[ieee 2012 ieee international conference on power and energy (pecon) - kota kinabalu, malaysia...

Generation Revenue Assessment in Pool-Based

Electricity Markets

N. Othman1 , M. Y. Hassan

2 , and F. Hussin

3

Centre of Electrical Energy Systems (CEES),

Faculty of Electrical Engineering

Universiti Teknologi Malaysia (UTM),

Johor Bahru, Malaysia 1 Email: [email protected],

2 Email: [email protected],

3 Email: [email protected]

Abstract— The success of privatization of airline and

telecommunication industries has inspired the electricity industry

to undergo deregulation and restructuring toward becoming a

more transparent and competitive electricity market

environment. The pool market model is one of the most preferred

electricity market model implemented in many developing

countries. Despite being the reasonable and safe option for a

more competitive and transparent electricity supply industry,

there are issues on the welfare of the generators involved. This

paper addresses the pricing issue in pool market by extending the

capacity payment mechanism in the single electricity market. In

our proposed market model, clustering capacity price approach

is introduced in the capacity payment mechanism to provide

more significant generation revenue for generator. A case study

is used to illustrate the proposed model. An economic analysis is

performed to highlight the merits of the proposed model with

both pure pool and single electricity market models in terms of

generators generation revenue.

Keywords-Elecricity Supply Industry (ESI), pool market, single

electricity market (SEM), capacity payment, clustering capacity

price.

I. INTRODUCTION

The trading of electricity market grows in line with various

economic sectors development to fulfill the quality of societal

life [1]. The vertically integrated utility allows monopolized in

selling and distribution of electricity. Later, a more

competitive electricity market is being introduced which

required the utilities to unbundled the retail services into

generation, transmission, and distribution. Different electricity

market structures were introduced to meet the regulatory

policies of all countries. However, there is no single standard

market model [2]. Out of numerous market models available,

pool based electricity market is the most widely known

electricity market [3].

Under pure pool market, there are three concepts of pricing

scheme, pay as bid, uniform price and nodal pricing [4]. In

uniform pricing scheme, generators are paid based on pool

purchase price regardless their initial bid. The pool purchase

price is affected by system marginal price (SMP). On the other

hand, in pay as bid pricing scheme, all generators receive

payment based on their energy bid price regardless the pool

purchase price. The nodal pricing is derived from marginal

cost theory. It can be divided into two terms; short-run

marginal cost based and long-run marginal cost based. All

three pool pricing concepts mentioned have advantages and

disadvantages toward suppliers and customers [6, 11].

One of the main concerns in pure pool market is that

expensive generators may experience some loss when they are

not included in electricity dispatch. The single electricity

market which has been applied in Ireland’s pool market

consists of two payment, energy payment and capacity

payment. Generators will receive capacity payments which

generally cover a portion of their fixed costs [5].

After presenting electricity market models in Section II, the

paper focuses on the extension of pool market system in

Section III. Section IV will provide some representative

results of daily market for different market models. The final

section will conclude the results of this paper.

II. ELECTRICITY MARKET MODEL

A. Pool Trading

Two main participants in pool model are producer or

suppliers and customers or consumers. The pool operator who

is normally known as independent market operator (IMO) will

attain the economic dispatch by considering the electricity

bids and offers from suppliers and customers [4-6]. The

customers and supplier interact indirectly through the pool

operator [3]. The diagram of pool trading electricity market is

as illustrated in Fig.1. Pool operation can be explained in two

stages where the first stage is known as unconstrained dispatch

while the second stage is known as security constrained

dispatch.

This work was supported by the Malaysian Ministry of Higher Education (MOHE) and Universiti Teknologi Malaysia (UTM) through Research

University Grant (GUP) vot 00J63.

