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HTSO

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  1. HTSO Legal Framework, Investment Opportunities and Technical Innovation in the Electricity SectorSecurity of Supply through competitive markets:Design of the regulatory and economic environment for infrastructure developmentDr. Evangelos LekatsasChairman of the Board of Directors, HTSOAthens, October 23rd 2009

  2. Reliability of Supply "the degree to which the performance of the elements of the technical system results in power being delivered to consumers within accepted standards and in the amount desired” Security Adequacy

  3. Security vs Adequacy • Security:The ability of the System to withstand disturbances • Protection devices • Security constrained dispatch • Ancillary services (voltage control, AGC, spinning • reserves etc.) • NOTE: Security is centrally managed but the resources • can be procured competitively through ancillary service markets or long term contracts (Public good)

  4. Security vs Adequacy (continued) • Adequacy: The ability of the System to meet the aggregate power & energy requirements of all consumers at all times • Ability to meet demand on longer time scale basis • Non storability of power • Long lead time for capacity expansion • NOTE: Adequacy provision is nothing more than insurance against shortages

  5. Generation Adequacy(I) • Energy only markets: Consumers and suppliers interact through unrestricted energy spot markets. Market energy prices provide price signals and compensation for capacity investment. Technology mix and generation capacity are determined by entry and exit of suppliers and by customer choice of desired price risk. Energy only markets result in extreme spike prices. As a remedy to this Capacity Markets have been introduced to avoid price volatility. The purpose of these markets is to ensure that there is sufficient capacity in the System to cover peak demand and at the same time avoid price volatility.

  6. Generation Adequacy(II) • Installed Capacity (Icap) Obligation markets : In an ICap market Installed Capacity Obligations are set for Load Representatives (or Suppliers, or Load Serving Entities= LSEs) .Suppliers are obliged to secure contracts with producers sufficient to meet their expected load for one year, plus a security excess that reflects a prescribed Capacity Margin. Producers in order to enter into Agreements with Suppliers are obliged to have sufficient capacity by issuing, for each MW, annual Capacity Availability Certificates (CACs) when commissioning new generating capacity. This method does not provide any signal to the Consumers.

  7. Generation Adequacy(III) • Capacitive Charge To incentivize investment in new power plants and availability Generators receive, in addition to SMP, a Capacity Charge (CC) based on availability, as expressed by the calculated Loss Of Load Probability (LOLP), and the Value of Lost Load (VLL). P=SMP + CC = SMP+LOLP*{VLL-SMP} This method was initially applied in UK. It is not a market but a mechanism. It was abandoned when it was proved that some generators could artificially increase LOLP by withdrawing some of their units.

  8. HTSO The Value of Lost Load VLL = 5000 €/MWh

  9. Load Variations: Summer 2007- January 2009 10,0k

  10. Load Curve: Oct 1st 2006 –Sept 30th 2007 Peak Detail in next slide

  11. LOAD DURATION CURVE (period 1.10.2006 -30.9.2007) Peak Details above 10000MW 11000 10900 To supply the 1000MW of the peak an investment of 1000MW*400000 €/MW =400 million € which amounts to 56 million €/year or to 56000000/7300 =7671 €/MWh Adding the fuel cost of an open cycle Gas Turbine 112 €/MWh we obtain a total cost of the peak MWh equal to b=7783 €/MWh 7300MWh/year 10800 10700 10600 10500 LOAD inMW 10400 10300 10200 10100 10000 9900 9800 0 10 20 30 40 50 Hours

  12. Recovery of Fixed and Variable Generation Costs HTSO (€/year) (€/MWh) fc=fixed cost in €/MW-year vc=variable cost in €/MWh Q= installed capacity in MW E= annual energy generation in MWh/year b= energy market price in €/MWh r= capacity payments price in €/MW-year 12

  13. Recovery of Fixed and Variable Generation Costs ( Case I: Energy only Market, r =0) HTSO (€/year) (€/MWh) fc=56000 €/MW-year vc=112 €/MWh Q= 1000 MW E= 7300 MWh b= 7783 €/MWh > VLL=5000 €/MWh Decision= Curtail Peak 1000MW !!!!! 13

  14. Recovery of Fixed and Variable Generation Costs ( Case II: Energy + Capacity Market, r ≠ 0) HTSO (€/year) (€/MWh) fc=56000 €/MW-year vc=112 €/MWh Q= 1000 MW E= 7300 MWh r=35000 €/MW-year b= 2989 €/MWh < VLL=5000 €/MWh Value b of energy is still unacceptable (high) Introduce a CAP such that b< CAP 14

  15. Recovery of Fixed and Variable Generation Costs ( Case III: Capped Energy + Capacity Market) HTSO (€/year) (€/MWh) fc=56000 €/MW-year vc=112 €/MWh Q= 1000 MW E= 7300 MWh CAP= 150 €/MWh r>50941.8 €/MW-year b<CAP=150 €/MWh 15

  16. LOADDURATION CURVE (period 1.10.2006 -30.9.2007) Peak Details above 9000MW 11000 A similar calculation for the zone of 1000 MW between 9000 and 10000 MW Taking into account that the annual energy now is 133110 MWh/year gives 7300MWh/year 133110MWh/έτος 10500 56 εκ.€/year/133110MWh/year=420,7€/MWh 10000 Adding the fuel cost, 112€/MWh, we conclude that the total cost in this lower peak zone is Load in MW b=532,7 €/MWh 9500 9000 8500 0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 Hours

  17. HTSO

  18. Non Priced Bids (NPB) • Mandatory Hydro ~1800MW • RES ~ 300MW • Technical Min ~3000MW • Imports ~ 700MW • TOTAL= 5800MW €/MWh NPD = Non Priced Demand CAP With L1>L0 SMP1<SMP0 SMP0 SMP1 Demand Curve Supply Curve NPBο MW L0 L1 L, System Load, MW NPB1 Right shift of the Supply Curve due to increase of NPB

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  20. EPILOGUE The market expresses the will of human beings to meet at the point of equilibrium of supply with demand by maximizing the, so called, Social Surplus. But the will of human beings, especially when expressed in terms of conflicting economic interests, may lead the power system to risky levels of operation. Indeed, following the liberalisation over the past 2 decades, some power systems have been pushed towards their stability limits in order to maximize profit in energy trading, thus endangering the operation of the power system. It is very important to understand that power systems must operate within safe physical limits and with adequate reserves in order to maintain high standards of supply. This creates a cost we must not forget!

  21. HTSO AcknowledgmentsI would like to thank my colleagues in HTSO for their valuable discussions in preparing this presentation THANK YOU FOR YOUR ATTENTION

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