Energy Econ FINAL
In implementing the statutory mandates adopted in the Energy Policy Act of 1992, the FERC adopted Orders 888 and 889 to implement mandatory wholesale electricity transmission access. What were the most important provisions in Orders 888 and 889?
FERC's Orders Establishing Non-Discriminatory Transmission Pro-forma open access tariffs providing "comparable service" Functional separation of transmission and marketing activities at utilities Open Access Same-Time Information Systems (OASIS) Internet electronic bulletin board Right to reassign or sell transmission rights in secondary markets Established Standards for Independent System Operators (ISOs) ISOs was a collective organization that managed transmission services in areas in order to maintain safe services Regulated by FERC and need to change their structure - they need to be independent from all the market players Not for profit organizations with no commercial ties, they don't own anything but an office and a bunch of computers What they do involves interstate commerce so FERC is more worried about regulating them now than ever before
What is meant by a generation units' "ramping capability", why is it rather limited in most cases, and what are the system operational implications of having individual generating units that have limited individual ramping capabilities?
Ramping capability is the ability to ramp up the power generation from the low-load times to peak-load times There are few energy sources that can produce a lot of energy in a short period of time without high costs This means that units have to be running all day in order to be able to ramp up to meet peak-load demand, they cannot be shut on and off
What are the two most economically important inputs (i.e., factors of production) used in the production of electricity usually? How, in broad terms, does the ability to substitute these factors in the production of electricity interact with the imperative of continuously meeting time-varying consumer demand tend to dictate that it is best to have a variety of different generation technologies installed on a system to serve demand?
fixed costs (largely the upfront capital costs) the variable costs (largely the fuel costs) of operating
What exactly is meant by a generation plant's "no-load" fuel requirement? How does it differ from a power plant's start-up fuel requirements?
"No-load" is a fuel cost You need to input a certain amount of fuel before you even begin to produce power
Focusing only on economics, in selecting between two potential new generation plants to be added to the system, why is it not sufficient to simply look at the total costs of building and operating each of these power plants? What other important economic effect must be considered in selecting the addition that will be economically best for the system?
- Central economic impacts : How will the specific addition affect the total cost of the power system as a whole facility -specific cost impact: How much will it cost to build, own, and operate the facility itself - System cost impacts: How will the addition affect the economics of balancing and optimizing the operation the operation of the rest of the system - How will the unit affect the operability of the system (ramping capability, minimum turn-down, etc.) - Environmental effects - Fuel price and availability risks
Explain how electricity is produced using turbines and electrical induction. Why is it typically transformed to higher voltages for transmission and distribution across the electric network?
- The kinetic energy (steam falling water, wind, tides) of moving matter spins a turbine, which turns magnets(rotor) within a field of wires(stator) causing electrons to flow (electricity induction = pure magic), across long distance transportation through wires in a network, to end-users Generation: Virtually all commercially produced and distributed electricity is generated through electromagnetic induction. (The exception is electricity produced by photovoltaic cells and a miniscule amount produced from batteries and fuel cells.) Electricity production through induction begins with tapping into a basic source of kinetic energy, such as falling water, blowing wind, steam, ocean tides, etc. The kinetic energy possessed by these substances is used to spin a turbine. The spinning motion of the turbine is then used to rotate magnets (called the "rotor") within a field of wires (called the "stator") causing electrons to flow within the wire. transmission losses can be reduced by transforming the electric power to high voltages, transporting it long distances, and then transforming the power back down to lower voltages for distribution to end-use customers
In what ways, and in what general historical era, did the federal government get directly involved in the electric power industry and remains so today?
1898 state utility regulation was first proposed to the National Electric Light Association, who then endorsed state regulation in 1907 By 1913, 33 states had adopted state utility regulation by public utility commissions Inability of state regulatory commissions to regulate the prices charged for electricity services in interstate commerce → Supreme Court decision in Attleborough Roailroad case Perceived abuses by interstate holding companies during the 1920's → congressional investigation and 97-volume FTC report Federal Power Act of 1935 Price regulation of sales for resale (wholesale sales) in interstate commerce Price regulation of transmission service in interstate commerce Public Utility Holding Company Act of 1935 Divestiture of operating companies that were not interconnected with one another Strict SEC regulation of registered holding company finances
California has gone through a sequence of at least five major frameworks for promoting the development of renewable generation since 1982. Briefly discuss these five rather distinct frameworks. What is the latest broad policy framework for promoting renewables that was first put in place in 2002?
1982- 1985: California implemented PURPA very aggressively: High-Priced Interim Standard Offer #4 QF "Gold Rush" of April 1985 1985-1995: California adopted competitive bidding to determine avoided cost Disastrous implementation of BRPU in 1992 1996-2001: California adopted "market-based" approach to renewables subsidized through "Public Goods Charge" Few new renewables due to lack of underlying long-term contracts for the power 2002- ???: California adopted aggressive Renewable Portfolio Standard (RPS) and California Solar Initiative (CSI) What's the fifth one?
How many large interconnected networks are there in the contiguous continental (i.e., 48 states) United States? What is the fundamental institutional reason that Texas has continued to operate the power system in Texas on a basis that is not routinely interconnected and synchronized to the much larger Eastern or Western Interconnections?
