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EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr.

. Osman SEVAOLU, Page 1


METU
Market Structure
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 2
METU
Market Structure
Factors Shaping Market Structure
Definition
In principle, structure of a market
depends on;
Model for the ownership of assets,
Cost structure;
Generation cost,
Transmission cost,
Distribution and service costs
Technological tools and
instruments employed for market
operation
Most of the above aspects, except the
last, such as, stranded costs, fixed
costs of the plants are difficult to take
into account
Discovery of the First Natural Gas Reserve
in Gerler, Adatepe, Tekirda (2003)
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 3
METU
Market Structure
Difficulties in Designing Market Structure
Main Difficulties
Main difficulties in designing the market
structure;
The field is rather new and
undiscovered,
The field requires sophisticated
technological hardware and software
tools for an effective monitoring and
control,
The field is multi-disciplinary, i.e. there
are a lot of technological knowledge to
be gathered from engineering,
economics and legislation,
Market utilizes the grid, which is a
regulated, sometimes shared asset
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 4
METU
Market Structure
The Effect of Technology on Market Structure
Computer hardware, software
and telecommunication
technologies are used to
monitor, control, meter,
record, log, calculate, trade-
off and billing the energy
transactions in real time
The Effect of Technology
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 5
METU
Market Structure
Two Demand-Side Flaws
The First Demand-Side Flaw
Demand characteristics of the customers
in a regulated retail market is rather ridig,
i.e., it is almost completely insensitive to
the price fluctuations in the wholesale
market,
Two Demand Side Flaws
Demand side has two important flaws that
create difficulties in market design and
operation
The Second Demand-Side Flaw
Parties in a bilateral agreement absorb /
supply power to / from third party
suppliers or to customers in grid without
any contract
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 6
METU
Market Structure
The First Demand-Side Flaw
Definition
The first demand-side flaw is the
situation that the demand
characteristics of the customers in a
(fully-regulated) retail market is almost
independent of the prices in the retail or
wholesale market
Demand elasticity is significantly
enhanced by employing three-rate tariff
in real-time which dramatically reduce
the market power and improve the
stability of generation investments
4.5
5.0
5.5
6.0
6.5
7.0
7.5
1000 1050 1100 1150 1200 1250 1300
P
r
i
c
e

(
C
e
n
t
/
k
W
h
)
This aspect determines the incentives for investment
in the generation sector
Demand (10
3
x kWh)
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 7
METU
Market Structure
Rigid Demand
Price Elasticity of Demand
Some customers may be more elastic,
while some others rigid
A customer with rigid demand
characteristics does not agree to transfer
its consumption in the peak loading period
to other periods
A rigid (inelastic) demand is the one with a
certain daily or yearly characteristics that
does not vary with price
P
r
i
c
e

(
C
e
n
t
/
k
W
h
)
4.5
5.0
5.5
6.0
6.5
7.0
7.5
1000 1050 1100 1150 1200 1250 1300
Demand (10
3
x kWh)
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 8
METU
Market Structure
Price Elasticity of Demand
Price Elasticity Curve or Demand Curve
is a curve showing the sensitivity of
electric consumption or customer
demand on price
Price Elasticity Curve depends on type
and nature of the customer
Price Elasticity Curve may be nonlinear
P
r
i
c
e

(
C
e
n
t
/
k
W
h
)
Elasticity of Demand
Price Elasticity Curve shows how much
the customer agrees to pay for the first
kWh to be consumed, and then for the
second, and so on
4.5
5.0
5.5
6.0
6.5
7.0
7.5
1000 1050 1100 1150 1200 1250 1300
Demand (10
3
x kWh)
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 9
METU
Market Structure
Example to Price Elasticity of Demand
The First Demand-Side Flaw
In New York, when operating reserves run
extremely short, prices has driven up to 600
Cents / kWh
In a regulated environment, where the retail
prices is around only 6.0 cents / kWh,
a customer will make only this amount of
saving during the evening period, while the
actual price was 600 Cents / kWh
Hence, he will not respond to prices, unless
he is not metered in real-time
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 10
METU
Market Structure
The Effect of Deregulation on the Elasticity of Demand
Price Elasticity of Demand
rigid in a regulated market, where
wholesale prices are not reflected to
retail prices, i.e. price is the same in
all time periods, hence customers
have no reason for shifting their
consumptions to nights,
elastic in a competitive market, where
retail prices are influenced by the
wholesale prices,
Demand is;
In the long run, a 10 % increase in retail
prices results in 5-15 % decrease in
demand
P
r
i
c
e

