capacity market

7/27/2019 Capacity Market

1/39

EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 1

METU

Capacity Market

C

apa

city

Mar

ket


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METU

Capacity Market

Operating Reserves

Main Duty of the System Operator

Main duty of the system operator is to keep

operating the system always in normal andsecure operating state by maintaining supply-demand balance

Basic principle for maintaining supply-demand balance:The system operator must always have asufficient amount ofoperating reserve

against sudden unexpected contingencies


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METU

Capacity Market

Generation System: Operating reserve in terms of demand;

Operating reserve

Units in service

Supply-Demand Balance and Operating Reserves

Operating reserve is measured in terms

of percentage of the overall generatingcapacity in the system

Minimum Limits for Operating Reserve:

In Planning: 10-30 % In Operation: 10 %

300 MW 100 MW

300 MW


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METU

Capacity Market

Generation System: Operating reserve in terms of demand

Operating reserve300 MW

100 MW

300 MW

Units in service

Types of Operating Reserves

Keeping a plant as hot or cold operatingreserve is something that incurs a costto the party who benefits from this

service

In principle operating reserves may be

classified in two groups; Hot operating reserves, those

plants, which is kept ready to put inservice immediately,

Cold operating reserves, thoseplants, which is kept ready, but canbe put in service within 10-60minutes, following the order


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METU

Capacity Market

Ordering of Operating Reserves

Operating Reserve Markets

Plants in Operating Reserve Market are

ordered with respect to their; Full or partial capacity kept in

operating reserve state, Quickness of response: time

duration needed for the plant to getinto service following the order (fueltype and being in hot orcold

states determines quickness), Sureness in availability: Certainity inavailability (price will depend uponthis certainity)

3 x 100 MW 2 x 100 MW

300 MW

Operating reserves

Units in service


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METU

Capacity Market

Cost of Operation ReservesTerms in Operating Reserve Cost

In principle, cost of an operating reserve is the

same as capacity cost, which comprises oftwo components; Fixed Capacity Cost, Variable Capacity Cost

Varible Capacity Cost here, however, unlikethe one that has been described earlier, doesnot include the fuel cost,


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METU

Capacity Market

Cost of Operation ReservesTerms in Operating Reserve Cost

In principle, cost of an operating

reserve is the same as capacity cost,which comprises of two components; Fixed Capacity Cost, Variable Capacity Cost

Varible Capacity Cost here, however,does not include the fuel cost


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METU

Capacity Market

Cost of Operation ReservesVariable Capacity Cost - VCC

Like Fixed Capacity Cost, VCC is measured in

terms of; $ / MWh or $ / kWy

Variable Capacity Cost - VCC of a plant is the

same as the Operation and Maintenance Cost,i.e.

VCC = OPC + MC= OMC

where, VCC is the Variable Capacity Cost,OPC is the Operation Cost,OMC is the total Operation and

maintenance Cost,MC is the Maintenance Cost


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METU

Capacity Market

Average Capacity Cost

Fixed Capacity Cost - FCC and Variable Capacity

Cost - VCC of a plant may be combined to yieldthe average capacity cost of a plant;

ACK= FCC + VCC . c

ory = b + ax

where, ACkis the average capacity cost of the plant in$ / MWh or in $ / kWy,

FCC is the Fixed Capacity Cost,VCC is the Variable Capacity Cost,cf is the combination coefficient, called the

capacity factor

Cost of Operation Reserves

Note that Fuel Cost term -FUC does not exist in VCC


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METU

Capacity Market

The Effect of Operating Reserves on Competition

In that respect, Operating Reserves maybe regarded as available excess capacity

Minimum Operating Reserve Requirement

In principle, a competitive market requires

an environment, where the availablecapacity exceeds demand

It is widely accepted practice that when

the available capacity exceeds demand byonly 10 %, a competitive market will beestablished and it will be possible to keepthe price of the most expensivegeneration at 100 USD / MW, i.e. 10 Cents