4 Synchronous Interconnected Grids in North America: - Western Interconnection - Texas Interconnection - Eastern Interconnection - Quebec Texas grew up independent - so when the federal interstate commerce came in, they said they didn't want to be part of it and run their own system
What is meant by a Renewable Portfolio Standard? Approximately when did state RPS policies begin to be adopted across the U.S.? When did California first adopt an RPS and at what percentage level? At what percentage level is California's RPS now set and what is the target date for achieving this standard?
A Renewable Portfolio Standard sets a percentage at which electricity generated from renewable energy sources must be in a given year California adopted its first RPS in 2002: 20% by 2017 In 2015, the RPS was increased to 50% by 2030
What's the main reason that high-voltage alternating current (AC) power prevailed in the technological competition with direct current (DC) power?
AC power prevailed over DC when DC was able to travel the longests distance, from Niagara Falls to Buffalo
State public utility commissions typically have very broad powers over electric utilities. What dimensions of utility activities are generally the main focus of their regulatory oversight? What commercial electricity prices do state public utility commissions typically regulate, and what electricity prices do they not regulate?
Avoid "undue" price discrimination Prevent excessive profits Assure availability of service on "reasonable" terms to all customers ("obligation to serve") Provide stability to support large capital investments and avoid the boom-bust cycles of "destructive" competition in a capital-intensive industry Avoid wasteful investment in duplication of facilities Pursue political goals and social policies e.g., promotion of regional development, energy conservation, renewable generation, etc.
Briefly explain in reasonably precise words and appropriate diagrams (technology screening curves and a load duration curve) why a vertically integrated electric utility will generally find it economically beneficial to install a mixture of so-called baseload, intermediate, and peaking generation facilities to produce electricity for its customers at least cost. (In your answer, be sure to carefully explain how the answer depends critically on the key roles played by: (1) capital-fuel substitution in the production, and (2) the practical inability to economically store much energy.)
Baseload generation has lower marginal costs There are huge net fuel savings in investing in baseload generation, which can supply fuel in non-peak hours Along the optimal expansion path, baseload generation should be added up to the margin at which its avoided-fuel-cost fuel benefits are exactly equal to the differential capital cost of installing baseload vs. peaking generation.
What are the four major dimensions of cost and performance that are the most important in distinguishing one generation technology from another (other than the renewable/nonrenewable distinction)?
Capital costs Operating costs Start-up times Dispatchability
In 2000 and 2001, there was a severe power crisis in California. The causes of this crisis were multiple and complex. What lasting and general lesson regarding competitive wholesale electricity markets should all parties have learned from this event?
Causes and dynamics: Utilities became net buyers of about 45-55% of power they needed to provide to their customers Very little new generation Suppliers in spot market gained market power Electricity markets are subject to market power Demand is inelastic, supply in the short-run is very inelastic too Utilities cannot pass on the high costs to their customers
The most important provisions within the Public Utility Regulatory Policies Act of 1978 are found in Section 210 dealing with the treatment of so-called "Qualifying Facilities" (QFs). What specific kinds of electricity generators are categorized as QFs? What are the main provisions of Section 210 of PURPA? What is the most important right/privilege conferred on QFs by PURPA? How are the prices paid to QFs for their power regulated pursuant to PURPA? Who sets these prices and at what level are they supposed to be set?
Electric power "deregulation" began inadvertently with a federal law called the Public Utility Regulatory Policies Act (PURPA) of 1978. PURPA created a special class of renewable and alternative power generators who had the right to sell power to utilities at regulated wholesale prices. Once this initiative took hold, entrepreneurs interested in developing conventional forms of generation began asking why they could not also become participants in this new generation competition. Facilitating "deregulation" of these conventional generators would become a very controversial initiative championed by some visionary FERC Commissioners and staff. But administrative initiatives could only go so far in enhancing competition in wholesale electric power markets because of certain statutory constraints. Ultimately, it would require federal legislation to bring wholesale generation competition to its full potential. This would eventually be accomplished by the Energy Policy Act of 1992.
How does the system operator determine on a moment-to-moment basis whether it is injecting enough power or too much power (called "overgeneration") into the electric network? Why is it important that the system operator avoid doing so; what will happen?
End use equipment at the customer level will get ruined if you allow the quality (more specifically, voltage) of the electricity to waiver Someone needs to have control over the generation injectors need to be meeting the customers demands closely // they control the injections into the system Adjusting the generation to complement the load They have no idea instantaneously how much consumers are consuming, they do know how much generators are generating, so they monitor the frequency Ideal to keep frequency (voltage) at 60 cycles/second
What broad strategies are available for California to improve the state's ability to absorb more photovoltaic power generation? Briefly explain the general thrust of each strategy.
Enhanced regional coordination to facilitate the exportation of excess solar generation Conventional "Demand Response" to reduce ramping requirements Advanced Demand Response / Flexible Loads to shift load toward hours of greatest solar production Energy storage Tilt the renewables portfolio more toward non-solar renewables to meet RPS
When retail competition began being adopted in various states, what major concerns did environmentalists have regarding the introduction of this new policy? How were these concerns broadly addressed through "public benefits" charges and (a bit later) through "renewable portfolio standards"?
Environmentalists decreased support for "public purpose" programs, if it meant shifting costs to customers and generally increased costs These were later addressed through Renewable Portfolio Standards and subsidies "Public Goods Charge" → California adopted "market-based" approach to subsidize renewables
What are the three main federal statutes that have had, and in most cases still have, the greatest impact on the structure, conduct, and regulation of commercial activities on the national electricity grids in the U.S.? Briefly explain the primary provisions of each statute.