2012 IEEE International Conference on Power and Energy (PECon), 2-5 December 2012, Kota Kinabalu Sabah, Malaysia

978-1-4673-5019-8/12/$31.00 ©2012 IEEE 206

Fig.1 Diagram of pool trading electricity market

The generators are placed in ascending order based on the

bidding prices they offered. The last generator being

dispatched will determine the system marginal price (SMP)

according to its bid. In uniform pricing scheme, the generator

will be paid based on the SMP regardless their initial bids. The

IMO will pay the generators for dispatching their power using

the equation below [7].

PPP = SMP (1-LOLP) + VOLL (LOLP) (1)

Where pool purchase price (PPP) is the actual price paid to

the generator, SMP is the system marginal price, LOLP is the

loss of load probability, and VOLL is the value of loss load

that is fixed annually.

B. Single Electricity Market (SEM)

The single electricity market (SEM) is a gross mandatory

pool market model, currently being developed and

implemented in Ireland in order to create an all-island market

for electricity. This electricity market is operated and

administer by Single Electricity Market Operator (SEMO)

which is a joint-venture between the transmission system

operator in Republic of Ireland, Eirgrid and the transmission

system operator in Northern Ireland, SONI [5]. SEMO is

responsible to pay generators for their electricity generated

and SEMO will be invoices the suppliers for the electricity

they have bought. The diagram of electricity trading for single

electricity market model is represented in Fig. 2.

Figure 2. Diagram of single electricity market trading

Identical to pure pool market, single electricity market

pay the generator using the pool purchase price based on the

SMP regardless the energy bid price. The mathematical

equation can be expressed as below which PGi signifies the

output power from generator i and CPP is the power purchase

price.

Gi = (PGi × CPP) (2)

The single electricity market can be distinguished from

pure pool market as it provides the capacity payment for the

generators. The capacity payment is calculated from the

operating cost of the best new entrant (BNE) power plant.

Basically the operating cost is depending on the type of

generator, the location and fuel used to generate electricity.

The lowest operating cost among the generators will be chosen

as the capacity price. All generators will receive capacity

payment based on the same capacity price. The annually

capacity price (ACPS) for each generator is represented in

equation below.

ACPS = Price × Volume (MW) (3)

Where price element is the annualized fixed costs of a best

new entrant peaking plant and the volume element represents

the capacity required in MW.

III. PROPOSED MARKET MODEL

As mention in the previous section, pure pool does not

provide capacity payment to the generator. During low load

demand, expensive generators may expose to loss due to not

being selected to supply electricity. The proposed market

model introduces the capacity payment mechanism with

clustering system for pool market. Unlike single electricity

market, the new proposed market placed generators into

different cluster depending on the generator types. Each

cluster has its own capacity price as shown in Table I. The

capacity payment is paid for each generator even though some

of them not generating during low load demand.

Malaysia load profile curves in Fig. 3 are used to represent

the pure pool, single electricity market and new proposed pool

with clustering capacity price. Four load profile curves will be

used in this paper: i) Weekday, ii) Saturday, iii) Sunday, and

iv) Public Holiday.

2 4 6 8 10 12 14 16 18 20 22 24

0.7

0.8

0.9

1

1.1

1.2

1.3

x 104

-th hour

Lo

ad

d

em

an

d (M

W)

Weekdays

Saturday

Sunday

Public Holiday

Figure 3. Diagram of Malaysia load profile curves


207

TABLE I. DETAILS ON PLANT TYPES, MW INSTALLED CAPACITY, BID

PRICE AND CAPACITY PRICE OF 14 GENERATORS IN MALAYSIA

Gen Type of

Plant

Installed

Capacity

(MW)

Energy Price /

Bid Price

(RM/MW/h)

Capacity

Price

(RM/MW/

month)

1 CCGT 720 120 30,000

2 CCGT 640 130 30,000

3 CCGT 322 130 30,000

4 CCGT 650 140 30,000

5 CCGT 350 145 30,000

6 OC 2420 150 20,000

7 CCGT 1170 150 30,000

8 CCGT 740 150 30,000

9 OC 436.4 155 20,000

10 Thermal 2070 160 25,000

11 OC 434 160 20,000

12 CCGT 1303 170 30,000

13 Thermal 1400 190 25,000

14 Thermal 2100 200 25,000

Fourteen selected generators from three types: open cycle,

thermal, and combined cycle are used as the test system. The

details of the MW installed capacity, bidding prices, and

capacity prices for all three type generators are represented in

Table I. As the monetary values involved in this paper are

confidential, estimated values in used instead.

