Power System Expansion
Planning in a Liberalized Market
The
ideas of liberalism, monetarism, deregulation of the economy (including the electric power industry), privatization of state property,
freedom from state intervention
in trade
and other economic activities became quite popular. Thus, it was not by accident that radical and liberal reforms were often accompanied by a considerable relaxation of state control aimed at fast activation of self-regulatory market mechanisms, which were supposed
to stimulate economic
growth and restructuring of electric power industry This approach
was mainly based on the theoretical conclusions of the classical
school of economics
that the market balance is achieved owing to the law of demand and supply by means of flexible market pricing under the conditions of perfect competition; prices reflect individual
preferences and fluctuations according to the changes in demand and supply; resources
are distributed according
to the relative price level in the market, and if this level depends
on fluctuations in demand and supply, the absolute price level is determined by the amount of money; when the balance is disturbed, the system strives to restore
it, that is why any attempts to interfere in the operation of market mechanisms can only aggravate
the situation.
The experience of market transformations
in electric
power industry in most of the countries showed that the initial excessive optimism about the efficiency of purely market forces in the operation
and, particularly, expansion
of electric power systems proved unjustified. Extremely
liberal models of electricity market
organization and functioning were set aside and the role of “soft” regulation of these markets by implementing the appropriate government policy was recognized.
In essence, the specialists acknowledge now that the most rational method for efficient
operation and expansion
of electric power systems is a combination of market mechanisms and state regulation. It is worth emphasizing that the determination of such a rational combination is not an easy task and its performance is country-specific because
of specific features
of economy and electric
power industry, conditions
of their operation and development.
Moreover,
by the late 1990s, the backup generating capacities had started to decrease considerably in many countries,
since it turned out to be unprofitable for the generating companies to maintain extra
capacities. The electricity market functioning revealed
the limitations on the transfer
capability of the electric network
often at the points, where such limitations had not manifested themselves before (the so-
called congestion problem).
All this triggered
the research into the methods
of
expansion planning of
generating capacities, and particularly electric networks, on a new market basis.
Under the conditions of liberalized relationships in electric power I
industry, the
process of analyzing and making
decisions on its development involves
many participants (stakeholders) that have different
interests. These are electric
power companies, consumers, investors, and public
organizations, federal and regional authorities. Today, the coordination of interests of stakeholders and the formation
of mechanisms for ensuring the development process
become that present,
the methodology of power industry
expansion planning is undergoing radical transformation from centralized planning
into a new paradigm of the multilateral process for justifying the decisions and creating the mechanisms for their implementation under the conditions
of uncertainty, multi-criteria or objectives, and multiplicity of different
interests. This transformation
is
characteristic
of
all
the
countries experiencing energy liberalization
and
deregulation’s main objectives
of expansion
planning of electric power systems
and companies.
The operation
of a liberalized power system requires flexible and fast support tools, given the variety of
partially autonomous agents that can take decisions
that compromise the security of the system.. Generators working in a competitive pool must evaluate a wide range of factors to prepare their bids
or asses their trades.. a competitive industry
will be more
focused on its customers, there
will be an increased need
for load modeling and control;
A competitive generation market requires three basic functions:
1.
The operation
of the market (pool):
collecting and processing
bids, establishing the balance between generation and demand, computing the system marginal
price that will be used to remunerate the energy supplied
by the generators, etc.
2.
The
operation
of
the
system:
monitoring
the
security of the network , taking into account all the physical
constraints that can affect
the dispatch, authorizing and applying the generation dispatch provided by the market,
as well as the bilateral
transactions; arranging the supply of reserve and voltage control
services, operating the transmission network.
Etc.
3.
The ownership of the transmission network.
In competitive environments, functions 1, 2 and 3 can
be carried out by separate
entities. The entity in charge of function
2 is usually called the independent system operator. It is responsible for controlling the behavior of the
market participants, since
they are no longer constrained
to follow
instructions coming from a centralized control, but may have a certain
degree of autonomy. This is especially important if physical contracts are allowed.
In this case, the generation dispatch
is not only a result
of
a
centralized
market, but generators
can directly supply energy
(i.e., can modify their dispatch) through a bilateral arrangement with a consumer
or reseller , by-passing the market.
The independent system operator must obviously .assess and authorize those
contracts, and monitor their application . This process
has different aspects:
The losses caused by each transaction must be estimated and charged to the responsible participants. The impact of each
set of transactions in security must be evaluated. If they lead to the violation of security
constraints, the
independent system
operator must re-schedule the transactions. Nevertheless, this rescheduling must be carried out in a non-discriminatory
way.