(
C
e
n
t
/
k
W
h
)
Demand (10
3
x kWh)
4.5
5.0
5.5
6.0
6.5
7.0
7.5
1000 1050 1100 1150 1200 1250 1300
Demand curve in a
deregulated market
Demand curve in a
regulated market
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 11
METU
Market Structure
Establish competitive retail markets
to support the wholesale markets
Remedies for the First Demand Side Flaw
Remedies
The general principle is quite simple
and obvious;
Implement meters with three-rate
tariff structure at retail level in order
to;
a) Discourage consumption during
the evening period by imposing a
relatively high price,
b) Encourage consumption during
other periods, particularly, during
the night period, by imposing
relatively low prices,
Three-Rate Tariff
0
500
1000
1500
2000
2500
3000
3500
4000
4500
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time (Hours)
P
o
w
e
r

D
e
m
a
n
d

P
(
t
)

(
M
W
)
Daily Period Evening Period Night Period Night Period
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 12
METU
Market Structure
Three-Rate Tariff
Area under each segment of the curve
correspond to the total energy consumed
within that period
Three-Rate Tariff Three-Rate Metering
0
500
1000
1500
2000
2500
3000
3500
4000
4500
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time (Hours)
P
o
w
e
r

D
e
m
a
n
d

P
(
t
)

(
M
W
)
Daily Period Evening Period Night Period Night Period
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 13
METU
Market Structure
Single and Three-Rate Tariffs
(*),(**)
(TL/kWh)
Customer
Type
Single
Rate
Tariff
Evening
(17:00-
22:00)
Night
(22:00-
06:00)
Daily
(06:00-
17:00)
Industrial
(**)
119.800 202.740 58.240 113.810
Spring Water 123.300 206.450 61.300 117.150
Sewage Treatment 119.800 202.740 58.240 113.810
Commercial 151.950 277.250 61.300 144.350
Residential 127.800 201.350 61.300 115.000
Agricultural 115.250 186.550 61.300 109.500
Government Inst. 119.500 186.550 61.300 109.500
Single and Three-Rate Tariffs
--------------------------------------------------
(*) TEDAS (64 cities +1 associated share), January 01, 2004
(**) No incentive
0
500
1000
1500
2000
2500
3000
3500
4000
4500
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time (Hours)
P
o
w
e
r

D
e
m
a
n
d

P
(
t
)

(
M
W
)
Daily Period Evening Period Night Period Night Period
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 14
METU
Market Structure
Three-Rate Tariff Reshaped Daily Loading Curve
Reshaping the Daily Loading Curve
Total area under the curve is the
overall demand, hence it does not
vary with reshaping
In other words, the area reduced
within the peak period is the same
as the area increased within the off-
peak period
P
o
w
e
r

D
e
m
a
n
d

P
(
t
)

(
M
W
)
500
1000
1500
2000
2500
3000
3500
4000
0
New Curve
Old Curve
0 2 4 6 8 10 12 14 16 18 20 22 24
Time (Hours)
Total area under the curve is unchanged
after reshaping
Daily Period Evening Period Night Period Night Period
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 15
METU
Market Structure
Time (Hours)
500
1000
1500
2000
2500
3000
3500
4000
0
New Curve
Old Curve
0 2 4 6 8 10 12 14 16 18 20 22 24
Daily Period Evening Period Night Period Night Period
P
o
w
e
r

D
e
m
a
n
d

P
(
t
)

(
M
W
)
Reshaping Daily Loading Curve
Total area under the curve is
unchanged after shaping
Reshaping the Daily Loading Curve
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 16
METU
Market Structure
Example Reshaped Daily Loading Profile
Period
Residential Consumption
(Before Reshaping)
Peak Demand
(kWh) (%) (MW)
17:00 - 22:00 8.330.000.000 49 4.000
22:00 - 06:00 3.570.000.000 21 3.300
06:00 - 17:00 5.100.000.000 30 3.250
Total 17.000.000.000
Period
Residential Consumption
(After Reshaping)
Peak Demand
(kWh) (%) (MW)
17:00 - 22:00 6.800.000.000 40 3.400
22:00 - 06:00 5.100.000.000 30 3.000
06:00 - 17:00 5.100.000.000 30 2.950
Total 17.000.000.000
Time (Hours)
P
o
w
e
r

