Instructions: Please answer all questions clearly and completely. If you use gra
ID: 2314192 • Letter: I
Question
Instructions: Please answer all questions clearly and completely. If you use graphs or tables in your answers, they must be clear enough that the graders can understand them (this means labeling axes, variables, and so forth). If a question requires you to make calculations, you must show your work
(5 points) This question is based on a two-node network. There is generation at nodes 1 and 2, and a customer at node 2. A transmission line with a capacity of 100 MW connects the two nodes. The other information about the system is as follows:
MC(G1) = $25/MWh; Capacity = 200 MW.
MC(G2) = $55/MWh; Capacity = 200 MW.
Demand at node 2 is given by P = 250 – 1.5(G1+G2).
Assume that G1 always prices at marginal cost. Does G2 have incentives to price competitively? Why or why not? Calculate the LMPs at each of the two nodes
Explanation / Answer
A)all the costs incurred during building the infrastructure and the future investment, operating, maintenance costs are summed up (rolled-in) together and then are allocated to various wheeling customers on various basis. The basic philosophy behind this paradigm of transmission pricing paradigm
Postage stamp methodology is the simplest and easy to implement methodology of transmission pricing. A postage stamp rate is a fixed charge per unit of power transmitted within a particular zone. The rate does not take into account the distance involved in the wheeling. There are various versions of postage stamp methodology. In some versions, both, generators and loads are charged for transmission usage, while in others, only loads pay for the same. Some variants charge loads for their peak value while in others, they are charged on the basis of average loads. A simpler version of postage stamp mechanism is explained with the help of following illustration.
There are various ways of expressing the postage stamp rates. Normally it is given in INR/ MW/ day for Indian system. Let us assume that the loads make the whole payment towards the transmission charges. Then, the transmission charges paid by each load will be proportional to its MW. Hence, the transmission price paid per day by each load
Effectively, this boils down to directly or indirectly quantifying the extent of usage of the network by each transaction. The diversity of underlying assumptions, methodologies, etc. lead to many choices or versions of methods under this category. Some of the commonly practiced methods are as follows:- Postage Stamp Method (transaction / non-transaction)
- Contract Path Method (transaction based)
- Distance Based MW-Mile Method (transaction based)
- Power Flow Based MW-Mile Method (transaction based)
- Power flow tracing based on proportionate sharing principle (non-transaction)
- Equivalent bilateral exchange (EBE) method (non-transaction)
- Zbus based method (non-transaction)
Postage stamp methodology is the simplest and easy to implement methodology of transmission pricing. A postage stamp rate is a fixed charge per unit of power transmitted within a particular zone. The rate does not take into account the distance involved in the wheeling. There are various versions of postage stamp methodology. In some versions, both, generators and loads are charged for transmission usage, while in others, only loads pay for the same. Some variants charge loads for their peak value while in others, they are charged on the basis of average loads. A simpler version of postage stamp mechanism is explained with the help of following illustration.
There are various ways of expressing the postage stamp rates. Normally it is given in INR/ MW/ day for Indian system. Let us assume that the loads make the whole payment towards the transmission charges. Then, the transmission charges paid by each load will be proportional to its MW. Hence, the transmission price paid per day by each load
The postage stamp rates are based on average system costs and may have a variety of rate designs based on energy charges, capacity charges, or both. Rates may include separate charges for peak and off-peak periods, may vary by seasons and in some cases may be different for weekdays and weekends. Some of the advantages of Postage Stamp Method are as follows:- The method is simple and easy to implement.
- It is transparent and is easily understood by all.
- There is no mathematical rigor involved.
- Recovers sunk cost of transmission system.
- Being very simple and straightforward, it is easy to get political backing for it to be implemented.
- Pancaking: In case a transaction takes place such that the power is transmitted through multiple intermittent utilities or zones, pancaking of access charges takes place.
- No economic signal: With regard to the principles discussed in the earlier sections, postage stamp allocation does not create an economic signal associated with the effect of a particular transaction.
- No extent of use of network: Postage stamp allocation does not take into consideration the extent of use of the network by a particular transaction. The transmission charges paid by two loads, out of which, one is very near to a generator, while the other is miles apart, is the same. It is obvious that transmission network use by the other load is more than the first.