Federal Power Act of 1935 - Price regulation of sales for resale in interstate commerce - Pricing, terms and conditions of transmission service sold in interstate commerce Public Utility Holding Act of 1935 - Addressed alleged Holding Company abuses of the 1920s - Adopted following other financial regulatory reforms that included the formation of the Securities and Exchange Commission (SEC) in 1934 - Ordered public utility holding companies to simplify into "integrated public utility systems" - Produced the largest forced divestitures of properties in American history - By prohibiting ownership of scattered electric facilities in multiple states, it inadvertently created a legal barrier to the introduction of increased wholesale electricity competition during the 1980s Summary: The only relevance of the Holding Company act to the electric power industry in the long run, is it has a prohibition against owning electric generation equipment that is not interconnected with one another in various states Not a problem until people wanted to generate competition between utilities You can own scattered generation facilities in the US that are not connected if they are only selling to local utility companies Public Utility Regulatory Policies Act of 1978 (PURPA) - Created "Qualifying Facilities" (QFs) - Defined by technological and size qualifications - Exempted QFs from cost-of-service regulation by state or federal regulators - Mandated that local utilities purchase all QF power production at the utilities' "avoided cost" of producing a like amount of power - Exempted QF owners from PUHCA prohibition against ownership of "scattered" facilities - Allowed utilities to own up to 50% of a QF
What are the two main reasons for investing capital in any new generation units? In other words, one or both of two basic purposes are typically served by investing capital in new generation; what are these two possible (and not necessarily mutually exclusive) purposes?
For Reliability: Additional generating capacity must be added to serve growing peak demand. For Economics: By investing in more capital-intensive technologies, it may be possible to produce power with lower fuel cost per MWH.
In addition to the federal government, what other governmental institutions are sometimes directly involved in the electric power industry as producers and/or distributors of electricity?
From the beginning, some local municipalities formed their own public power companies in order to provide their citizens In 1928, Congress passed the Boulder Canyon Project Act, authorizing the construction of a federally owned dam on the Colorado River (Hoover Dam) Following this, esp. During Great Depression, federal gov. Pursued numerous hydroelectric projects Tennessee Valley Authority, Bonneville Power Authority, Western Area Power Authority - 1963, Congress created the Rural Electrification Administration → Rural Electric Authorities
According to E3's study of renewables integration challenges, is integration of photovoltaic power likely to be most problematic due to likely "overgeneration" during the summer or non-summer months? Briefly explain what is meant by "overgeneration", in what way it is a problem, and why this problem tends to show up mainly during one time of year but not so much in the other time of year.
Higher RPS levels do not cause overgeneration problems during the summer RPS technologies produce in the middle of the day, when energy demand is the highest in the summer The ramp isn't as drastic as in the winter months Higher RPS levels cause huge overgeneration problems during the winter We can't shove our power plants that low during the day and still have them ramp them up for the peak hours, so many people might need to turn to renewable
In 2003, the California CPUC and CEC adopted a "Loading Order" stating a priority of preferences for various categories of supply-side and demand-side resources to be added to the electricity system. Although making sense as a political sound bite setting a broad policy direction, what important dimension or element is missing from the preference ordering that makes it impossible to determine exactly what it means from an analytical perspective? In other words, what missing ingredient makes its impossible to know precisely how to implement the policy?
How do you square the policy with the equimarginal principle of optimization? If it has any meaning, it is a calls for you to deviate from this equimarginal principle, but how far are you supposed to go with Resource A before turning to Resource B?
In 2002, there was a financial crisis that hit the independent power producers (mainly non-QF developers of conventional independent power plants) in the United States. What was the basic nature and cause of this financial crisis? What long-term chastening effect did it have on the IPP industry; what important lesson did they and their financiers learn (or should have learned) from this episode?
IPPs had initially followed a relatively conservative financial model Although they usually used heavy debt-equity ratios (80/20), they secured long-term power purchase contracts (at least 10 years) from utilities before constructing projects. Projects were individually financed with "non-recourse" financing Around 1990-2000, the IPPs got more wild and careless Many projects were developed on a so-called "merchant basis", reliant on simply selling power into the market after they were constructed. More projects were built than the power markets needed. Electricity prices tanked, IPPs became financially stressed, and several declared bankruptcy Many projects were simply handed over to the project lenders. What was learned from the IPP implosion: if you're going to buy a power plant, you need to have an electricity-sales contract or else you're entering into a really risky proposition
When a transmission line is said to be "constrained", what does it mean? What is at risk of happening if a transmission line is overloaded?
If a transmission line is constrained, it is reaching its maximum capacity of electricity generation If a transmission is overloaded, there can be problems with appliances, voltage, etc.
What is meant by an individual power plant's "heat rate" curve? In general, indicate how the heat rate curve of a "thermal" generation unit is usually shaped by drawing one and pointing out its most several important economic features.
