Transcript Extra electricity slides

Extra electricity slides
Electricity Markets – Basic
Conditions
• Demand – energy vs. power Area under curve is
Power
energy
24 hours
time
• Reliability
Probability
Density
Loss of load probability
Power system demand (kw)
Basic Questions
• What demand level should system be
designed for?
• Electricity = power + energy + reliability
• Supply – 3 activities:
– Generation
– Transmission
– Distribution
Operation of Power System
Peak Load
Power at
Least this
high
Load Duration Curve:
Area under LDC is energy
Intermediate Load
Baseload
100%
Fraction of Year
Regulation of Electricity Markets
• Historically natural monopoly
– Rate of Return Regulation
– Utilities allowed to price to achieve “fair rate of
return”
– Problems:
• Inefficient
• Average Cost Pricing
• More recently (worldwide): deregulation
The California energy crisis
• Pre-1999
– 3 regulated monopolies that owned and
operated generation, transmission,
distribution (PG&E, SCE, SDG&E)
– Federal Energy Regulatory Commission
regulates wholesale power transactions
(one utility to another)
– California Public Utilities Commission
regulates retail prices (to consumers)
Restructuring electricity
• Designed competitive wholesale market
– Suppliers bid to supply electricity on daily basis
– “Grid” accepts lowest bids; price at margin
• Goal: more competitive California
– Argued it would decrease prices
– Could pass savings on to consumers by giving them a choice of
supplier
• But consumer side still regulated.
• Didn’t work
– Prices skyrocketed over 500% between 1999-2000.
– Utilities paying far more than consumers paid.
– State had to bail out industry, cost $60 billion.
From Joskow:
“The wholesale prices prevailing between June and
September 2000 were much higher than the fixed
retail price that the utilities were permitted to charge”
Price
Ap
r- 9
8
Ju
l-9
O 8
ct
-9
8
Ja
n9
Ap 9
r- 9
9
Ju
l-9
O 9
ct
-9
Ja 9
n0
Ap 0
r- 0
0
Ju
l-0
O 0
ct
-0
0
Ja
n0
Ap 1
r- 0
1
Ju
l-0
1
450
400
350
300
250
200
150
100
50
0
Why did wholesale prices rise?
• Rising natural gas prices (natural gas is
an input to electricity production)
• Large increase in demand in CA (growth)
• Reduced imports from other states (heat
waves)
• Rising prices for NOx emissions credits
(costs of producing electricity)
• Market power (in wholesale spot mkt)
Why didn’t it work & lessons
• Technically challenging to create
competitive wholesale market
• Consumers were insulated from wholesale
market prices (because retail market still
regulated).
– Deregulated wholesale, failed to deregulate
retail prices or to allow forward contracts.
– Required utilities to buy at unregulated price
and sell at regulated retail price.
What next?
• State committed to long-term contracts
at unreasonably high prices – cost $60
billion.
• Prices likely to remain high to pay off.
• Prices dropped in 2001 due to increased
supply, decreased demand.
• SCE and PG&E effectively bankrupt.
• Replaced deregulated wholesale with
state procurement and regulated prices