D
e
m
a
n
d

P
(
t
)

(
M
W
)
Reshaping the Daily Loading Curve
Only (49-40)/49 = 18.3 % of the evening load is shifted to night
Daily Period Evening Period Night Period
Night Period
500
1000
1500
2000
2500
3000
3500
4000
0
New Curve
Old Curve
0 2 4 6 8 10 12 14 16 18 20 22 24
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 17
METU
Market Structure
Reshaping;
Reshaped Load Duration Curve
will clip peak portion of the Load
Duration Curve, thus resulting in a
Re-shaped Load Duration Curve,
will raise the lower part of the
curve
Total area under the curve is unchanged
after reshaping
Reshaping the Daily Loading Curve
P
o
w
e
r

D
e
m
a
n
d

P
(
t
)

(
M
W
)
0
500
1000
1500
2000
2500
3000
3500
4000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time (Hours)
+
-
Shaped Load Duration Curve
Unshaped Load Duration Curve
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 18
METU
Market Structure
Advantages of Load Reshaping
Advantages Gained
By re-shaping the load duration
curve;
a) Investment for the generation,
transmission and distribution
facilites to meet the same
amount of energy demand will
be reduced,
Hence, the generation,
transmission and distribution
facilities will be utilized more
efficiently, since they will be
more uniformly loaded,
0
500
1000
1500
2000
2500
3000
3500
4000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time (Hours)
+
-
Shaped Load Duration Curve
Unshaped Load Duration Curve
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 19
METU
Market Structure
Advantages of Load Reshaping
Advantages Gained
b) Overall tariff will be reduced
since;
No peaker plant with
expensive fuel costs will be
utilized, i.e. only base plants
will be utilized,
Expensive power exchange
with the third parties (ref. to
next section; Second
Demand Side Flaw) will be
reduced,
Capacity cost is reduced
since less capacity is utilized
No payment for scarsity rents
0
500
1000
1500
2000
2500
3000
3500
4000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time (Hours)
+
-
Shaped Load Duration Curve
Unshaped Load Duration Curve
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 20
METU
Market Structure
Advantages of Load Reshaping
Price Elasticity of Demand
d) Consumption will be more
uniform and stable and hence
investors, who plan to make
investment in the generation
sector will gain more
confidence about the loading
characteristics,
e) Market power will be curbed,
since there will be no power
shortage during evenings
0
500
1000
1500
2000
2500
3000
3500
4000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time (Hours)
+
-
Shaped Load Duration Curve
Unshaped Load Duration Curve
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 21
METU
Market Structure
P
gTPn
Wholesale
Company
P
gTP1
The Second Demand Side Flaw
The Second Demand Side Flaw
An exact match between
generation and consumption as
written in Bilateral Agreements
can never be achieved
Hence, depending upon power
balance condition, consumers
may absorb and generators may
submit power to grid without
contract
Parties in a bilateral agreement
absorb / supply power to / from
third party suppliers or to
customers in grid without any
contract
Third Party
Supplier(s)
Main Supplier Eligible Customer
P
L
Transmission
and/or
Distribution System
Third Party
Customer(s)
P
g1
P
LTP
P
gk
Wholesale
Company
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 22
METU
Market Structure
The Second Demand-Side Flaw
Daily Mismatch between Supply and Demand
Please note that for a wholesale company
with healty balancing and settlement
characteristics, the payments made for the
energies in these areas (not the energies
themselves) must be equal after a certain
period of time, such as one month
Energy supplied to third parties
Energy absorbed from third
parties
Generator power output (MW)
0
500
1000
1500
2000
2500
3000
3500
4000
4500
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Time (Hours)
Daily Period Evening Period Night Period Night Period
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 23
METU
Market Structure
Bilateral Agreements
Definition
The general principle in designing
Bilateral Agreements in
competitive markets is that the
parties are completely free on the
technical and commercial
conditions in the Contract
Definition: Bilateral Agreement
is an electricity trading contract
made between a supplier and a
customer on;
the amount,
price,
duration,
and other conditions
of trading
Main Supplier Eligible Customer
P
L
Bilateral Agreement
P
gk
Wholesale
Company
P
g1
Transmission
and/or
Distribution
System
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 24
METU
Market Structure
Application
All Bilateral Agreements (Electricity Sale
Agreements) (Bilateral Agreement)
concerning power trades among all market
participants are submitted to BSC for
approval and recording
BSC examines the agreements in terms of;
amount,
feasibility,
system security, (congestion
possibility),
system stability,
load frequency control,
resulting increase in system losses
Bilateral Agreements
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 25
METU
Market Structure
Formation of Supplier Portfolio
Bilateral Agreements with two or more suppliers
Suppliers
Wholesale Companies or
Independent Producers
Bilateral Agreement concerning;
Amount
Price
Duration
Supplier-1
Supplier-2
Supplier-3
Supplier-n
Transmission and/or
Distribution System
Eligible Customer - 1
Eligible Customer - 2
Eligible Customer - 3
Eligible Customer - n
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 26
METU
Market Structure
The Second Demand-Side Flaw
Balancing market structure is designed in order to
meet the power absorbed or supplied from / to the
third parties,
Price spikes due to power unbalance, in real-time
resulting in invaluntary load shedding, treating
customers are reduced
These aspects determine the
incentives for investment in
Generation sector
The Second Demand-Side Flaw
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 27
METU
Market Structure
Mismatch between Supply and Demand
Load characteristics follows the daily loading curve, while the generation
follows a flat linear profile, hence the two curves never match exactly
Eligible Customer
P
o
w
e
r