Instantaneous flow into the system and the energy coming out An energy input- output curve Diminishing marginal productivity of fuel · The size and specifications of the power plant itself are all given and fixed in the short run. A power flow is produced by inputting a flow of natural gas. The greater the rate of gas injection, the greater the flow of power produced (i.e., the curve slopes upward). However, as greater and greater flows of gas are injected into the generator, the amount of power flowing out increases at a decreasing rate (i.e., the slope of the heat rate curve, although positive throughout, increases at a decreasing rate). Minimum turndown level : Every power plant has a minimum turndown level. This is the minimum level at which the plant can operate stably No-load Fuel Requirements
Today, almost all states that adopted retail competition are very concerned about the issue of "resource adequacy". What exactly are they worried about? What seeming internal contradiction within the structure of retail electricity competition (in the form adopted by most state commissions) is causing the problem with resource adequacy? In other words, what is it that new generators need that they are not getting from retail electricity suppliers, and why aren't they getting it? What does this all have to do with the financial implosion in 2002 of the independent power producers due to their widespread pursuit of a business model in which they pursued pure "merchant generation" without the support of long-term power purchase contracts from buyers?
Market viability seems to require long-term contracting California Market Meltdown 2000-2001: Buyer over-reliance on spot markets is economically and politically unstables IPP implosion of 2002: New generation will no longer be developed based largely on spot and short-term sales; Long-term contracts will be needed Contradiction Following the implosion of the "merchant" generation model in 2002, little if any new generation will get needed financing without a long-term power purchase contract (e.g., 7-10 years) In retail-competition states, no load-serving entities (i.e., neither utilities nor competitive retailers) have a sufficiently secure customer base to allow them to sign the long-term power purchase contracts (e.g., 10 years) necessary to support new generation investment In other words: You've told the utilities that they no longer have a monopoly customer base Retailers aren't going to be able to tie up retail customers for longer than 2 years max Need long term contracts to support generation and collection of funds... Options for assuring resource adequacy: A CAISO wholesale market for capacity Key Problem: FERC-jurisdictional and a political non-starter in CA A.K.A: a market for the existence of generation Resource Adequacy forward purchase requirements enforced on all retail providers by the CPUC Key Problem: Lack of political will to really enforce against ESPs Common pool resource problem: Why should I pay for resource adequcy if I'm not getting as much out of it as other people might? People might pitch in if they are guaranteed a certain amount for the future "Plan B": Have utilities be "the builder of last resort" with "non-bypassable" charges Key Problem: Long-run workability and financial risk for utility Utility is the one to pitch in and generate electricity
What is a "control area"? What essential function is performed on a regional basis by a "system operator" or "control area operator" operating an "energy control center"? Why is this function necessary?
Meter on entry and exit, making sure that your part of the grid is attended to 37 control areas in the WECC (West Coast) System operations: - least-cost dispatch and commitment of generating units, adequate continuous production to maintain frequency, voltage, var support Area surrounded by metering equipment sufficient to monitor the power flows into and out of the control area on a continuous basis. The control area operator's responsibility is to manage its own region of the grid so as to assure that power injections within the control area are equal to power withdrawals by end-users while also allowing for any planned commerce in power exports and imports out of, or into, the control area. As shown above, there are many control areas within the Western and Eastern Interconnection. (Note that the map above may be a bit confusing because it shows the Eastern Interconnection divided into various sub-regions corresponding to North American Reliability Councils. We will not discuss these institutions here. So just concentrate on the Western Interconnection, which is coextensive with the North American Reliability Council in the area—the Western Electricity Coordinating Council (WECC).) For instance, there are 37 control areas in the Western Interconnection. Together they comprehensively blanket the Western Interconnection and divide it into mutually exclusive control-area zones. Through a very complicated control process, each of these control area operators does its job of balancing generation and loads within its region of the grid and coordinating these activities with adjacent control area operators so as to maintain the reliability of the entire Western Interconnection
What is the essential defining characteristic of a "thermal" power plant? What important kind of gas-fired power plant is not a "thermal" power plant?
Most electricity in the U.S. is generated by "thermal" generation that proceeds by producing high-pressure steam that spins a turbine to drive an electricity generator. These "thermal plants" (or "steam plants") include coal-fired, gas-fired (but not gas turbines), nuclear, and cogeneration plants (which are usually fueled by natural gas but may be powered by other fuels). Some renewable generation may also operate by using steam to drive a turbine, such as geothermal, solar thermal, or closed-loop biomass generation.
In order to engage in electricity commerce across an interconnected electricity grid, power must be transmitted, or "wheeled", from the seller to the buyer. Briefly explain how this is accomplished on a large interconnected electricity grid. What necessary role is played by the control area operators? Briefly discuss the nature of the network "externalities" that are necessarily involved in these "wheeling" transactions due to the fact that the electrons cannot be directed over specific transmission paths similar to land-line telephone messages.
Need to balance generation to loads instantaneously No storage Overloads can damage equipment Need for control of generation and loads (load shedding) Electricity flows according to physical laws Flows among all parallel paths in accordance with Ohm's and Kirchhoff's Laws Not a "switched" network Not a telephone or gas pipeline network Flow determined by location of loads, generation, and transmission lines Reliability requires multiple paths and transmission reserve margins Power automatically rerouted on available paths "Wheeling" transactions are "scheduled" among control areas Wheeling is accomplished by coordinated control of generation Determinants of Reliable Transmission Capability: Determinants of load-carrying capability of an isolated line Thermal constraints Voltage constraints Stability constraints Transfer capability within a network Involves multiple lines Must allow for contingency reserve capacity Involves analysis of generation patterns Varies constantly with changes in loads and generation Requires complex load studies and judgment
What exactly does "net energy metering" (NEM) mean? Specifically, exactly how does it function mechanically and what "price signal" does it thereby communicate to residential customers as being their reward for installing rooftop photovoltaics? Why is this NEM pricing arrangement usually substantially more attractive to the customer (especially the residential customer in California) who installs a PV system than if the utility simply paid the customer for its power production in accordance with a "power purchase agreement" containing prices equal to the utility's avoided cost (like a QF would be paid) or—and virtually equivalently—the electricity prices prevailing in the wholesale power market?
