fundamentals of the power grid and electricity pricing

Fundamentals of the Power

Grid and Electricity Pricing

©2015 EnergyCAP, Inc. ▪ @energycap ▪ www.EnergyCAP.com

David Ulmer

Project Manager

EnergyCAP, Inc.

“We believe that electricity exists,

because the electric company keeps

sending us bills for it, but we cannot

figure out how it travels inside wires.”

Dave Barry–author

and columnist


Background in Energy Industry

IT & Project Management

Grid Operations, Markets, and Planning

Energy Management System (EMS)

Smart Grid: SynchroPhasor system deployment

International Relations Liaison

Manager, Member Support Services

Stakeholder process

Market design


Understanding the Power Grid and Electricity

Markets can save you money

What is the grid and who keeps it running?

Why do we have wholesale electricity markets

and how do they affect me?

Where does the money go when I pay my

electricity bill?









electricity bill?

What is a Power Grid?

Often called the high

voltage transmission

system

Transports large volumes

of electricity from

generators to users

All generators and utilities

are fully connected and

synchronized at all times


Courtesy of US Dept. of Energy

Three Power Grids in the United States

The Eastern

Interconnection

is the largest

motor in the

world



Courtesy of PJM

Getting Power from the Generator to Your Home

Who regulates the grid?

Federal Energy Regulatory

Commission (FERC) interstate

trade of energy

State public utility

commissions rates for

consumers


*Peak Load in MW

50,270

112,197

50,270

33,939

158,450

28,127

45,248

Regional Transmission Organizations (RTOs)

& Independent System Operators (ISOs)

in North America


Constant balancing act–

frequency measures success

Limited options for electricity storage, so the grid must be kept in balance constantly

Electricity generation increases frequency(speeds up grid)

Electricity usage decreases frequency (slows down grid)



Source: PJM eData System

Managing Frequency is a Constant Task







electricity bill?


©204 EnergyCAP, Inc. ▪ @energycap ▪ #energyleader ▪ www.EnergyCAP.com







electricity bill?


Calculating the Cost of Electricity

Historically, prices set by utility companies

(cost recovery)

FERC encouraged independent generation

offers (risk transferred to investors)

Open transmission lines allow for competition

between generators


Courtesy of PJM


Generators Are Used Based on Cost

(Economic Dispatch)

Locational Marginal Price (LMP)

Generators should be compensated based on

their location

Customers should pay based on their access

to generation

Prices are dynamic–change every five

minutes


Source: MISO


LMP Example: Midcontinent ISO

Source: PJM


LMP Example: PJM during Superstorm Sandy

Typical Summer

Load Curve

Typical Winter

Load Curve


Biggest Influences on Electricity Prices:

Weather and Human Behavior

Art and Science of Electricity Markets

Forecast electricity use

Schedule the cheapest

generation possible

Ensure that transmission

system is not overloaded or

damaged

React to unexpected changes


$0

$50

$100

$150

$200

$250

$300

$350

HR1HR2

HR3HR4

HR5HR6

HR7HR8

HR9HR10

HR11HR12

HR13HR14

HR15HR16

HR17HR18

HR19HR20

HR21HR22

HR23HR24

Wholesale Price (Hourly LMP)

Retail Rate:

Average of hourly

LMP values


Wholesale Electricity Prices are the

Basis for Retail Rates







electricity bill?


Other Grid Considerations

How do we ensure that there is always enough

generation to meet customer demand?

What happens when there are unexpected

changes to weather or human behavior?

How does the grid react to equipment failure?

Additional Markets and Ancillary Services


New England Swings from Energy Capacity Surplus to Shortfall

February 6, 2014 by Linda Hardesty

New England’s auction to acquire the power system resources required to meet consumer demand in 2017-2018

concluded this week with a slight shortfall, resulting in rising prices that reflect the need for new resources, according to

ISO New England, the operator of the region’s bulk power system and wholesale electricity markets.