D
e
m
a
n
d


(
M
W
)
Summer
Winter
Time (Hours)
Consumption Characteristics
Time (Hours)
G
e
n
e
r
a
t
i
o
n

(
M
W
)
Generation Characteristics
4.5
5
5.5
6
6.5
7
7.5
0 6:00 12:00 18:00 24:00
P
L
P
L
Transmission
and/or
Distribution System
Third Party Customer(s)
The Second Demand-Side Flaw
P
g1
P
gk
Wholesale
Company
P
gTPn
Wholesale
Company
P
gTP1
Main Supplier
Third Party Supplier(s)
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 28
METU
Market Structure
The Second Demand-Side Flaw
Definition
The second demand-side flaw is
the situation that the parties in a
Bilateral Agreement absorb or
supply power from / to third party
suppliers or to customers in grid
without any contract
In practice, an exact match of the
generation to consuption in a
Bilateral Agreement can never be
achieved
P
gTPn
Wholesale
Company
P
gTP1
Third Party
Supplier(s)
Main Supplier Eligible Customer
P
L
Transmission
and/or
Distribution System
Third Party
Customer(s)
P
g1
P
LTP
P
gk
Wholesale
Company
Hence, consumers always absorb
from and generators submit power
to grid without contract
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 29
METU
Market Structure
Daily Loading Curves
Daily Loading Curves
A basic characteristics of
electrical loads is that the
demand is not constant, but a
function of time. In other words
the demand varies wrt hours,
days, weeks and season.
As seen from the figure, the
peak level of demand in the
winter season is about 4000
MW, while the off-peak level is
2610 MW, which is 0.65 of the
peak level
Time (Hours)
Off-Peak
level
Peak
level
P
o
w
e
r

D
e
m
a
n
d


(
M
W
)
Summer
Winter
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 30
METU
Market Structure
Daily Loading Curves
Daily Loading Curves
This situation creates serious
difficulties in system
operation, as electricity cannot
be stored, hence the total
supply must always be
matching the total demand and
losses in in the system
The system operator therefore,
spends a considarable amount
of care and effort to follow the
balance between the total
supply and demand
Off-Peak
level
Peak
level
P
o
w
e
r