/ kWh level


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METU

Capacity Market

The Effect of Operating Reserves on Price

In that respect, Operating Reserves may be

regarded as available excess capacity

Minimum Operating Reserve Requirement

In principle, a competitive market requires an

environment, where the available capacityexceeds demand so that the customer has achance for choice

It is widely accepted practice that when theavailable capacity exceeds demand by only10 %, a competitive market will beestablished and it will be possible to keep

the prices of the most expensive generationsat 100 USD / MW, i.e. 10 Cents / kWh level

Karakaya HPP, 188 MW


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METU

Capacity Market


Price Spikes

As consumption increases with respect todaily load curve, supply becomes tighter

System operator then finds himself in adifficult situation that the operating

reserves run short and he can no longermaintain 10 % operating reserves

Off-Peaklevel

Peaklevel

TotalDemand(M

W)

Time (Hours)

Summer

Winter

The system operator then starts offering

higher prices for both the committedplants and reserves, driving up the prices

In other words, prices follow a trajectory(not exactly but) similar to the daily

loading curve


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METU

Capacity Market


Price Spikes

Off-Peaklevel

Peaklevel

PowerDemand

(MW)

Time (Hours)

Summer

Winter

The last alternative is rather severe, andmay induce some legal consequencesagainst the customer (utility)Hence the utility must compare the legal

consequences and penalties to bearised and the price of electricityBefore deciding on load shedding

Price paid by the system operator to

operating reserves committed real-timesets an upper limit on price in the market

High prices in Forward Agreements

(Hedging) induce investment


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METU

Capacity Market


Price Spikes

Off-Peaklevel

Peaklevel

PowerDemand

(MW)

Time (Hours)

Summer

WinterIn case the operating reserves run shortand prices drive up, customers (utilities)confront with three alternatives;

Letting the system operator purchase

power for them in real-time in terms ofreal-time spot prices,

Making Forward Agreements (Hedging)with suppliers and purchase powerfrom those suppliers, in order not to beinfluenced by price spikes,

Shedding the load within the period the

price is high


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METU

Capacity Market

Trakya Natural Gas Plant 477 MWWhat is Self-Provision ?Self-Provision of Operating Reserves

There are two types of operating reservesin terms of their sources; Independent plants exclusively kept,

committed and operated as operatingreserves. In this case, commercialoperating reserve service is providedonly by these plants,

Self-providing plants with a certainpercantage of their capacity kept andsold as operating reserve to systemoperator (not to costumers !).

Self-provision is condition of providingboth energy and operating reserve

services by the same plant

Each self-providing plant participates inoperating reserve service by its own percentage


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METU

Capacity Market

Why self-provision is preferred ?The need for Self-Provision

Plants may not be fully convinced

that a commercial operatingreserve service will work properly,when needed,

They may not be satisfied with the

some aspects of the service, suchas; quality, price, quickness andreadiness,

Plants may be in difficulty in

selling some part of theirproduction within some operatingperiods, so that they may prefer tooffer the capacity corresponding

to this part as operating reserve

Kdz. Ereli Natural Gas Plant


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METU

Capacity Market

Criterion

A Simple Criterion for Self-Provision

Self provision is to be preferred, when;

There is a surplus capacity that can be

sold in terms of either;a) energy

orb) capacity

KemerkyP = 630 MW,Capacity = 2392 GWh (1999), 2922 GWh (2000)


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METU

Capacity Market

Criterion

A Simple Criterion for Self-Provision

Self provision is to be preferred, when;Profite < Profitc

where,Profite =Pe (Pc+ Penergy+ PO&M)

Profitc=Pnl (Pc + PO&M)

or

Pe (Pc+ Penergy+ PO&M) < Pnl (Pc+ PO&M)or

Pe Penergy < Pnl

where,

Profite and Profitcare profits to be earned byelectricity an capacity trading,

Pe, Pc, Penergy, Po&m, Pnl,are electricity, capacity, energy, operating andmaintenance, and the no-load operating prices,

respectively


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METU

Capacity Market

Factors Determining Price of Operating Reserve

Pricing of Operating Reserves

Factors determining price of operating reserve

service are; Capacity factor (percentage of rated power x

duration of allocation),

Quickness of response, Certainity of availability, Certainity of order, Early ordering,

