Power Market Transformation: Reducing emissions and empowering consumers
This book describes recent developments in the power and energy markets that are driving major changes in the generation mix, network requirements and customer engagement. The industry now faces new challenges associated with global warming and escalating demand from developing countries such as China and India. The effect of government interventions to manage changes and to meet emission targets has resulted in an industry that is neither a free market nor centrally coordinated and often lacks strategic direction. The uncertainty has resulted in a dearth of investment in generation and unprecedented low margins of spare capacity. This book provides an analysis of the changes and quantifies their impact. It reviews strategic decisions in the management of changes in the sector and aims to identify the optimal way forward to meet the triple objectives of security, affordability and sustainability with low emissions. It focuses on the economic aspects of initiatives to provide insight into their interaction. It also provides insight into the opportunities in the sector to the many new potential players. Power Market Transformation is based on the most recent developments in the energy sector and brings together all the initiatives that interact physically through the common network and financially through the energy market. It draws on extensive international experience in all sectors of the industry to bring clarity to the complex interactions. It includes worked examples and questions providing a basis for study and examination, and will be of value to engineers, economists, researchers and students in all countries undergoing a transition.
Inspec keywords: power markets; investment
Other keywords: energy markets; government interventions; spare capacity; global warming; strategic decisions; change management; unprecedented low margins; investment; power market transformation; emission reduction
- Book DOI: 10.1049/PBPO124E
- Chapter DOI: 10.1049/PBPO124E
- ISBN: 9781785614811
- e-ISBN: 9781785614828
- Page count: 412
- Format: PDF
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Front Matter
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Part I. How we arrived at where we are?
Part I. How we arrived at where we are?
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The first part of the book reviews the recent developments that are taking place in the international power sector across the world. It discusses the impact of strategic decisions and where they have adversely affected the development and performance of the sector. It discusses policy and market developments and the reaction of the industry and investors and the developing engagement with customers.
1 Market developments
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This book discusses and quantifies the impact of these drivers on the industry and its participants and proposes how the industries organisation and regulation may need to change to accommodate them. This chapter focuses on the implications to free market operation.
2 Market technical challenges
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This chapter discusses the key technical issues that are incident upon the transformation taking place in the industry and can constrain the way the industry develops in future. This chapter discusses these issues and how they may be quantified to indicate where constraints may arise that need to be accounted for in the wider debate about future development strategy.
3 Impact of developments on market players
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This chapter discusses the impact of developments on the market players and the initiatives made by regulators to influence the changes in the interests of consumers. As the capacity of intermittent wind generation is increased, the utilisation of conventional generation decreases leading to closures and reduced margins and security.
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Part II. Review of low carbon generation technology options
Part II. Review of low carbon generation technology options
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The second part of the book reviews the progress on global emission reduction and the technology options to meet targets including the deployment of increasing volumes of intermittent renewable generation, generation based on biomass, the option of large- and small-scale nuclear and generation with carbon capture and storage. The impact on the distribution networks of the growth of embedded smallscale generation and cogeneration schemes is discussed. The advantages and disadvantages of the various low carbon generation technologies are discussed and their expected costs are compared. It discusses the issues related to their respective operating role within a mix of different plant types and identifies any operating constraints that influence the optimal mix.
4 Emissions and renewable generation
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Progress on the reduction of emissions is proceeding slowly across the world by the largest emitters. Emissions in China were 26 times those of the United Kingdom in 2015 but initiatives are being made to expand their nuclear fleet. In the USA, the success of fracking for gas has resulted in increases in gas-fired generation at the expense of coal and it is claimed that their reduction in emissions exceeds that of Europe with all its subsidised wind and solar generation. This is the result of emissions from gas CCGT generation being around 40% of those from coal-fired generation.
5 Embedded generation issues
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Embedded generation (EG) is the term commonly used to describe generation connected to the distribution network as opposed to the transmission grid. They tend to be smaller in scale and may be linked into the provision of supplies locally. In the past, systems were developed locally often in conjunction with municipalities but advantage was seen in pooling energy sources through the grid. This opened up the opportunity for larger more efficient units to be built of up to 660 MW coupled to local fuel supplies like coal mines or gas pipelines. There were associated economies of scale in higher efficiencies with lower operating costs and fewer support staff. As a result of these developments, many of the distribution networks became passive, without active generation, and radial in structure taking supplies from grid supply points.