D
e
m
a
n
d


(
M
W
)
Summer
Winter
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 31
METU
Market Structure
The Second Demand-Side Flaw
where, P
L
is the power consumed by the
customer,
P
g
is the power generated by the
supplier,
P
gTP
, P
LTP
is the power generated or
absorbed by the third party
P
L
< P
g
or P
L
> P
g
hence
P
L
= P
g
- P
LTP
or P
L
= P
g
+ P
gTP
Mismatch between Supply and Demand
An exact match between supply and
demand is never possible and hence, the
customer sometimes absorbes power
from third party supplier(s) through grid
without any contract
Third Party
Supplier(s)
Main Supplier Eligible Customer
P
L
Transmission
and/or
Distribution System
Third Party
Customer(s)
P
g1
P
LTP
P
gk
Wholesale
Company
P
gTPn
Wholesale
Company
P
gTP1
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 32
METU
Market Structure
The Second Demand-Side Flaw
Mismatch between Supply and Demand
Hence;
An exact match of supply to demand in
a Bilateral Agreement is never possible,
Customer sometimes absorbes power
from third party supplier(s) through
grid without any contract,
Customer sometimes absorbes less
power than the written amount in the
contract, hence the supplier may be
supplying a third party customer in the
system through grid,
hence, an accounting mechanism is
needed among the supplier, demand
and the third party supplier(s) and the
customers
Third Party
Supplier(s)
Main Supplier Eligible Customer
P
L
Transmission
and/or
Distribution System
Third Party
Customer(s)
P
g1
P
LTP
P
gk
Wholesale
Company
P
gTPn
Wholesale
Company
P
gTP1
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 33
METU
Market Structure
The Second Demand-Side Flaw
Mismatch between Supply and Demand
Sometimes power consumed by the
customer from third party supplier(s)
through grid without any contract may be
so high that, the system operator may find
himself in a situation that he has no other
solution, except;
a) some consumers are to be blacked
out, hence, a rotating blackout
program is to be implemented without
regarding the contracts or
consumption levels of customers,
b) some extra power is to be purchased
at a very expensive price
Third Party
Supplier(s)
Main Supplier Eligible Customer
P
L
Transmission
and/or
Distribution System
Third Party
Customer(s)
P
g1
P
LTP
P
gk
Wholesale
Company
P
gTPn
Wholesale
Company
P
gTP1
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 34
METU
Market Structure
The Second Demand-Side Flaw
Mismatch between Supply and Demand
The system operator may prefer;
purchasing power from third party
suppliers, if the price is reasonable,
i.e. it is within the limits of up to 10
times the long-range average,
blacking out customers by
implementing a rotating black out
program to all customers without
regarding the contracts or
consumption levels of customers,
Third Party
Supplier(s)
Main Supplier Eligible Customer
P
L
Transmission
and/or
Distribution System
Third Party
Customer(s)
P
g1
P
LTP
P
gk
Wholesale
Company
P
gTPn
Wholesale
Company
P
gTP1
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 35
METU
Market Structure
Remedies for The Second Demand-Side Flaw
Remedies
In principle remedies for the Second
Demand Side Flaw are two folded:
Flattening the daily loading
Characteristics by;
a) wholesale trading,
b) employing a Three-rate Tariff
structure,
Establishing a Balancing Market
The first remedy does not completely
eliminate the flaw, but only reduces
the amount of power taken / given
from / to the third parties
Third Party
Supplier(s)
Main Supplier Eligible Customer
P
L
Transmission
and/or
Distribution System
Third Party
Customer(s)
P
g1
P
LTP
P
gk
Wholesale
Company
P
gTPn
Wholesale
Company
P
gTP1
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 36
METU
Market Structure
Basic Principle of Wholesaling:
Try to market the unsold energy
remaining above the daily loading
curve by offering a cheaper rate
Flattening the Daily Loading Curve
Flattening the Daily Loading Curve by Wholesale Trading
Time (Hours)
24
Total Demand P(t) (MW)
0 2 4 6 8 10 12 14 16 18 20 22
Peak demand
Average demand
15
30
45
60
75
90
105
120
Sold Energy
Unsold Energy
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 37
METU
Market Structure
Flattening the Generation Characteristics
River Plants
Plants with irregular
generation profile, such as
river plants with no reservoir
need to be regulated by the
Balancing and Settlement
Mechanism or by a third party
plant
Regulation of Generation
M
o
n
t
h
l
y