IV. RESULT AND DISCUSSION

A. Generator Generation Revenue

In pure pool market, the generators are placed according to

their bidding price. The cheaper generator has bigger

opportunity to be selected to meet the electricity demand.

Usually, all generators have the opportunity to supply electric

during high electricity demand. However, during low load

demand, expensive generator has less opportunity to supply

electric power. Unfortunately, in pure pool market, the

generator revenue depends on the electricity generated. As a

result, the expensive generators may receive zero revenue

during low electricity demand.

Fig. 4 shows the aggregated generation curve of the energy

bidding system. The SMP at specific hour is determined when

the load curve and supply curve intersect. For this study, the

loads are assumed to be inelastic and the LOLP is assumed as

0. Therefore, the SMP determined the payment for all in-merit

generators.

0 2000 4000 6000 8000 10000 12000 14000110

120

130

140

150

160

170

180

190

200

Energy bid (MW)

Bid

p

rice

(R

M/M

Wh

)

Figure 4. Diagram of the agreegated generation curve

Single electricity market provides pool payment as well as

capacity payments for generators. Nevertheless, one value of

capacity price will be applied for all generators regardless

their types. This is quite unfair for generators as different type

generator will be using different mechanism and approach to

produce electric power. A combined cycle plant generates

electricity using the combination of gas turbine and steam

turbine. For that reason, the capital expenditure is obviously

higher compared to simple cycle plant. Inadequate capacity

payment reduce the generator ability to cover its fixed costs

and leading to poor performance.

To represent single electricity market system, all

generators capacity price is set at RM 20,000/MW month as it

is the lowest capacity price offered. The capacity price for an

hour can be determined using equation below.

Capacity Payment = (4)

In order to solve the capacity payment issue, new

mechanism for capacity payment is proposed in this paper.

Under the same cluster, same type generator will have the

same capacity price. Basically same type generator will use

the same material to generate electricity. Therefore, the

generation cost is pretty equal to one another. All generators

submitted their capacity prices and the minimum price offered

will be chosen as the capacity price for all same type

generators. As there are three types of generators involve in

the system, three values of capacity price will be used as

indicated in Table II below.

TABLE II. CAPACITY PRICE FOR THREE TYPES OF PLANT

Type of Plant Capacity Price

(RM/MW/month)

Open Cycle (OC) 20 000

Thermal 25 000

Combined Cycle

(OCGT) 30 000

Fig. 5 (a), (b), (c), and (d) show the generation revenue of

14 generators during Weekday, Saturday, Sunday, and Public

holiday. As expected, on Weekday, all 14 generators are able

to supply electricity regardless their bid prices. Gen 1, the

cheapest generator, managed to supply to its full capacity and

received RM 3.12 million. Gen 14 only supplied 34% of its

full capacity and earned RM 144.5 thousands. However,

during Public holiday, according to pure pool market system,

the last three generators which are Gen 12, Gen 13, and Gen

14 are unable to generate electric power due to low load

demand. In fact, Gen 14 also lost the opportunity to generate

electric power on Saturday and Sunday. Therefore, based on

pure pool, Gen 14 received zero revenue on Weekday,

Weekend, and Public holiday.

Moving to single electricity market perspective, all 14

generators have the opportunity to supply electric power and

obtained their generation revenue on Weekday, Saturday,

Sunday and Public holiday. The revenue is slightly higher

compared to pure pool which is about 15% higher. However,

Capacity Price / month

(30 days × 24 hours)


208

one capacity price for different generators’ types may reduce

the revenue for some generators.