Start-stop expenditures of the plantUnits of operating reserve service is the same asthat of energy, i.e. kWh or MWh, as it depends bothon capacity allocated (MW) and duration (h)


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METU

Capacity Market

Allocation FactorDefininiton

Allocation Factoris a measure of the

percentage of capacity service allocatedto customer

Allocation Factor is expressed as;

= ( P / Pr) * ( t / T ) (unitless)

where, is the allocation factor,P is the power allocated to customer,Pris the total rated power of theplant,t is the total duration of service(hours),T is the overall duration of theavailability of plant (hours)


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METU

Capacity Market

Capacity FactorDefininiton

Capacity Factoris the ratio of the total

energy supplied to the total capacityallocated

Capacity Factor may be expressed as;

c = total energy supplied/total capacity

allocated(a.f. x rated power)= P(t) dt / (a.f. x rated power)= Area under the curve / overall

rectangular area

= Area under the curve / 4000 x 24where, energy supplied is the total energy

supplied during the allocated serviceperiod,total capacity allocated = a.f.xrated power

TotalDemandP(t)(MW)

500

1000

1500

2000

2500

3000

3500

4000

0 2 4 6 8 10 12 14 16 18 20 22 24

Time (Hours)

0

Energy supplied


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METU

Capacity Market

Capacity FactorDefininiton

Capacity factor is not a concern for the

producer at all.The producer simply allocates the orderedand committed portion of the plant and doesnot concern whether this portion is properly

utilized by the consumer or not. Properutilization of this portion is merely aproblem of the consumer.

In other words, capacity factor is a problemof the customer, allocation factor is aproblem of the supplier.

500

1000

1500

2000

2500

3000

3500

4000

0 2 4 6 8 10 12 14 16 18 20 22 24

Time (Hours)

0

Energy supplied

TotalDemandP(t)(MW)


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METU

Capacity Market

Capacity FactorExample

Capacity Factor of the load shown on the

right hand side may be expressed as;c = total energy supplied / total capacity

allocated(a.f. x rated power)= P(t) dt / (a.f. x rated power)

= Area under the curve / overallrectangular area

= Area under the curve / 4000 x 24= 65 000 MWh / 96 000 MWh = 0.94

500

1000

1500

2000

2500

3000

3500

4000

0 2 4 6 8 10 12 14 16 18 20 22 24

Time (Hours)

0

Energy supplied

TotalDemandP(

t)(MW)


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METU

Capacity Market

The Effect of Capacity Factor on Price

The Effect of Allocated Capacity

Percentage price(*) of operating reserve

per MW decreases as the allocatedcapacity increases--------------------------------(*) (Price / Nominal Price) . 100 (%)

Plant owner prefers higher allocatedcapacities, since fixed and variablecosts of service decrease with therating (size) of the plant

Principle of Economies of Scale

90

110

120

130

140

150

160

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

100

Allocated Capacity (%)

PercentagePrice

(Cent/kWh)

80


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METU

Capacity Market

The Effect of Quickness of Response

The Effect of Quickness of Response

Quickness of response requires high

flexibility and readiness of the plantwhich increases the price

Log (Response Time)(minutes)

0.8 1.2 1.6 2.0 2.4 2.8 3.2

70

80

90

110

120

130

140

150

100PercentagePrice

(Cent/kWh)

T = 3.16 103.16minutes = 1 day

T = 1.6 101.6= 40 minutes


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METU

Capacity Market

The Effect of Certainity of Availability

The Effect of Certainity of Availability

Certainity of availability (Sureness) is

a parameter influencing the price ofservice

Price of an operating reserveincreases with the certainity ofavailability

PercentagePr

ice(Cent/kWh)

Certainity of Availability (%)

70

75

80

85

90

100

0.80 0.90 1.000.75 0.85 0.95

95


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METU

Capacity Market

Certainity of Availability

What is Certainity of Availability ?