G
e
n
e
r
a
t
i
o
n

(
k
W
h
)
Months
Energy that can not be
supplied by the river plant
Demand
Characteristics
Supply Characteristics
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 38
METU
Market Structure
Risk Management by
Main and Standby Wholesalers
Transmission
and/or
distribution system
Eligible
Customer
Wholesaler
Wholesaler
Standby
Wholesaler
(confronts the risks)
Main Wholesale Company
Suppliers
Suppliers
Bilateral Agreement
Amount,
Price,
Duration
AFC = Annual Fixed Cost = FC / kWh * 8765 Hours
AVC = Annual Variable Cost = VC / kWh * t
Average Cost = (AFC + AVC) / t Cent /kWh
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 39
METU
Market Structure
Risk Management
Three-Lateral Contracts
Wind or
river
energy
supplier
Transmission
and/or
distribution system
Suppliers
Suppliers
Standby
Wholesaler
(undertakes the risks)
Main
Wholesaler
Wholesaler
Eligible
Customer
Thermal or
Hydroelectric energy
Supplier
AFC = Annual Fixed Cost = FC / kWh * 8765 Hours
AVC = Annual Variable Cost = VC / kWh * t
Average Cost = (AFC + AVC) / t Cent /kWh
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 40
METU
Market Structure
Increasing the Service Reliability by a Standby Supply
Wholesale Company
Supplier-1
Main Supplier - Three-Rate Tariff
Standby Supplier,
Diesel Gen. Set
(Supplier-2)
Uninteruptable Load
(Hospital)
Standby Supplier;
has a higher tariff,
provides stand-by energy in case of
emergency
AFC = Annual Fixed Cost = FC / kWh * 8765 Hours
AVC = Annual Variable Cost = VC / kWh * t
Average Cost = (AFC + AVC) / t Cent /kWh
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 41
METU
Market Structure
W
h
o
l
e
s
a
l
e
C
o
m
p
a
n
y
Suppliers
.
.
.
Eligible Customer-1
.
.
.
4
8
12
16
20
0 4 8 12 16 20 24
4
8
12
16
20
0 4 8 12 16 20 24
4
8
12
16
20
0 4 8 12 16 20 24
P(t)
P(t)
P(t)
40
80
120
160
200
0 4 8 12 16 20 24
Resulting Load Curve
(Total power purchased)
Daily Loading Curves
.
.
.
Transmission
System
Eligible Customer-2
Eligible Customer-k
Formation of Customer Portfolio
Formation of Customer Portfolio for Wholesale Trading
Distribution
System
P(t)
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 42
METU
Market Structure
Wholesale Trading in a Competitive Market
Wholesale Trader-1 GPRS GPRS
Hourly Balancing and Settlement Center (NDUY)
Wholesale Trader-2
Energy
Flow
Energy
Flow
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 43
METU
Market Structure
Cost of Wholesale Electricity
Enron Energy Trading
Center Building (Houston)
Cost
(*)
of bulk power generation (in Wholesale
trading) is nearly half the cost of retail electricity
----------------------
(*) Not the price
Suppliers
.
.
.
Eligible
Customer-k
.
.
.
P(t)
P(t)
P(t)
Daily Loading Curves
.
.
.
Transmission
and/or
Distribution
System
Eligible
Customer-2
Eligible
Customer-1
Resulting Load Curve
(Total power purchased)
80
120
160
200
40
0 4 8 12 16 20 24
W
h
o
l
e
s
a
l
e

C
o
m
p
a
n
y
0 4 8 12 16 20 24
0 4 8 12 16 20 24
4 8 12 16 20 24 0
8
12
16
20
4
8
12
16
20
4
8
12
16
20
4
EE 710 Electricity Trading, Electrical and Electronics Eng. Dept., METU, Spring 2005, Prof. Dr. Osman SEVAOLU, Page 44
METU
Market Structure
Non-Utility Generators (NUG)
Definition: A generating plant that does not belong to
distribution utility is called non-utility generator (NUG)
The Effect of Non-utility Generators (NUG) on Tariff
Fact:
Non-uility generators (NUG):
Adjust their tariffs according to variations in the
worldwide oil prices,
Hence, exhibit a tendency to raise their tariffs, as they
are not responsible for providing electricity to
customers in distribution regions at regulated prices
California Case:
Utilities are completely unbundled, resulting in
distribution companies with no generating capability,
hence they could not produce cheap electricity for
reducing their tariffs in their distribution regions

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