Similar to single electricity market, the new proposed

market assure a worth generation revenue for all generators.

Indeed, the generation revenue for most generators is 6.7%

higher compared to single electricity market system. The new

pool market with clustering capacity price ensures the welfare

of all generators regardless the variation in electricity demand.

The clustering system provides reasonable capacity payment

for all types of generators. Even though expensive generators

are unable to compete during low load demand, the capacity

payment they received may reduce the financial burden. For

example, Gen 14 which received zero revenue on Public

holiday based on pool market is able to earn RM 140

thousands based on single electricity market. The revenue

increased to RM 1.75 million when the proposed model is

applied.

0 1 2 3 4 5 6 7 8 9 10 11 12 13 140

2

4

6

8

10

12

14x 10

6

Generator

We

ekd

ay G

en

era

tio

n R

eve

nu

e (

RM

)

Pool SEM

Pool Clustering CP

Pool Pure

5. (a) Diagram of generation revenue on Weekday

0 1 2 3 4 5 6 7 8 9 10 11 12 13 140

2

4

6

8

10

12x 10

6

Generator

Sa

turd

ay G

en

era

tio

n R

eve

nu

e (

RM

)

Pool Clustering CP

Pool SEM

Pool Pure

5. (b) Diagram of generation revenue on Saturday

0 1 2 3 4 5 6 7 8 9 10 11 12 13 140

2

4

6

8

10

12x 10

6

Generator

Su

nd

ay G

en

era

tio

n R

eve

nu

e (

RM

)

Pool Clustering CP

Pool SEM

Pool Pure

5. (c) Diagram of generation revenue on Sunday

1 2 3 4 5 6 7 8 9 10 11 12 13 140

2

4

6

8

10

12x 10

6

Genera tor

Pu

blic H

olid

ay

G

en

era

tio

n R

ev

en

ue

(R

M)

Pool Pure

Pool SEM

Pool Clustering CP

5. (d) Diagram of generation revenue on Public Holiday

B. Daily Generation Costs

Fig. 6 (a), (b), (c) and (d) show the generation revenue on

Weekday, Saturday, Sunday, and Public holiday for 14

generators in 24 hours. The generation revenue is the highest

on Weekday and the lowest on Public holiday. Compared to

Sunday, Saturday generation revenue is slightly higher. The

gap in total generation revenue between the three market

models gradually increasing as the load demand decreasing

from Weekday to Saturday, Sunday and Public holiday.

Pure pool market indicates the lowest generation revenue

for every hour compared to single electricity market and pool

with clustering capacity price. This is due to no capacity

payment mechanism in the pure pool model. The highest

revenue for pure pool model is on Weekday at 5.00 pm which

is RM 2.58 million. The lowest revenue is on Public holiday

with RM 1.12 million.

In single electricity market, the equivalent capacity price

for all types of generators contributes to lower hourly

generation revenue. Nevertheless, the revenue is still high

compare to pure pool market. On Weekday, the total revenue


209

for single electricity market is 28% higher than pure pool

market but 6.5% lower than the proposed market. The revenue

for the new pool with clustering capacity price system is the

highest as each type’s generators will receives different

capacity payment.

During the lowest load demand, the revenue for pure pool

market, single electricity market and the proposed market are

RM 1.12 million, RM 1.53 million and RM 1.65 million

respectively. In the proposed market model, one fixed capacity

price for each type of generator contributes to a more simple

and organized electricity market system. In addition, the

competition between the same type generators can be

enhanced. All generators will compete to reduce the

generation costs and at the same time increasing the market

efficiency.