Net metering: A system that charges by the amount of load you are using up, increases as more energy is used The issue: I install that PV, it's negative load, I have to be able to run my meter backwards when the PV is running and get credit for that because it's putting power into the grid Three phases: At night, PV doesn't provide energy, so I'm a net consumer; In the morning, it's production is going to exceed the amount of load in my house so I'm going to be a net producer in the middle of the day, and by evening/night I'm going to start becoming a net importer from the grid How should the utility give you reasonable compensation for the PV? I'm used to paying 30.2ç per month, but then I decide to install a PV, so net, I now pay 24. 3ç Benefits: now I get to not pay the utility all of that money The utility is buying the power from me at those prices (not necessarily getting paid, but those costs are reduced from your bill) The people who find PVs more beneficial are those who consume a lot of power So long as during a reasonable period of time, if you are producing as much as you are consuming, we will just net out your bill If you are a net exporter over 12 months, we will tell you what we owe you above that You are getting credited the same for your PV as the rate of incoming electricity Price signal: if you are getting paid for putting electricity into the grid, then you think that the more you put in, the better On the contrary: As you pump energy into the grid, the rest of the system has to respond and back off generation during the hours that the PV power is going into the grid The grid is not just a storage facility
In FERC Order 2000, the FERC attempted to "pressure" all utilities to join into 4-5 large Regional Transmission Organizations (RTOs)? Was the FERC successful in accomplishing this goal?
No Powerful southern electric utilities such as The Southern Company and Entergy (formerly Middle South Utilities) opposed FERC's new prescriptive wholesale market policies. They had powerful influence through Trent Lott, a powerful Republican Mississippi Senator who was Senate Majority Leader. FERC dropped the RTO and SMD initiatives and FERC Chairman Pat Wood announced that he was resigning to spend more time with his family back in Texas. Shortly thereafter, Trent Lott was pressured to resign from the Senate after he made comments at a meeting praising Strom Thurmond's 1948 Presidential campaign as a Segregationist Dixiecrat. Reality today:
Economically speaking, why would a least-cost system operator be concerned about the issue of no-load fuel use on the electric system and what could he/she do to reduce the total amount of no-load fuel being expended?
No-load fuel is a fuel cost that isn't leading to any income This no-load fuel can be avoided by never going lower than the minimum turn-down level, or always keeping the engine running
Why are electric networks interconnected? What are the various benefits of network interconnections?
Power systems are looped for redundancy, interconnected and centrally controlled Every system has a person to adjust the volts to ensure a steady 60 volts Benefits of interconnected operations and planning: Access to lower cost sources of power (engage in commerce on short term basis) Mutual reliability support in emergencies Economics in serving diversifies demands (systems don't peak at exactly the same time - unlikely that all places on the West Coast will be hot at the same time) Economics achieved by sharing resources ( lowers total reserves needed to achieve any desired level of system reliability) Ability to achieve the economics of scale of larger individual power plants (loss of a single large power plant does not create so large a percentage hole in the overall system as it would in a single isolated system) Coordination of maintenance over a wider area The multiple interconnected generating plants provide a level of redundancy that supports the uninterrupted provision of electricity. If one plant becomes disabled, the remaining power plants can quickly "pick up the slack" and maintain a reliable flow of power to customers. There are also benefits to interconnecting and serving multiple categories of customers on the same grid. In general, different customers have different "load profiles"—i.e., they consume electricity at differing rates during the day. Consequently, by pooling their "load diversity" it is possible to reliably serve them as an aggregated group at a lower cost than serving them individually or as separate groups. For instance, the early pioneers of the grid found that electric trains consumed huge amounts of power at the beginning and end of the day. But in between, the generation facilities dedicated to serve them would lie underutilized. By interconnecting electric railways with other customers on the same grid, it was possible to use all the generation plants more efficiently. Consequently, this integrated grid model was the industry structural model that eventually prevailed and thrived.
When states adopted retail competition, what major structural changes did they usually order to occur in the traditional vertically integrated structure of the power industry? Why was it thought necessary to create "independent system operators" (ISOs) as part of these structural reforms instead of allowing the utilities to continue to dispatch generation resources? Once these ISOs were created, what regulatory agency was their chief (virtually exclusive) regulator? Why?