6 Nuclear option
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There are emissions associated with excavating, concentrating and transporting uranium and building nuclear plants. But, according to the International Atomic Energy Agency, the emission rate from nuclear generation is 1%-3% of that from equivalent coal-fired generation. Unlike renewable sources, the generation is available all the time other than during planned maintenance periods. Although capital costs are high, the long range price for energy is comparable with other renewable sources and probably cheaper if account is taken of the cost of managing renewable intermittency. This has necessitated capacity payments to make it financially viable to retain conventional capacity in service to provide backup for when the wind speed is low or there is no sunlight for solar farms.
7 Carbon capture and storage
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The process of carbon capture and storage (CCS) refers to the isolation of carbon dioxide from generation by gas or coal-fired generation and storing it rather than discharging it to the atmosphere. The CO2 is extracted and piped to a storage facility. This may be a partially depleted oil field where it is used to facilitate enhanced oil recovery (EOR). Figure 7.1 shows a typical installation where the natural gas is fed into a reformer and capture plant where it is separated into CO2 and hydrogen using specially developed membranes. The CO2 is pumped into the offshore oilfield to enhance oil recovery or an offshore aquifer. The remaining hydrogen fuels a gas-fired power station producing clean electricity without CO2 emissions.
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Part III. How are the changes being managed within a market environment?
Part III. How are the changes being managed within a market environment?
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The third part discusses the market mechanisms in place and needed to manage the emerging developments. It discusses the balancing and capacity markets and the impact of renewable and embedded generation on conventional large-scale generators. It reviews the impact on network utilisation and charging mechanisms. It appraises the potential for cross-border trading, demand side management and exploiting interaction with the demand side and gas, heat and transport systems.
8 Wholesale markets
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The performance of wholesale markets has been undermined by the introduction of increasing levels of renewable generation capacity that receives priority in dispatch. Prices have become more volatile and less predictable due to renewable output changes that are not linked to demand levels. The renewable generation output may be increasing when the demand is falling making prediction of the demand and marginal prices very difficult. The result is to place a premium on flexibility in generation and demand.
9 Balancing market
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This chapter discusses the operation of a balancing market and the provision of ancillary services to manage secure system operation. In particular, it appraises the reserve requirements to manage the impact of intermittent generation.
10 Capacity markets
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This chapter discusses some of the issues facing regulatory and government agencies in creating a commercial environment that encourages the development of levels of security that match consumer expectations and budgets.
11 Cross-border trading
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The expansion of interconnection capacity in Europe is targeted to be 10% of generation capacity rising to 15% by 2030. The objective is to facilitate cross-border trading resulting in price convergence. It will also provide benefit in enabling reserve sharing and in managing the intermittency of renewable generation through flexibility sharing. There is a danger in crediting interconnection capacity with a contribution to the plant margin. There is no guarantee of availability of generation or link capacity unless it is backed by firm capacity contracts. Adverse weather may affect wide areas influencing the availability of generation in neighbouring countries at the same time reducing any spare capacity.
12 Demand side management
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The introduction of large tranches of renewable intermittent generation onto power systems has highlighted the need for mechanisms to profile demand to smooth and better match the renewable generation output to prevailing demand. It is envisaged that a proportion of the intermittency could be managed by regulating the demand side at the grid, distribution or end-user level. This chapter reviews the potential applications that may create the returns to finance developments and encourage participation. There are schemes that operate at the supergrid level often administered by the system operator and others that operate at the distribution level that may be managed by the supply companies.
