Transcript Document

Electricity Market
Benchmarking Exploring
Risk
Andy Philpott
EPOC
(www.epoc.org.nz)
joint work with
Ziming Guan
(now at UBC/BC Hydro)
ONS SDDP Workshop, August 17, 2011
Slide 1 of 31
Electricity Supply in New Zealand
• Before 1996, the New Zealand wholesale
electricity system was operated as a state
monopoly.
• Since October 1996 this has been run as an
electricity pool market.
• Generation ownership last changed in 1999
when ECNZ was broken up.
• The system is dominated by generation from
hydro-electric reservoirs.
• This leads to unique and interesting problems
when trying to understand how pool markets
should operate.
ONS SDDP Workshop, August 17, 2011
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New Zealand national reservoir storage
ONS SDDP Workshop, August 17, 2011
http://www.electricityinfo.co.nz/Slide 3 of 31
NZ wholesale electricity market
• Generators
specify supply
Waitaki system
curves defining prices at
which they will generate.
Waikato River
• Curves fixed for each half
hour
• Linear programming model
runs every five minutes to
determine
– electricity generated
– electricity flows in network
– spot price (shadow price) of
electricity at 244 out of 470
network nodes
ONS SDDP Workshop, August 17, 2011
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ONS SPXII,
SDDPHalifax,
Workshop,
August
17, 2011
August
20, 2010
Slide 5 of 50
31
New Zealand electricity market
The economic dispatch problem
ONS SDDP Workshop, August 17, 2011
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6/42
New Zealand electricity market
Lake storage (blue) and price (pink)
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Questions
• How should this system be operated to provide
security of supply at low cost? As a pool market or
some alternative?
• Do generators manage hydro-reservoir storage to
minimize overall national thermal fuel cost or are
they behaving strategically? (as discussed in
Bushnell, 2003).
• If market power gives higher prices, is this
accompanied by a deadweight loss from inefficient
dispatch?
• The NZ Electricity Commission maintains a
Centralized Data Set that can be used to address
some of these questions.
ONS SDDP Workshop, August 17, 2011
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This has already been done
New Zealand Commerce Commission on Market Power
“There is something fundamentally wrong in the way in which we’re
marketing electricity in New Zealand,” Mr Brownlee said.
Power generators overcharged customers $4.3 billion over six years by
using market dominance, according to a Commerce Commission report.
(New Zealand Herald May 21, 2009, downloaded from site: http://www.nzherald.co.nz)
ONS SDDP Workshop, August 17, 2011
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New Zealand electricity market
The view from economics
ONS SDDP Workshop, August 17, 2011
Source: CC Report, p 177
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New Zealand electricity market
Deadweight loss = empirical price of anarchy
Offered cost curve
True cost curve
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New Zealand electricity market
Deadweight loss = empirical price of anarchy
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New Zealand electricity market
Deadweight loss = empirical price of anarchy
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New Zealand electricity market
Deadweight loss = empirical price of anarchy
ONS SDDP Workshop, August 17, 2011
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New Zealand electricity market
The view from economics again
ONS SDDP Workshop, August 17, 2011
Source: CC Report, p 200
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New Zealand electricity market
What is counterfactual 1?
– Fix hydro generation (at historical dispatch level).
– Simulate market operation over a year with thermal plant
offered at short-run marginal (fuel) cost.
– “The Appendix of Borenstein, Bushnell, Wolak (2002)*
rigorously demonstrates that the simplifying assumption that
hydro-electric suppliers do not re-allocate water will yield a
higher system-load weighted average competitive price than
would be the case if this benchmark price was computed from
the solution to the optimal hydroelectric generation scheduling
problem described above”
[Commerce Commission Report, page 190].
(* Borenstein, Bushnell, Wolak, American Economic Review, 92, 2002)
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Counterfactual 1
Linear programming interpretation
(x*,y*,p*)
Now set y=y0 not equal to y* (“fix hydro generation”)
(x0,y0,p0)
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Counterfactual 1
What about uncertain inflows?
wet
dry
summer
winter
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Counterfactual 1
In the year under investigation,
suppose all generators optimistically
predicted high inflows and used all
their water in summer. They were
right, and no thermal fuel was
needed at all. Counterfactual prices
are zero.
Stochastic program counterfactual
The optimal generation plan burns
thermal fuel in stage 1 in case there
is a drought in winter. The
competitive price is high (marginal
thermal fuel cost) in the first stage,
but zero in the second (if wet).
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New Zealand electricity market
What is a better counterfactual?
– Solve a multistage stochastic linear program (MSLP)
to compute a centrally-planned generation policy, and
simulate this policy.
– Previous work does this with a dynamic program for
Nordpool (Kauppi & Liski, 2008).
– In our model, we re-solve the MSLP every 13 weeks
and simulate the policy between solves using a
detailed model of the system.
•
•
•
•
includes transmission system with constraints and losses
river chains are modeled in detail
historical station/line outages included in each week
unit commitment and reserve are not modeled
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Stochastic Counterfactual
Yearly problem represented by this system
demand
demand
WKO
N
MAN
H
S
HAW
demand
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Application to NZEM
Rolling horizon counterfactual
– Set s=0
– At t=s+1, solve a DOASA model to compute a
weekly centrally-planned generation policy for
t=s+1,…,s+52.
– In the detailed 18-node transmission system and
river-valley networks successively optimize
weeks t=s+1,…,s+13, using cost-to-go functions
from cuts at the end of each week t, and
updating reservoir storage levels for each t.
– Set s=s+13.
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Application to NZEM
We simulate an optimal policy in this detailed system
WKO
MAN
HAW
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Application to NZEM
Thermal marginal costs
Gas and diesel prices ex MED estimates
Coal priced at $4/GJ
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Application to NZEM
Gas and diesel industrial price data ($/GJ, MED)
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Application to NZEM
Load curtailment costs
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New Zealand electricity market
Market storage and centrally planned storage
2005
2006
ONS SDDP Workshop, August 17, 2011
2007
2008
2009
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New Zealand electricity market
Risk aversion and competitive equilibrium
Is the central plan the competitive equilibrium?
• yes, if all agents are risk neutral, and share the
same probability distribution as the central
planner
• no, if agents are risk averse
• so the behaviour we are seeing could be risk
aversion in a perfectly competitive market
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New Zealand electricity market
Estimated daily savings from central plan
$481,000 extra is saved from anticipating inflows during this week
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New Zealand electricity market
Savings in annual fuel cost
Total fuel cost = (NZ)$400-$500 million per annum (est)
Total wholesale electricity sales = (NZ)$3 billion per annum (est)
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New Zealand electricity market
Benmore half-hourly prices over 2008
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FIM
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