Technical and Economic Implications of Greenhouse Gas Regulation in a Transmission Constrained Restructured Electricity Market

Transcription

1 Technical and Economic Implications of Greenhouse Gas Regulation in a Transmission Constrained Restructured Electricity Market Final Project Report Power Systems Engineering Research Center Empowering Minds to Engineer the Future Electric Energy System

2 Technical and Economic Implications of Greenhouse Gas Regulation in a Transmission Constrained Restructured Electricity Market Final Project Report Project Team Ward Jewell, Project Leader, Wichita State University Shmuel S. Oren, University of California at Berkeley Yihsu Chen, University of California Merced Chen-Ching Liu, University College Dublin James Price, California Independent System Operator PSERC Publication August 2010

3 Information about this project For information about this project contact: Ward Jewell Professor of Electrical Engineering Wichita State University 300 Wallace Hall Wichita, Kansas (fax) Power Systems Engineering Research Center The Power Systems Engineering Research Center (PSERC) is a multi-university Center conducting research on challenges facing the electric power industry and educating the next generation of power engineers. More information about PSERC can be found at the Center s website: For additional information, contact: Power Systems Engineering Research Center Arizona State University 577 Engineering Research Center Tempe, Arizona Phone: Fax: Notice Concerning Copyright Material PSERC members are given permission to copy without fee all or part of this publication for internal use if appropriate attribution is given to this document as the source material. This report is available for downloading from the PSERC website Wichita State University. All rights reserved.

4 Acknowledgements This is the final report for the Power Systems Engineering Research Center (PSERC) research project M-21 titled Technical and Economic Implications of Greenhouse Gas Regulation in a Transmission Constrained Restructured Electricity Market. We express our appreciation for the support provided by PSERC s industrial members and by the National Science Foundation under grant NSF IIP received under the Industry / University Cooperative Research Center program. We wish to thank the members of the Industry Team for their advice and support of the project: James Price, California Independent System Operator Mariann Quinn, Duke Energy Floyd Galvan, Entergy Mark Sanford, GE Energy Jay Giri, AREVA T&D Tongxin Zheng, ISO-New England Ralph Boroughs, TVA Robert Wilson, WAPA Avnaesh Jayantilal, AREVA T&D Jerry Pell, DOE Sundar Venkataraman, GE Energy; i

5 Executive Summary Greenhouse gas limits are already in effect in parts of Europe and North America, and more are expected in the near future. Electric power systems operating under these restrictions are required to limit their production of green house gases. Limits are implemented in one or more of several ways including a carbon tax, a carbon cap-andtrade system, and renewable portfolio standards. In this research we investigate the effects on an electric power system operating under such regulations. Part 1: AC Optimal Power Flow Studies in Reduced-Carbon Electric Power System Operations As this is an initial investigation into a complex problem, the research proceeded under three separate tracks. The first introduces a carbon tax into an ac optimal power flow (OPF) model with an assumption of perfectly competitive greenhouse gas and electric markets. The resulting emission-incorporated ac OPF is used to study the effects on system dispatch and operating costs of increasing carbon prices and the introduction of renewable energy (wind and solar) and storage into the system. AC OPF results demonstrate the importance of congestion on CO 2 emission reductions. The results of the OPF are significantly different from ordinary economic dispatch calculations In addition. CO 2 reductions are sensitive to a number of other factors, including congestion, load level and fuel price. Depending on natural gas and coal prices, it may require a very high CO 2 price to reduce CO 2 emissions in existing systems by switching from coal-fired generation to gas-fired generation Renewable generation reduces system CO 2 emissions, but the emissions of reserve units required by lower renewable capacity factors must be included. The reductions in CO 2 emissions are a complex calculation that includes generation characteristics (ramp rates and cost functions), transmission congestion, and the number of fossil-fired generators online as reserve units. Conventional control of energy storage to minimize operating costs tends to increase CO 2 emission because storage is charged by high-carbon coal offpeak and offsets lower-carbon natural gas as it discharges on-peak. Part 2: The Impact of Alternative Greenhouse Gas Regulation on the Performance of Congested Electricity Markets in the Presence of Strategic Generators and Demand Response The second track employs an equilibrium model and dc OPF of an oligopoly electric market where generators behave strategically in power but act as price-takers in CO 2 permit and other markets so as to maximize firms profits while the demand is priceresponsive. The model is first validated against the emission-incorporated ac OPF and is subsequently used to study strategic interactions between generators in a transmission constrained network, under the additional constraint of pollution regulation. The policies studied in this work are renewable portfolio standards, taxing of emissions, and a cap and trade approach. The results of this work show that while a tightened cap might effectively constrain total CO 2 emissions, market ownership concentration may interact with emissions policy and ii

6 lead to some unintended outcomes. In particular, a power market operating under tighter cap-and-trade limits, coupled with a high degree of concentration of non-polluting electricity supplies, is subject to a great degree of potential abuse of market power. A more competitive market, together with a tight cap, can affect the distribution of profits among producers. Finally, producers owning mostly pollution-intensive resources are likely to suffer when emissions are capped at a low level, even if producers are allowed to exercise market power. Part 3: Generation Scheduling Problem Considering Carbon Dioxide Allowance Market The third research track addresses the issue of generation scheduling under a CO 2 emission allowance market. A Cournot economic equilibrium model, in which each firm maximizes profit taking as given what other firms' have decided on production quantity, is used to study the effects of greenhouse gas policies on the current system operation and corresponding adjustment of generation companies decision making. We analyzed the sensitivity of generation companies bidding price, electricity price, and total amount of CO 2 allowances to CO 2 allowance price and dispatch. The model includes maintenance scheduling and unit commitment in a cap-and-trade market environment. Generators operating under a CO 2 cap-and-trade market need to adjust their scheduling strategies in the electricity market and bidding strategies in the CO 2 market. Using the model developed, generators will be able to determine their optimal mid-term operation planning and short-time operation schedules participating in the electricity market and CO 2 allowance market. Next Steps in this Research As a next step, we plan to apply the approaches developed in this project to examine the economic and emissions impact of a more realistic western U.S. power market, examining the policy proposals that are currently considered by both state and federal governments. The research will next be extended to a validated model of the western U.S. grid, with more detail in California, and then to a national model of the U.S. system. The interactions among various emissions reduction strategies for CO 2 and other pollutants will be evaluated. iii

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