13 Emissions and interaction with heat, transport and gas
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Although emissions in North America and South and Central America fell by 2% and 2.4% in 2016, those in the Asia Pacific region increased by 0.9% as did those in the Middle East 1.6% and Africa 1.1%. This resulted in a net global increase of 0.1%. The emissions from the Asia Pacific region were almost equal to those of the rest of the world reflecting a dependency on coal. The US emissions at 1,925 MtCO2/year were less than those of China at 2,943 MtCO2/year. The United Kingdom had a target to reduce emissions from 247 MtCO2/year by 34% and has already exceeded this with levels of 112 MtCO2/year i.e. about 4% of those of China. Electricity production is responsible for 37% of the emissions in the USA compared to 34% in the United Kingdom. This reflects a continuing reliance on coal for electricity production in the USA.
14 Network issues and tariffs
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This chapter discusses the drivers leading to a shift in the role and security of distribution networks resulting from the connection of more generation.
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Part IV. How do we get to where we want to be?
Part IV. How do we get to where we want to be?
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The fourth part focuses on the analysis of options to meet the three concurrent objectives of security, cost and sustainability through curtailing emissions. It discusses the shortcomings of some of the market mechanisms and the regulation that has been applied to meet them. A set of scenarios is developed to provide a framework for analysis based on the use of an overview model developed to embrace the technical operational aspects of system management. It will also draw comparisons with other approaches like the 2050 model. The work concludes with a review of the governance and market arrangements to identify the need for any changes to meet the future requirements resulting from the impending transformation.
15 Developing future scenarios
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The key objectives of the energy sector are usually framed by government policy and regulation. This will be formulated in consultation with energy users and take account of wider issues. This chapter critically reviews the power system development process.
16 Scenario and risk evaluation
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This chapter describes an approach to determine the optimal mix of electricity generation that provides both low generation costs and low levels of emissions under a set of basic assumptions. A two-stage approach is used with a simplified linear programming (LP) model used initially to inform the solution area. Subsequently, a more detailed analysis is used based on a generation dispatch model, including emission calculations, that provides a detailed half-hour simulation of system operation for a selected year. The model provides an estimate of emissions taking account ofvarying proportions of wind and solar generation including carbon capture and storage (CCS) generation and calculates the total costs ofgeneration. The model uses actual recorded system demand profiles and wind generation output collated by transmission zone in the United Kingdom. The profiles for additional wind farms are based on those for existing generation located in the same zone. The output of solar PV is based on a set of radiation data for a geographical location in the middle of the country. The model takes account ofthe impact of managing the intermittency of renewable generation on conventional plant and the need for curtailment at times of low system load.
17 Trading in an uncertain environment
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This chapter examines the process of evaluating the future trading options for a power station complex and its potential worth in support of investment decisions. It advances a structured process to review and evaluate the risks. It discusses the ongoing process of trading taking account of key variables.
18 Smart flexible grids
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The distribution networks are the focus of changes taking place in the energy sector to enable end-user engagement in realising affordable, secure and sustainable supplies. As their use increases, the capacity limits of the distribution networks will be reached and new tariff structures will be needed with more value placed on flexibility and pricing access to capacity rather than just energy. In contrast, the overall uncertainty in the sector has led to a dearth in investment in large-scale generation leading to unprecedented low plant margins. The proportion of large-scale supergrid connected generation that has already fallen by between 10% and 15% in the last 5 years. The requirement for increased flexibility to meet the increasing demands and manage intermittency could, in part, be met by gas-fired generation equipped with CCS without increasing emissions if viable tariffs are established that recognise the value of flexibility. There is considered to be a worldwide market for this technology that has been estimated at $31bn by 2021 offering export potential for early developers.
19 Optimum development strategy
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This chapter reviews the impact of the transformation taking place across the power industry on the traditional market players. It identifies some of the key adverse consequences and suggests measures that may be necessary to address any market imbalances.
20 Key findings
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In the current environment, governments are faced with a spectrum of objectives including securing future supplies, building up renewable energy to meet emission targets whilst maintaining fuel diversity and containing end-user bills (the so-called trilemma). In attempting to meet these objectives, governments have intervened in the market process by using subsidies to promote development of renewable technology and setting strike prices for energy contracts with clean generators. This has resulted in a market that is neither free nor centrally coordinated and has created a number of problems.
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Back Matter
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