Economics of Power Systems: Fundamentals for Sustainable Energy

439 Pages·2022·6.974 MB·English

by  Christoph Weber, Dominik Möst, Wolf Fichtner

Springer Texts in Business and Economics
Christoph Weber 
Dominik Möst 
Wolf Fichtner
Economics of
Power Systems
Fundamentals for Sustainable Energy
Springer Texts in Business and Economics
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(cid:1) (cid:1)
Christoph Weber Dominik Möst
Wolf Fichtner
Economics of Power
Systems
Fundamentals for Sustainable Energy
123
Christoph Weber Dominik Möst
University of Duisburg-Essen TU Dresden
Essen, Germany Dresden,Germany
Wolf Fichtner
Karlsruhe Institute of Technology (KIT)
Karlsruhe, Germany
ISSN 2192-4333 ISSN 2192-4341 (electronic)
SpringerTexts inBusiness andEconomics
ISBN978-3-030-97769-6 ISBN978-3-030-97770-2 (eBook)
https://doi.org/10.1007/978-3-030-97770-2
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Preface
Electricity and, more generally, energy systems are complex, multifaceted systems
that may only be grasped and adequately analysed by combining multiple inter-
disciplinaryskills.Thishasbeenourexperienceovermanyyearsofresearchinand
teaching these topics at universities in Germany, be it in Karlsruhe, Dresden or
Essen.Buttheseinterdisciplinaryandinterculturalchallengesalsopoppedupwhen
giving lectures elsewhere, when discussing with practitioners and colleagues at
nationaland international conferences and inmultiple projects. So we have started
at some point to think about writing a textbook to compile and consolidate our
knowledgeofthischallengingfield.Ourobjectivehasbeentoprovideastructured
guide to the subject, but this has also required that we commonly agree upon a
structureandaselectionofmaterialstobeincludedinsuchabook.Thishasbeena
longerprocessthanweinitiallyenvisaged.Buttheprocessofwritingthisbookhas
also helped us deepen our shared understanding of the core concepts of this
interdisciplinary research area that is labelled energy systems analysis or energy
economics.
The research area is highly topical and likely to remain so over the coming
decades,giventheglobalchallengeofclimatechange.Asclimatechangeislargely
drivenbyCO emissionsrelatedtothecombustionoffossilfuels,weareconvinced
2
that the energy carrier electricity will gain more and more importance. The use of
CO -free electricity will help to decarbonise sectors like transport and heating that
2
so far primarily rely on fossil fuels. Environmental effects caused by energy con-
version,e.g.climatechange,havebeenastrongmotivationforustoenterthefield
years ago, andit isa major driverfor our current researchand teaching. Yet atthe
same time, the rapid pace and shifting centres of interest in the political and aca-
demic debate pose a challenge to those trying to consolidate the knowledge in the
formofatextbook.Asweprogressed,weconcludedthatitisessentialtolaysolid
foundations, even if this means that not all subjects treated may sound topical for
thereaderfromtheoutset.Whilefinalisingthebook,wehaveexperiencedthatthe
RussianwarinUkrainehasleadtomajorimpactsontheEuropeanenergymarkets.
These tend to provide additional evidence for the principles outlined in the book.
evenifwewerenotableatthisstagetoconsideralltheeffectsindetail.Butwitha
solid basis laid, we hope that our students and the readers of this book will be
capabletoreachoutfurther andcontributetheirparttotheshapingoffuture,more
v
vi Preface
sustainable electricity systems. Based on our teaching experiences at Bachelor,
Master and PhD levels, we aim to provide a balanced mix of conceptual discus-
sions, mathematical formulations and practical applications. Hence the core target
group of our textbook are students at both Bachelor and Master levels. Especially
themorequantitativepartsaboutmodellingandriskmanagementmightyetalsobe
of interest for students at PhD level and other researchers. At the same time, the
authors hope that some of today’s experts, including practitioners, may find this
helpful book to enlarge their view on overarching questions regarding electricity
systems—given that we all are experts only in limited areas.