Restructuring: Establishment of new institutions (ISOs, Formal Day-Ahead Markets, Market Power Monitoring, Settlement Protocols, etc.) Functional separation of power marketing and transmission business units Divestiture/market valuation of generation Stranded cost recovery during a transition period Utility role in competitive energy retailing; but utility also the provider of "default" service at regulated prices Unbundling of metering and billing Separate "public benefits" charge ISOs: Manages grid reliability Provides non-discriminatory open transmission access Controls generation and transmission dispatch Coordinates power scheduling FERC Control: ISOs are inherently engaged in wholesale activities dealing with open wholesale transmission access and wholesale price formation in wholesale auction markets. ISOs try to achieve "reliability through markets" to the maximum degree reasonable. Because they conduct auction markets that lead to wholesale "price formation", the FERC takes a direct regulatory role in approving the auction protocols in these wholesale markets. Following California's retail competition restructuring, FERC moved quickly to assert jurisdiction over ISOs and to set eleven standards for qualification as an "ISO" in FERC Order 888. FERC rapidly became enamored with the competitive wholesale market protocols employed by the PJM ISO and attempted to mandate them nationally. FERC also wanted ISOs to have broader in geographic footprints in order to promote more seamless wholesale power markets across wider geographic areas. To pursue these two objectives, FERC created two related initiatives: Regional Transmission Organizations (RTOs) Standard Market Design (SMD)
To operate a system reliably, a control area operator must have access to certain "ancillary services". There are about a half dozen such services, but the most important are: (1) spinning reserves, (2) automatic generation control, (3) ramping capability, and (4) blackstart capability. Briefly explain what each of these ancillary services involves and what an individual generator must be able to do in order to supply each service.
Spinning reserves -- operating a power plant synchronized to the grid, has the ability to be ramped up, can push the accelerator on this power plant if another one needs back up Automatic generation control -- Ramping capability -- ability to ramp up Blackstart capability -- ability to get a power plant running when the electricity has gone black, a pump problem (hydroelectric power)
What is meant by a generation unit's "capacity factor"? Why would you expect a power plant's capacity factor to vary systematically depending on its technological characteristics?
The "capacity factor" or a power plant refers to the total amount of "energy" (i.e., kWhs) it actually produces during a specified time period expressed as a ratio of the total amount of kWhs that it hypothetically would have produced if operating at full capacity during the same time period.
A generation plant supplies both "energy" and "capacity" (i.e., "power") to the electrical system. What is the distinction between the two and why is each dimension valuable/essential to the operation of the system and to electricity consumers?
The Capacity factor = actual MWHs/Hypothetical Maximum MWHs The Capacity refers to the amount of maximum capacity a generator can provide, whereas the actual energy production is a smaller percentage of the capacity provided in a measured interval of time
Although Martha Hesse's FERC made great strides in encouraging wholesale competition within the electric power industry, at least two major impediments to wholesale competition remained that the FERC did not have sufficient statutory authority to remove. Removal of these two key impediments would require federal legislation. What were these two key impediments to wholesale competition? What specifically did the Energy Policy Act of 1992 do in order to remove them?
The FERC, under the chairmanship of Reagan-appointee Martha Hesse, wanted to encourage the development of new non-QF competitive wholesale generators and create a more competitive wholesale power market. The primary vehicle for doing so was the creation of "market-based" wholesale price regulation. Although for years the FERC had applied a traditional utility-type cost-of-service review on wholesale suppliers, this specific process was not required under the Federal Power Act of 1935. Instead, the Act simply stated the FERC was required to determine that wholesale power sales prices were "just and reasonable". The FERC's only real constraint was to come up with a process for reviewing and approving wholesale prices that would not get overturned on appeal to the D.C. Circuit Court of Appeals or the Supreme Court. Therefore, FERC introduced a "market-based" standard for approving wholesale prices voluntary arm's-length transaction: The price had to be the result of a voluntary arm's length negotiation or competitive procurement process. The buyer and the seller could not have an affiliate relationship with one another. The purchaser must have had a reasonable number of alternatives suppliers to choose from: In order to make the case that the supplier was not exerting an unreasonable degree of market power over the purchaser, FERC required that the seller demonstrate that the purchaser had a reasonable range of alternative suppliers from which to choose The seller or an affiliated company could not transmission in the region unless it provided open access to its transmission system: The FERC was interested in promoting open wholesale transmission but was precluded from ordering it directly.
In what way does net metering of PV provide a cross-subsidy to customers installing PV? What are the basic economic drivers of this cross-subsidy—i.e., how does the relationship between reduced customer bill and avoided utility cost lead to a cross-subsidy? Who pays for this cross-subsidy, and why and how is the burden of paying the cross-subsidy shifted from the utility to them? According to E3's 2013 Study, approximately how large might this annual cross-subsidy become by 2020 if E3's forecast of rooftop PV adoption rates through 2020 is correct?
The PUC was mandated by legislature to study how large that cross-subsidy is Cross subsidy lasts the life of the PV, so they calibrated the subsidy for one year: 2020 The subsidy was 1 Billion dollars, this is being shifted from off the backs of people who are installing PVs to other consumers
What determines the short-run marginal cost of producing electricity at any moment in time? How would you generally expect this short-run marginal cost to vary fairly systematically by time of day? What additional consideration determines how the long-run marginal cost of electric generation varies by time of day?
The demand determines the short-run marginal cost In general, the marginal costs increase as demand increases The long-run marginal cost is more dependent on the capital investments, so how much is invested into baseload generation vs. peaking generation
What is meant by the "equimarginal" principle in production economics? Briefly explain how the least-cost dispatch of existing generation on the electric grid illustrates this important economic concept.
The equimarginal principle states that each producer will pay the same marginal costs in order to meet the collective desired production level. Firms with high marginal costs will have lower output levels Firms with low marginal costs will have higher output levels
In broad terms, what is the scope, purpose, general structure, and goals of the EPA's proposed Clean Power Plan?
