduction9.2 European Markets9.3 Developing Markets – China9.4 Market Power9.5 Trading Arrangements9.6 Bilateral Trading9.7 Balancing Market9.8 Exchange Trading9.9 Supplier Risk9.10 Generation Risk9.11 Market Interaction9.12 Arbitrage Spark Spread9.13 SummaryChapter 10 Market Analysis10.1 Introduction10.2 Modelling Overview10.3 Dispatch Market Simulation10.4 Load Duration Model10.5 Hydro Generation10.6 Interconnection Modelling10.7 Predicting Demand Data10.8 Generation data10.9 Calculations10.10 Price Duration Curve10.11 Statistical Forecasting10.12 Predicting New Entry10.13 SummaryChapter 11 Ancillary Service Markets11.1 Introduction11.2 Ancillary Service Requirements11.3 Market Volume11.4 Procurement Process11.5 Cost of Providing Services11.6 Predicting Revenues11.7 SummaryChapter 12 Cross-border Trading12.1 Introduction12.2 Governance12.3 Cross-border Capacity12.4 New Investment12.5 Managing Operation12.6 Capacity Auctions12.7 Security12.8 Charging for Wheeling12.9 International Trading Development12.10 SummaryChapter 13 Investment Appraisal13.1 Introduction13.2 Overall Analysis13.3 Analysis of Options13.4 Plant Costs13.5 Predicting Revenue13.6 Bidding/Contracting Strategy13.7 Evaluating Risk13.8 SummaryPart Four Market DevelopmentChapter 14 Market Performance14.1 Introduction14.2 Performance Criteria14.3 Market Shortcomings14.4 Performance Assessment14.5 Performance Improvement14.6 SummaryChapter 15 Market Developments15.1 Introduction15.2 Generation Developments15.3 Future Plant Mix15.4 Transmission and Distribution Grids15.5 Carbon Capture and Storage15.6 Market Implications15.7 SummaryChapter 16 Long-term Scenarios16.1 Introduction16.2 Emissions16.3 Alternative Energy Sources16.4 The Nuclear Option16.5 Fuel Prices16.6 Fuel Supply Security16.7 System Security16.8 Clean Coal Technology16.9 Network Developments16.10 International Commodity and Freight Markets16.11 Competition16.12 ConclusionsGlossaryReferencesAppendix Conversion TablesIndex

?This is a remarkable book which provides essential data for any informed discussion of this vital problem that is so often dominated by ill-informed debate.? (Oxford Prospect, August 2009) "Murray's overview of the link between engineering and economics in the energy sector provides a timely look at the big challenge for the global power industry.... [It] provides a sound bases for anyone involved in the wider debate on how the market should be shaped." (Engineering and Technology, May 2009)"Murray's overview of the link between engineering and economics in the energy sector provides a timely look at the big challenge for the global power industry ? .[It] provides a sound bases for anyone involved in the wider debate on how the market should be shaped." (Engineering and Technology, May 2009)