For instance, the
Californian regulat ion establishes that the dispatch
resulting from the pool cannot be given priority over the bilateral transactions. Moreover, the rescheduling should preferably be based on economic signals
that would give an estimate of how costly the rescheduling is for each participant.
Transparency and availability
of information
are required to obtain an efficient market.
A solid structure of information
processing and data communication systems
will be require to make sure
that all agents have access
to the relevant data and can make informed decisions , and the regulation has acknowledged this importance. For instance, the US Federal Energy Regulatory Commission has established the basis for the so called Open Access Same-Time Information System (OASIS) that will be
the basis of the US electricity marketplace.
The ability
to accurately forecast
electricity demand will be increasingly important
in a competitive environment, since it
will allow the power marketers to negotiate good prices for the energy that they buy.
Another important aspect of modern approaches to the planning
of electric power industry,
electric power systems and power companies under the conditions
of liberalization and deregulation is connected to greatly increasing uncertainty of the expansion planning
factors and a growing number
of factors forming
this uncertainty, as compared to the conditions of the centralized electric power industry.
In terms of methodology, there is a short-term uncertainty and a long-term uncertainty. The short-term uncertainty (for instance,
fluctuations in electricity prices in prospect
as against the forecast, load variations at system nodes as against
the forecast, etc.) is represented as random and modeled, for example, by the Monte-Carlo method The long-term uncertainty is represented by scenarios (for instance,
the scenarios of electricity consumption, fuel or equipment prices, etc.) The fuzzy sets and fuzzy logic are used In many
cases, uncertainty is associated with risk
Considering the
uncertainty of
electric power
industry development, it is recognized that the ideology
of approaches to the expansion
planning of electric
power systems and companies should be transformed from optimization to forecast and simulation,
and from planning
to a development strategy As compared to the previous conditions, the sense and content of mathematical models used for forecasts and simulation expand since the technological models for electric power system expansion planning are supplemented with financial ones [3,42] and gain new functions including
assessment of power supply reliability, consideration of demand-side
management (DSM), and other capabilities The use of such powerful means as the geographic information systems is also considered
Some authors do not regard the generation
expansion planning problem as pressing and assume that the market
mechanisms should give the necessary economic signals to the investors to invest in the construction of new
power
plants.
However,
this viewpoint is supported by fewer and fewer researchers, since a deeper analysis and the existing practice
show that the market is “shortsighted” and there is a need to foresee
the corresponding mechanisms to improve the investment attractiveness of new power
plants and reduce
the financial risks to investors. To this end, a lot of different
approaches are suggested,
one of which is the so-called Stratum
Electricity Market (SEM). According to this approach,
the electricity market structure is considered hierarchically in time, including
the spot (hourly), monthly, yearly and long-term
markets. The long-term
market makes it possible to arrange auctions
and attract investment in the construction of power plants A similar idea was also formulated in Also,
consideration is given to the capacity markets (in addition to electricity markets) that create long-term economic
signals for investors for the expansion of power plants
since every generating
company and every independent
investor that explore the possibility of investing in the
construction of power plants, have their own interests, which should be reconciled taking into account the general system requirements. An independent system operator is considered as the coordinator and social requirements (the main of which is the reliability of power supply to consumers)
– as the system requirements to be checked by the operator.
In other cases, the function of the generation expansion coordinator is performed by the state (which
is often identical
to the previous case, where the system operator is the state property), and the problem
can be viewed as a hierarchical game When
the power plant expansion is regulated, the coordination can be performed by the companies. In this case, the problem
is formulated as a cooperative game].
Some authors consider
the state generation expansion planning as a
means of protection against market risks in a more general case; it is most rational to combine market mechanisms of power plant expansion with the system of state and corporate generation
expansion planning, which reduces investment risks. In this case a
special fund is established to hedge independent investors against financial
risks and construct
power
plants
to
avoid
generating capacity shortage
“Holistic” means considering an object as a whole,
and not just dealing with particular
aspects. In , the electric
power systems are comprehensively considered in terms of cost-effectiveness, required
reliability, and acceptable
environmental impact. The authors of also consider
the social welfare.
The following
principles of holistic power system planning are considered:
1.
Comparison of alternative strategies for expansion,
using
integrated quantitative assessment and maximizing social benefits
of expanding the system as a whole;
2.
Use of probabilistic reliability criteria to counterbalance the commonly used deterministic criteria, such as the reliability rule "n-1";
3.