Preliminary results from this week show that the Forward Capacity Market (FCM) auction concluded with about 33,700

MW of the 33,855 MW of capacity required for the 2017-2018 capacity commitment period. A preliminary estimate of

the total cost of the capacity market in New England in 2017-2018 is about $3.05 billion; by comparison, through the

first seven auctions, the total cost to the region ranged from about $1.06 billion in 2013 to $1.77 billion in 2009.

The first seven auctions concluded with a significant surplus of capacity (with the exception of the NEMA/Boston zone,

which had insufficient competition in the previous auction). However, for the first time in auction history, New England’s

capacity auction resulted in a small shortfall relative to the requirement. In advance of this auction, 3,135 MW of

resources announced plans to retire, in addition to several major plants that had previously announced their plans to retire

starting this year.

While the auction closed with slightly less capacity than will be needed in 2017-2018, the FCM design provides

mechanisms for such gaps to be closed through periodic reconfiguration auctions held over the next three years.

Source: Energy Manager Today


What happens if electricity usage grows

faster than our ability to supply?

New England Swings from Energy Capacity Surplus to Shortfall

February 6, 2014 by Linda Hardesty

New England’s auction to acquire the power system resources required to meet consumer demand in 2017-2018

concluded this week with a slight shortfall, resulting in rising prices that reflect the need for new resources, according to

ISO New England, the operator of the region’s bulk power system and wholesale electricity markets.

Preliminary results from this week show that the Forward Capacity Market (FCM) auction concluded with about 33,700

MW of the 33,855 MW of capacity required for the 2017-2018 capacity commitment period. A preliminary estimate of

the total cost of the capacity market in New England in 2017-2018 is about $3.05 billion; by comparison, through the

first seven auctions, the total cost to the region ranged from about $1.06 billion in 2013 to $1.77 billion in 2009.

The first seven auctions concluded with a significant surplus of capacity (with the exception of the NEMA/Boston zone,

which had insufficient competition in the previous auction). However, for the first time in auction history, New England’s

capacity auction resulted in a small shortfall relative to the requirement. In advance of this auction, 3,135 MW of

resources announced plans to retire, in addition to several major plants that had previously announced their plans to retire

starting this year.

While the auction closed with slightly less capacity than will be needed in 2017-2018, the FCM design provides

mechanisms for such gaps to be closed through periodic reconfiguration auctions held over the next three years.

Source: Energy Manager Today

New England’s auction to acquire the power system resources required to meet

consumer demand in 2017-2018 concluded this week with a slight shortfall,

resulting in rising prices that reflect the need for new resources

…the total cost of the capacity market in New England in 2017-2018 is about

$3.05 billion; by comparison, through the first seven auctions, the total cost to

the region ranged from about $1.06 billion in 2013 to $1.77 billion in 2009.

In advance of this auction, 3,135 MW of resources announced plans to retire$1.5 Billon impact

in a single year


What happens if electricity usage grows

faster than our ability to supply?

What is Capacity?

Ability to serve all customers at all times

Plan for only one controlled blackout every 10

years

Use forecasting and statistical analysis to

determine future electricity use and generator

availability

Provides a daily revenue stream for suppliers

Capacity=Demand Charges


Courtesy of Center for Energy and Environment

Capacity Requirement

Constant Year Round


Capacity Must Consider Peak Usage

Regardless of Season


Additional Grid Services (Ancillary Services)

PJM©201319

PJM Wholesale Cost

www.pjm.com

Energy, 36.24

Reliability(Capacity), 4.77

Transmission,4.51

Regulation, 0.28

OperatingReserve, 1.54

PJM Cost, 0.34

Reactive, 0.34

TransmissionOwners Control,0.08

SynchronizedReserve, 0.03Black Start, 0.14

TOTAL: $48.26/MWh

YTD February 2013

($/MWh)

Source: PJM


Add it all up…







electricity bill?


Thank you for your time and interest

Email: [email protected]

Web: www.EnergyCAP.com


fundamentals of the power grid and electricity pricing

Education

grid operatorsbroke

electricity bill

wholesale electricity

different electricity

transmission lines

usersall generators

courtesy of pjmgetting

energythree power grids