The final Clean Power Plan requires 32% reductions of CO2 emissions (compared to 2005 levels) from existing power plants by the year 2030. The EPA has asserted its authority under Section III(d) of the CAA to impose "Best System of Reduction" (BSER) on the electric power sector. BSER: Normally, the EPA would tell you I'm not going to tell you what you have to do, but overall this factory has got to reduce their emissions by this much Up to them to determine how to do it What they are doing with the electricity system, they are treating the entire system in a state and treating it as one factory The whole system has to work together to meet the emissions reduction targe The EPA has established BSER standards for each state by modeling the results of applying three well-known feasible and cost-effective "building block" strategies for reducing power plant source emissions. States have broad flexibility in achieving their overall BSER goals. They need not apply the building blocks in the specific ways modeled by the EPA for their state. Each state must file a State Implementation Plan (SIP) for achieving its designated BSER goal. For BSER: Building Blocks 1.Make coal-fired plants more emissions efficient 2.Increased use of existing natural gas plants 3.Increased use of low-carbon and zero-carbon generation EPA Modeling Assumption 6% efficiency improvements thru O&M and capital investments Increase average capacity factors of existing very efficient Natural Gas Combined Cycle (NGCC) plants to 70% Achieve renewables development consistent with average regional renewables targets; preserve the 6% of nuclear plants forecast to be retired; successfully complete new nuclear plants now under construction For potential state compliance strategies: Building Blocks Potential Strategies 1.Make coal-fired plants more carbon emissions efficient (reduce CO2 per MWh) ·Increase input-out efficiency of coal plants ·Co-fire coal with natural gas or other lower-carbon fuel (e.g., closed-loop biomass) ·Repower coal plant to burn gas ·Retire coal plants ·Retrofit Carbon Capture & Sequestration (CCS) to an existing coal plant • Retirement of high-emitting gas plants 2.Increased use of existing natural gas plants •Increase dispatch of NGCC •More emissions-efficient regional dispatch 3.Increased use of low-carbon and zero-carbon generation ·New renewables (including closed-loop biomass) ·Preserve existing nuclear ·New nuclear ·New Cogeneration ·New NGCC • New coal with CCS Other compliance measures beyond source-based "building blocks" ·Increased customer energy efficiency ("conservation programs") ·Transmission efficiency improvement
What are the four rather distinct performance challenges that the "balance of the power system" must meet in order to satisfactorily integrate very large amounts of additional solar photovoltaic power production? Briefly explain what is involved in each of these four dimensions of system performance? (See the first four performance dimensions listed on page 38 of the Powerpoint on Part 4 of the Electricity Industry. Ignore the fifth dimension—it's also absolutely necessary, but too esoteric for a novice to worry about.)
The four challenges of integration: Downward ramping capability Turn down the generation and keep it low while PVs are operating Minimum turn-down of thermal generation Need to maintain the generators on at lowest capacity possible Turn off and turn on times are too long and costly Upward ramping capability Turn up the generation to meet the ramp Peaking capability Provide enough generation for peak load
What is the basic economic reason for being willing to incur greater fixed costs in constructing a "baseload" generation unit?
The gross avoided-cost benefit of avoiding expensive CT fuel consumption is higher than the investment cost of the base load unit The net fuel savings are equal to the investment
What are the several factors that will determine how many power plants should be operated at any particular moment to serve customer demand? (Other than what's happening with the level of customer demand at any particular moment, why do customer demand patterns at other times affect the system operator's decision as to how many plants to operate at any particular moment?)
The main factors that will determine how many power plants should be operated will be dependent on the demand level, and the marginal costs brought about through the production levels You also have to consider variable costs, which is the average heat rate
In the mid-1980s, why did many states adopt competitive bidding to set PURPA pricing instead of continuing to conduct administrative proceedings and evidentiary hearings in order to set avoided-cost prices? In short and in general terms, what was so difficult and controversial about estimating a utility's "avoided cost"?
The reason given for requiring such standard offers was to provide QFs with some "baseline" terms in their contract negotiations with utilities. The fear was that without such "leverage", utilities would exercise their monoposony power over QFs and demand unreasonably strict non-pricing terms in the power purchase contracts they were negotiating with QFs. (Although PURPA directed states to set avoided-cost prices, PURPA was silent as to non-pricing terms. The non-pricing terms in a long-term power purchase contract are very important especially in determining a QF developer's ability to secure project financing from the financial markets.)
The California Solar Initiative (CSI) is a statutory policy that has a goal of getting 3,000 MW of solar rooftop photovoltaics installed over 10 years beginning around 2005. What are the two main kinds of subsidies (one is explicit and the other is implicit) that are provided to residential electricity customers participating in this CSI program?
There are two types of subsidies: Rebate Reductions in metering rates
When a power system is centrally dispatched on a traditional command-and-control basis, what is meant by the "merit order" of generation dispatch? In broad terms, in what order should the system operator dispatch generation in order to minimize the short-run cost of the electricity being delivered to customers?
This "merit order" of dispatch is defined by the short- run marginal costs of operating the various available generation units. As consumer demand increases, the system operator chooses to satisfy this marginal increase in demand by producing a corresponding increase in power in the lowest-cost manner available
The Federal Power Act of 1935 was enacted primarily to fill a "regulatory gap" which had emerged in the 1920s and was preventing state utility regulators from effectively regulating the electric utilities within their state jurisdictions. What was the nature of this "regulatory gap"? What specific types of commercial transactions was the Federal Power Commission (now the FERC) ordered to regulate pursuant to the Federal Power Act of 1935?