Consideration of the entire expanding system in terms of how it is connected to other electric
power systems around it and adjacent
systems of different nature at the local,
regional, and global
levels;
4.
Assessment of costs and benefits from the standpoint of all the stakeholders in terms of their share in the used assets and fair cost and profit sharing among the parties;
5.
Behavior
of individual parties in accord with the global goal of the system; in other words, each stakeholder should contribute to the improvement in the efficiency
of the entire system, i.e. despite the individual goals of the stakeholders; they should make a contribution to the global goal.
Holistic planning is a new concept which attempts to take into account the characteristics of current split
organization structure of the electric
power industry, a methodology of gaining the common
benefit from optimal allocation of resources with no return to a fully
integrated and strictly regulated structure.
The author of consider two aspects
of holistic planning: electric network planning and resource planning.
At present, the electric network planning involves
great difficulties. The substantial uncertainty about the load forecast, placement
of generating capacities, regulatory
decisions, construction opportunities, etc. and a large number of stakeholders engaged in expansion
planning necessitate the development of new approaches and methods for creating future flexible electric
power systems which expand in an efficient
manner. The electric
network planning is impossible to perform holistically without consideration of resource planning,
decisions on electricity consumption, and environmental constraints. The placement of new generating capacities can considerably affect the formation
of the electric network. Social welfare implies
making decisions optimal from a market viewpoint, under various alternatives, in accordance with the concept "Unity in Diversity”, which is viewed as a way of reconciling individual decisions to the benefit of the
society.
The new approach
separates the problem
of the electric network
expansion planning from the problem
of generation expansion planning. However, the decision-making about the investment in the electric network
expansion should agree with the
development of generation and consumption markets
to the maximum.
The holistic resource planning under
the conditions, where centralized expansion
planning does not work and the free market mechanisms turn out to be ineffective
made by the stakeholders should agree with social welfare
and goals of the society. The mechanisms for implementing such a concept should be developed by the government or by a community of consumers. One of the principles can be based on the inclusion of environmental
costs, social needs, etc. in economic and financial criteria, shou On the whole, the new approach called the holistic
power system planning, which was considered
in [75,76], gives only the main ideas of the new concept
of expansion planning
under electric power industry restructuring and liberalization. The ideas are aimed at reconciling the individual goals of stakeholders involved in the power
system planning and the goals and benefits
of the society as a whole.
It is important to highlight a number of essential aspects
which are common for the considered approaches. These aspects are considered
both explicitly and implicitly in many studies that solve concrete problems
of power system expansion planning.
The first aspect is connected to the systemic
character of the studied object whose expansion
planning we are dealing with. Electric power systems are objectively viewed
as complex integral
facilities with a complex, often hierarchical structure and quite strong
ties with economic, social, and environmental systems. Such understanding of the systemic
character of the object was mainly logical
in the past, when the organization structure of electric
power systems coincided with their physical and technological structure. It has to be mentioned
however that not all specialists realized the systemic character of electric power systems, and therefore their structural complexity and complexity (systemic nature) of their operation and expansion problems.
The holistic approach to the expansion planning of a seemingly split electric power system also considers the object of study and the problems
of its expansion rather systemically.
Another aspect of the problem consists
in the fact that apart from individual
interests of the stakeholders in the course
of the power system expansion planning,
there are also some social
interests and social welfare. Certainly, under the prescriptive control of the centralized electric
power industry, the individual and local interests
were minimal. Individual
interests, for instance the interests
of private energy companies,
were most vividly seen in vertically integrated electric power systems
operating in accordance with market principles. In the course of electric power system expansion,
individual interests of stakeholders are most tangible in restructured and liberalized electric power industry.
Moreover, the interests of different
stakeholders contradict each other.
Centralized electric power industry,
whose decisions were based on directives, implied
that social goals
and welfare were evidently prevalent,
and the mechanisms for the accomplishment of these social goals were obvious. In the case of vertically integrated electric power companies, which work and develop on the basis of market principles,
the social goals are achieved
through the corresponding legislative and institutional mechanisms. Characteristically, the operation of competitive market
mechanisms and restructured electric power systems, particularly in the holistic
approach, also implies
the involvement of certain institutions that can regulate
the attainment of social goals connected to the electric
power system operation and expansion. These institutions can be represented directly by the state
or by independent structures, often with state property (communities of consumers, system
operator, etc.).
Conclusions
All these considerations lead to the conclusion that in the power
system expansion planning
it is sensible to rationally combine market mechanisms
and state regulation
(to a greater extent, “soft” state
regulation).