Assume that the operating reservegroup shown in the figure has made

an agreement with Customer-A onthe basis of definite availability, i.e.100 % availability

Operating reserve service with 100 % availability

Assume that the contingency risk of

this customer needing thisoperating reserve service is only 2%, i.e. the probability of not needingthis operating service is 98 %

Hence, it is possible to make asimultaneous (cascade) agreementwith Customer-B on the basis of 98% availability, at a reduced price

Transmission

System

Customer-B

R-2Op. Reserve Market - 2

Operating Reserve Group

Customer-A

R-1Op. Reserve Market - 1

(Please note that, Customer-Bmay not receive full operatingreserve service when Customer-A is serviced)

Transmission

System

Supplier

Cascade operating reserveservice with 98 % availability


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METU

Capacity Market

The Effect of Certainity of Order

The Effect of Certainity of Order

Certainity of order (probability of

ordering) is a parameter influencingthe price of service

Price of an operating reservedecreses as the uncertainity of orderis reduced Per

centagePrice(Ce

nt/kWh)

Certainity of Order (%)

0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1

80

90

110

120

130

140

100


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METU

Capacity Market

T = 3.25 103.25minutes = 29 Hours

T = 1.0 101 = 10 minutes

The Effect of Early Ordering

PercentagePrice(Ce

nt/kWh)

The Effect of Early Ordering

Early ordering provides plant

operator chance to make a schedulefor plant allocation which reducesthe price

1.0

70

80

90

110

120

130

140

150

100

Log (early ordering period)(minutes)

1.5 2.0 2.5 3.0 3.5


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METU

Capacity Market

Superposition of Capacity Services

Capacity services supplied totwo or more customers maybe joined together gainingeconomy in the installed

capacity of the operatingreserve

TotalD

emandP(t)(MW)

0 2 4 6 8 10 12 14 16 18 20 22 24

5

10

15

20

25

30

35

40

2 4Time (Hours)

Demand (Capacity) requested by thefirst customer

Demand (Capacity) requested by thesecond customer

Total Demand = 40 + 40 = 80 MW

Superposition of CapacityServices


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METU

Capacity Market


Please note that, the loads are

diversived, hence their total doesnot make 80 MW, i.e. To

talD

emandP(t)(MW)

-

10

20

30

40

50

60

70

80

90

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

Total Demand (Capacity) 76 MW < 80 MW

(P1 + P2) (t)max< P1 (t)max+ P2(t)max

Implying that the supplier does notneed to supply the sum of themaximum demands, but maximum

of sum of demands, which is moreeconomical in terms of investments

P1 (t)

P2 (t)

P1 (t) + P2 (t)



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METU

Capacity Market

Linkage among Operating Reserve Markets

If no linkage is establishedamong operating reserve

markets, they will functionsimultaneously, butseparately

This type of architectureresults in higher prices,since unsold services inone market can not flowinto the others

An unsold operatingreserve service is nothingbut keeping the plant idle,i.e. just waste of resource

Operating Reserve

Group -3

Operating Reserve

Group -2

Customer-2 Customer-3

Operating ReserveGroup -1

Customer-1

Transmission

System

Supplier - 3Supplier - 2Supplier - 1

R-2

Op. ReserveMarket - 2

R-3


R-1



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METU

Capacity Market

Forward Cascading

Cascade Linkaging of Operating Reserve Markets

If linkage is establishedamong operating reserve

markets, then will functionsimultaneously, and unsoldservices will flow from onemarket to the others, thus

lowering the pricesIn this case, markets arecleared in sequence,starting from the one with

the highest quality (price)Any surplus service in onemarket will flow to the othermarkets at a reduced price

in a sequence

Operating Reserve

Group -3

Regions

Surplus

Service Flow

Linkage

Operating Reserve

Group -2

Transmission

System


Regions

Surplus

Service Flow

Linkage


Transmission

System

Customer-1

R-1Op. ReserveMarket - 1

Transmission

System

Supplier - 1 Supplier - 2 Supplier - 3




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METU

Capacity Market

Some Practical Problems in Cascade Linkaging

If there is a shortage in thelast reserve market R-3, but

not in the others, then pricein R-3 may rise to a levelabove the prices in R-1 andR-2