This work would not have been possible without the continuous collaboration
andexchangewithinourresearchgroupsandbeyond.Theworkofmanyhasleftits
imprintinthisbook,eveniftheremainingambiguitiesareuniquelytobeattributed
to the authors. We are particularly thankful to our colleagues Russell McKenna,
Michael Bucksteeg, Peter Lund and Ramteen Sioshansi for reviewing the draft
ofthemanuscriptandprovidingmanyvaluablesuggestions.WealsothankMarvin
Lepperforhisdetailedworkonthereferences,WolfdieterFichtnerforproofreading
as well as Martin Lieberwirth and Dominic Rosswag for their scrupulous work on
the graphs and figures. But all of this would not have been possible without the
lovingandenduringsupportofourfamilies.Withouttheirpatienceandacceptance
ofmany hours and daysspent onthis andother work,this bookwould never have
seen the light of day.
Essen, Germany Christoph Weber
Dresden, Germany Dominik Möst
Karlsruhe, Germany Wolf Fichtner
Contents
1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2 Fundamentals of Energy and Power Systems . . . . . . . . . . . . . . . . . 7
2.1 Physical and Engineering Basics . . . . . . . . . . . . . . . . . . . . . . 8
2.1.1 Energy and Power and Thermodynamic Systems . . . . 8
2.1.2 Laws of Thermodynamics. . . . . . . . . . . . . . . . . . . . . 12
2.1.3 Thermodynamic State Variables, Energy
Transformation and Carnot Efficiency . . . . . . . . . . . . 13
2.2 Energy, Economy and Society. . . . . . . . . . . . . . . . . . . . . . . . 18
2.3 Challenges of Resource Availability and Environmental
Damage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.3.1 Resource Availability . . . . . . . . . . . . . . . . . . . . . . . . 22
2.3.2 Environmental Damage. . . . . . . . . . . . . . . . . . . . . . . 27
2.4 Energy Transformation Chain and Energy Balances . . . . . . . . 31
2.4.1 Energy Terms and Energy Transformation Chain . . . . 31
2.4.2 Energy Balances. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.4.3 Energy Flowchart. . . . . . . . . . . . . . . . . . . . . . . . . . . 36
2.5 Particularities of Electricity and the Electricity Sector . . . . . . . 37
2.6 Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
2.7 Self-check ofKnowledge and Understanding and Exercises... 39
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3 Energy Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
3.1 Electricity Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.1.1 Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
3.1.2 Applications on the Demand Side . . . . . . . . . . . . . . . 45
3.1.3 Load Profiles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
3.1.4 Demand-Side Management . . . . . . . . . . . . . . . . . . . . 48
3.1.5 Projecting Electricity Demand. . . . . . . . . . . . . . . . . . 50
3.1.6 Electricity Tariffs . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.2 Heat Demand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
3.3 Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
vii
viii Contents
3.4 Self-check of Knowledge and Exercises. . . . . . . . . . . . . . . . . 55
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
4 Electricity Generation and Operational Planning . . . . . . . . . . . . . . 59
4.1 Conventional Generation Technologies. . . . . . . . . . . . . . . . . . 60
4.1.1 Fossil-Fired Technologies . . . . . . . . . . . . . . . . . . . . . 60
4.1.2 Nuclear Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
4.1.3 Combined Heat and Power Generation (CHP) . . . . . . 77
4.2 Renewable Generation Technologies . . . . . . . . . . . . . . . . . . . 82
4.2.1 Hydropower. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.2.2 Wind Power. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4.2.3 Solar Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
4.2.4 Bioenergy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
4.2.5 Other Renewable Energy Technologies . . . . . . . . . . . 104
4.3 Key Characteristics of Electricity Generation Technologies . . . 109
4.3.1 Technical and Environmental Characteristics . . . . . . . 109
4.3.2 Economic Characteristics . . . . . . . . . . . . . . . . . . . . . 113
4.3.3 Levelized Cost of Electricity. . . . . . . . . . . . . . . . . . . 115
4.4 Scheduling Electricity Generation—The Unit Commitment
and Dispatch Problem. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
4.4.1 Day-Ahead Operational Planning. . . . . . . . . . . . . . . . 117