This mandatory governmental dissolution of companies was unprecedented in American history and extremely controversial State PUCs regulate pricing of retail sales to end users FERC regulates pricing of power sales for resale and transmission services in interstate commerce Note: Several Supreme Court cases have ruled that any wholesale power sales taking place on either of the two interconnected interstate grids (i.e., the Western Interconnection and the Eastern interconnection) are "in interstate commerce" even if the buyer and the seller are located in the same state. Load Serving Entity: An entity that sells power, not buying power to do work but to sell it to an end use customer who will use it for work That last transaction, the retail sale, is the only sale that will be regulated in intra-state regulation
When states began considering the adoption of retail competition (sometimes called "retail access"), the main concern of utilities was "the stranded cost problem". What exactly was meant by "stranded costs"? According to many disinterested third-party estimates, roughly how many dollars were implicated as potentially stranded costs if retail competition were to have been adopted nationwide?
Under utility regulation, utilities were responsible for securing reliable supplies of power for their customers well into the future. To do so they entered into long-term investments and power contracts. Moreover, many of these long-term contracts were QF contracts, were not really "voluntary" utility contracts, and were entered into at prices established by the state regulators. Under traditional utility regulation, utilities were authorized to recover the cost of these long-term investments and contracts from their customers. This regulatory cost recovery commitment was essentially a substitute for long-term contracts with electricity consumers. If customers could suddenly shop the grid and purchase power from other sources at prices determined by prevailing conditions in short-term electricity markets, then electricity customers could escape their responsibility for paying for utilities' long-term commitments. Utilities' costs would be "stranded".
Briefly explain the relationships between "watts" and "volts". Why is it beneficial to transform electricity to higher voltages before transmitting it long distances?
Watt: amount of power exerted when doing a joule of work per second, measure instantaneous rates of power produced/consumed at a single point in time Watt-hour: amount of energy used in expending one watt of power for one hour (3,600 joules) a joule is a watt-second of energy, measures volumes of energy produced during time intervals An electric current is a flow of electrons through a conductor between two terminals with different electrical charges The differential charges of the two terminals are the source of potential energy that produces the kinetic energy of the flowing electrons - contrary to common electrical "high voltage" warnings, high voltage is not very dangerous in and of itself so long as amperage is correspondingly low power = voltage x currant energy/seconds = energy/coulomb x coulombs/ second
In what way does the NEM "price signal" that is communicated to residential customers give them an economically inefficient investment incentive to install a rooftop photovoltaic system?
While the benefits seem great to consumers who use a lot of power, the utility is actually only avoiding 2 or 3 cents in short run costs of operation, so they will be saving that small amount, but losing a huge amount of money in generation with new PVs What about in the long run? The other long-run costs that are avoided are still very small compared to what they lose from new PVs The dark green area for the utility is actually just a huge shortfall in profits Through a rate adjustment mechanism, the utility is able to raise all of its other retail prices to all other customers in order to not lose profits ERAM mechanism
To a limited degree, PURPA introduced generation competition into the electric power industry. When President Reagan appointed Martha Hesse to be Chairman of the FERC, she set out to broaden the scope of generation competition within the electric utility industry so that such "wholesale" competition would encompass any entrepreneur (including non-QF generation developers) wishing to build a powerplant and sell power to a local utility. What is the defining distinction between "wholesale" competition and "retail" competition? What specific legal standard did the Federal Power Act direct the FPC/FERC to apply in exercising its regulatory authority over wholesale power prices? (That is, under federal law, what specifically did the FPC/FERC need to determine about a wholesale power price before authorizing it as a legal price?) While staying within the statutory mandate of the FPA, the FERC under Martha Hesse decided to encourage greater latitude for competition among suppliers in the wholesale power market. In order to accomplish this goal, what specific reform did the FERC initiate relative to its regulatory oversight of wholesale power prices? Sometimes this reform is referred to as "deregulation" of the wholesale power
Wholesale competition: Competition between entities re-selling power Retail competition: Competition between power-users in trying to access power FERC cost-of-service regulation of new independent suppliers FERC addresses the issue of cost-of-service regulation by creating a market-based price method Deregulation of the wholesale power sales market: Encouragement of IPP development through granting of "market-based" rates If there were enough bidders or sellers, the bidding price was said to be a reasonable market-based price Essentially, administrative "deregulation" of stand-alone generation Encouragement of state competitive bidding processes for setting avoided-cost prices for QF power Encouragement of power marketers and brokers Use of FERC's "conditioning authority" over market-based rates and mergers to increase assured wholesale transmission access
What is the basic important difference between a simple-cycle Combustion Turbine and a Combined-Cycle Combustion Turbine?
combined -cycle gas turbines are a combination of gas-fired and simple cycle gas turbine, are the center of new production where you run the engine and bleed off the heat waste to supplement boiler firing, a very efficient production of electricity, combining heat and power
What fuel source accounts for the major percentage of electricity produced in the U.S.? Roughly, what percentage does it account for?
the U.S.? Roughly, what percentage does it account for? Coal = 42.4% Natural Gas = 24.9% Nuclear = 19.3% Hydropower = 7.9% Wind = 2.9% Other Renewable = 1.8% Oil = 0.7%