Markets R-1 and R-2 on theother hand are alreadycleared at a lower price

Inefficient utilization of operatingreserves

Operating Reserve

Group -3

Regions

Surplus

Service Flow

Linkage

Operating Reserve

Group -2

Transmission

System


Regions

Surplus

Service Flow

Linkage


Transmission

System

Customer-1

R-1Op. Reserve

Market - 1

Transmission

System


R-2Op. Reserve

Market - 2

R-3Op. Reserve

Market - 3

C


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METU

Capacity Market

Merger of Op. Reserve Markets

Solution: Merger of Operating Reserve Markets

The ideal solution is to: increse the strength of

internal linkages, merge all operating reserve

markets in a single market

More efficient, but morecomplicated and difficult tooperate

The extreme model is tomerge the resulting operatingreserve market with theenergy market forming a

single complicated market

Operating Reserve

Group -3

Regions

Operating Reserve

Group -2

Customer-3

Regions


R-1Op. Reserve

Market - 1


R-2Op. Reserve

Market - 2

R-3Op. Reserve

Market - 3

Transmission

System

Customer-2Customer-1

C it M k t


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METU

Capacity Market

Answer

Can Balancing and Settlement Service be used as

Operating Reserves ?

The answer is No

In principle, operating reserveservices; extend longer-terms, such as few

months to few tears, are relatively cheaper, are received on the basis of

contracts

are short term services, are relatively much more

expensive, are received from the spot market

without any contract

while, balancing and settlement

services;

Transmission

System

Transmission

SystemDistribution

System

Load

PgenPload

TETAS

P = Pgen - P load


Regions

SurplusService Flow

Linkage


Transmission

System

Customer-2

R-2Op. Reserve

Market - 2

R-3Op. Reserve

Market - 3

Customer-3

Regions

SurplusService Flow

Linkage


Customer-1

R-1Op. Reserve

Market - 1

Transmission

System

Supplier -1 Supplier -2 Supplier -3

Wholes

ale

Compa

ny

EUAS

C it M k t


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METU

Capacity Market


Price Spikes (NYISO) (15.01.2005)

As consumption increases with respect todaily load curve, supply becomes tighter

System operator then finds himself in adifficult situation that the operating

reserves run short and he can no longermaintain 10 % operating reserves

The system operator then starts offeringhigher prices for both the committed

plants and reserves, driving up the prices

In other words, prices follow a trajectory(not exactly but) similar to the load

duration curve

Average Real-Time Priceswithin one-year Period

Hours

200320022001

Please note that; Price curves follow a pattern similar to those of the load

duration curves, i.e. Prices are lower during night periodsand higher during evening periods

Prices were higher in 2003 due primarily to higher fuelcosts,

C it M k t


38/39


METU

Capacity Market

The Effect of Operating Reserves on CompetitionMinimum Operating Reserve

In principle, a competitive market requires

a an environment, where the availablecapacity exceeds demand

Birecik HPP, 630 MW

Excess capacity is provided in terms of

operating reserves

Spillway

C it M k t


39/39

EE 710 Electricity Trading Electrical and Electronics Eng Dept METU Spring 2005 Prof Dr Osman SEVAOLU Page 39

METU

Capacity Market

The Effect of Operating Reserves on Competition

In that respect, operating reserves may be

regarded as available excess capacity

Minimum Operating Reserve

It is a widely accepted practice that when

the available capacity exceeds demand byonly 10 -15 %, a competitive market will beestablished and it becomes possible tokeep the price of the most expensivegeneration at 100 USD / MW, i.e. 10 Cents /kWh level

Birecik HPP, 630 MW

capacity market

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