4.4.2 From Day-to-Day Planning to Portfolio
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125
4.5 Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
4.6 Self-check of Knowledge and Exercises. . . . . . . . . . . . . . . . . 128
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
5 Electricity Transport and Storage. . . . . . . . . . . . . . . . . . . . . . . . . . 133
5.1 Electricity Transmission and Distribution . . . . . . . . . . . . . . . . 134
5.1.1 Basics of Electricity Networks . . . . . . . . . . . . . . . . . 134
5.1.2 Physical Principles of Power Flow . . . . . . . . . . . . . . 138
5.1.3 Electricity Network Components. . . . . . . . . . . . . . . . 149
5.1.4 System Operation. . . . . . . . . . . . . . . . . . . . . . . . . . . 154
5.2 Storage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
5.2.1 Basics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 161
5.2.2 Technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162
5.3 Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 168
5.4 Self-check of Knowledge and Exercises. . . . . . . . . . . . . . . . . 169
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
6 Regulation: Grids and Environment. . . . . . . . . . . . . . . . . . . . . . . . 175
6.1 Grid Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
6.1.1 Fundamentals of Electricity Market Regulation . . . . . 176
6.1.2 Non-discriminatory Grid Access, Unbundling
and Price Regulation . . . . . . . . . . . . . . . . . . . . . . . . 178
Contents ix
6.1.3 Practical Challenges of Performance-Based
Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 184
6.1.4 Principles of Network Pricing . . . . . . . . . . . . . . . . . . 187
6.2 Environmental Effects and Environmental Policy . . . . . . . . . . 198
6.2.1 Externalities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 198
6.2.2 Emissions, Environmental Impacts and Emission
Reduction Technologies . . . . . . . . . . . . . . . . . . . . . . 200
6.2.3 Policy Instruments . . . . . . . . . . . . . . . . . . . . . . . . . . 212
6.2.4 Limiting Climate Change . . . . . . . . . . . . . . . . . . . . . 218
6.3 Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227
6.4 Self-check of Knowledge and Exercises. . . . . . . . . . . . . . . . . 228
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229
7 Simple Electricity Market Equilibrium Models. . . . . . . . . . . . . . . . 235
7.1 Short-Term Market Equilibrium Without Transmission
Constraints . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 236
7.1.1 Simple, Graphical Approach: Merit-Order Model . . . . 236
7.1.2 Assumptions Underlying the Concept of Perfect
Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 240
7.1.3 Formal Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242
7.1.4 Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243
7.2 Short-Term Market Equilibrium with Two Grid Nodes . . . . . . 247
7.2.1 Graphical Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 248
7.2.2 Formal Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 249
7.3 Optimal Power Flow Model and Nodal Pricing. . . . . . . . . . . . 250
7.4 Long-Term Market Equilibrium. . . . . . . . . . . . . . . . . . . . . . . 255
7.4.1 Formal Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 255
7.4.2 Graphical Model . . . . . . . . . . . . . . . . . . . . . . . . . . . 258
7.4.3 Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260
7.5 Further Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 263
7.6 Self-check of Knowledge and Exercises. . . . . . . . . . . . . . . . . 264
References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269
8 Markets: Organisation, Trading and Efficiency . . . . . . . . . . . . . . . 271
8.1 Organisation of the Electricity Sector. . . . . . . . . . . . . . . . . . . 272
8.2 Basics of Electricity Trading . . . . . . . . . . . . . . . . . . . . . . . . . 272
8.3 Key Market Design Choices . . . . . . . . . . . . . . . . . . . . . . . . . 276
8.4 Balancing Groups: Coordination Between Electricity
Trading and Grid Operation. . . . . . . . . . . . . . . . . . . . . . . . . . 278
8.5 Information Efficiency: Links Between Spot and Future
Markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281
8.5.1 Law of One Price. . . . . . . . . . . . . . . . . . . . . . . . . . . 281
8.5.2 Link Between Spot and Futures Markets . . . . . . . . . . 282