Class 1
Economic systems for electric
power planning
Professors Jim McCalley and
Leigh Tesfatsion
WEBSITES
Dr. McCalley’s: http://home.eng.iastate.edu/~JDM/ee458_2011/ee458schedule.htm
Dr. Tesfatsion’s: http://www2.econ.iastate.edu/classes/econ458/tesfatsion/Home458Team.htm
General rule: Use the site of the instructor giving the lectures.
Comments:
• Links on each will take you to the other.
• Generally consistent although differences exist and reflect
the different orientations of the instructors.
• Different orientations of instructors reflect economic
/engineering requirements of electricity markets 
Assignments for this week
1. Read Paper on JDM website linked by the name of
“California Crisis Explained.” Complete HW1 (also on
JDM website) to turn in on Friday 8/26.
2. Read notes on JDM website linked by “Market
Summary ,” called “Overview of Electricity Markets.”
3. Read chapter 1 in Textbook.
4. Read “Notes on cost curves” from JDM website.
What this course is about
The electric industry and ….
Its characteristics before,
but mainly its characteristics after
Before, and after what?
What happened?
Deregulation
Privatization
Vertical disaggregation
Functional unbundling
Introduced markets
Brought competition
When did this happen?
Apr 1990:
UK Pool
opens
Overseas
Jan. 1991:
Norway
launches
Nordpool
1990
1992
North
America
1994
Oct 1996:
New
Zealand
NZEM
Dec 1998:
Australia
NEM opens
Jan. 1996:
Sweden in
Nordpool
Jan. 1998:
Finland in
Nordpool
1996
1998
Feb 1996
MISO
formed.
1996:
ERCOT
becomes
ISO.
Mar 2001:
NETA
replaces UK
Pool
Jan. 2000:
Denmark in
Nordpool
Jan 1998:
PJM ISO
created
May 1999:
ISO-NE
opens
Mar 1998:
Cal ISO
opens
Nov 1999:
NY ISO
launches
2000
July 2001:
ERCOT
becomes
one
control
area
Jan. 2001:
Alberta
Pool opens
2002
Jan 2002
ERCOT
opens retail
zonal mrket
May
2002:
Ontario
IMO
launches
2004
2006
April 2005
MISO
Markets
Launch
2008
Feb 2007
SPP
Markets
Launch
Dec 2008
ERCOT
Nodal
Market
Launched
Dec 2001
MISO
becomes
first RTO
Well, sort of, actually, it all started much earlier…
What was it before?
A monopolistic, and regulated, industry
In any given region, there is only one
organization from which to buy.
Other organizations are blocked.
 Reasons for giving monopoly status can vary,
but in the electric industry, the main reason was…
Economies of scale…
when average cost of production, $/MWhr, decreases as
generation plant gets larger.
Economies of scale
And this drove all thinking in the electric industry from 1900 until the early 1960’s.
And then what happened?
Three things
1. Smaller plants began to look more economic .
a)
Large plants takes years to build, often must be located far away, and
create havoc when they outage. Smaller plants
•
•
•
b)
c)
d)
Why?
are built more quickly and their construction costs are consequently subject to
less economic uncertainty;
can be located more closely to load centers, an attribute that avoids
transmission, decreases system losses, & is advantageous for system security;
are generally more reliable, and less consequential when they do outage.
Combined cycle units, attractive because of high efficiency, have to
account for design complexities due to coupling between CTs & HRSGs
driven by waste heat from the CTs, and so tend to be lower in rating.
Cogeneration facilities, attractive because of high efficiency, typically
have lower ratings as a result of their interdependency with the
industrial steam processes supported by them.
Plants fueled by renewable energy sources (biomass, wind, solar, and
independent hydro), attractive because of their low operating
expenses and environmental appeal, also tend to have lower ratings.
Three things
2. Reaganomics – and public approval of less tax, less
government, less regulation and being competitive.
3. Fred Schweppe:
•
•
•
•
F. Schweppe, “Power Systems 2000,” IEEE Spectrum, Vol. 15, No. 7, July 1978.
F. Schweppe, R. Tabors, J. Kirtley, H. Outhred, F. Pickel, and A. Cox, “Homeostatic Utility
Control,” IEEE Trans. Pwr. App. And Sys., Vol. PAS-99, No. 3, May/June 1980.
M. Caramanis, R. Bohn, and F. Schweppe, Optimal spot pricing: practice & theory, IEEE
Transactions on Power Apparatus and Systems, Vol. PAS-101, No. 9 September 1982.
F. Schweppe, M. Caramanis, R. Tabors, R. Bohn, “Spot Pricing of Electricity,” Kluwer, 1988.
And this is what it looks like today…
But what do these mean?
Vertical disaggregation
Functional unbundling
Transmission and
System Operator
G
G
G
G
G
G
G
G
Vertically Integrated Utility
1900-199?
Transmission and
System Operator
G
G
G
G
Transmission
Operator
G
G
G
G
G
G
G
Transmission
Operator
G
Independent
System
Operator
G
G
Transmission
Operator
Vertically Integrated Utility
1900-199?
G
G
Today
And the ISO/RTO runs the markets
Which leads to the course objectives
• characterize existing electric industry structure and market systems;
• solve linear programming and integer programming problems using commercial
optimization software packages;
• use the two basic electric energy market computational tools: security constrained
optimal power flow and security constrained unit commitment;
• determine electricity and transmission prices, how they affect the transmission
expansion of electric power systems;
• be conversant with transmission and resource planning tools and procedures used by
today’s industry.