2 4 6 8 10 12 14 16 18 20 22 241.4

1.6

1.8

2

2.2

2.4

2.6

2.8

3

3.2x 10

6

-th hour

We

ekd

ay G

en

era

tio

n R

eve

nu

e (R

M)

Pool Pure

Pool Clus te ring CP

Pool SEM

6. (a) Hourly generation revenue on Weekday

2 4 6 8 10 12 14 16 18 20 22 241.4

1.6

1.8

2

2.2

2.4

2.6

2.8x 10

6

-th hour

Sa

tu

rd

ay

G

en

era

tio

n R

ev

en

ue

(R

M)

Pool

Pool Clustering CP

Pool SEM

6. (b) Hourly generation revenue on Saturday

2 4 6 8 10 12 14 16 18 20 22 241.2

1.4

1.6

1.8

2

2.2

2.4x 10

6

-th hour

Su

nd

ay G

en

era

tio

n R

eve

nu

e (R

M)

Pool

Pool Clustering CP

Pool SEM

6. (c) Hourly generation revenue on Sunday

2 4 6 8 10 12 14 16 18 20 22 241.1

1.2

1.3

1.4

1.5

1.6

1.7

1.8

1.9

2

2.1x 10

6

-th hour

Pu

blic H

olid

ay

G

en

era

tio

n R

ev

en

ue

(R

M)

Pool

Pool Clustering CP

Pool SEM

6. (d) Hourly generation revenue on Public Holiday

V. CONCLUSION

This paper proposes a new concept of pool market model

which introduces the capacity payment mechanism. Even

though all generators could recover their operation and

maintenance costs by bidding higher during peak load

demand, having the capacity payment could smooth out

energy price and help maintain the reserve margin. The

proposed pool market with clustering capacity price ensures

the welfare of all generators in electricity supply industries.

The results have shown that the proposed market provides

adequate generation revenue to all generators compared to

both pure pool and single electricity market. With the new

proposed market, all 14 generators and consumer are able to

experience a more competitive environment with efficient

electricity supply.


210

ACKNOWLEDGMENT

This work was supported by the Malaysian Ministry of

Higher Education (MOHE) and Universiti Teknologi Malaysia

(UTM) through Research University Grant (GUP) vot 00J63.

REFERENCES

[1] Naidoo, P.; Musaba, L.; Balet, W.; Chikova, A.; , "Towards developing a competitive market for regional electricity cross border trading: the case of the Southern African power pool," Power Engineering Society General Meeting, 2004. IEEE , vol., no., pp.1377-1384 Vol.2, 10-10 June 2004

[2] Barroso, L.A.; Cavalcanti, T.H.; Giesbertz, P.; Purchala, K.; , "Classification of electricity market models worldwide," CIGRE/IEEE PES, 2005. International Symposium , vol., no., pp.9-16, 7-7 Oct. 2005

[3] Chaitusaney, S.; Hoonchareon, N.; , "Generation dispatch with pool and bilateral coordination," Power System Technology, 2002. Proceedings. PowerCon 2002. International Conference on , vol.3, no., pp. 1355- 1359 vol.3, 2002

[4] Hassan, M.Y.; Abdullah, M.P.; Arifin, A.S.; Hussin, F.; Majid, M.S.; , "Electricity market models in restructured electricity supply industry," Power and Energy Conference, 2008. PECon 2008. IEEE 2nd International , vol., no., pp.1038-1042, 1-3 Dec. 2008

[5] Commission for Energy Regulation; , “CER Factsheet on the Single Electricity Market,” April 2011

[6] Chaitusaney, S.; Eua-Arporn, B.; , "Actual social welfare maximization in pool market," Power Engineering Society Summer Meeting, 2002 IEEE , vol.3, no., pp.1553-1558 vol.3, 25-25 July 2002

[7] K. L. Lo, “Power system economics,” in Lecture notes, Strathclyde University, 2002.

[8] Clarke, L.R.; , "Operation of the pool [electricity market]," Electricity Privatisation - Opportunities and Constraints, IEE Colloquium on , vol., no., pp.4/1-415, 27 Apr 1993

[9] Zou Bin; Yan Maosong; Xie Xianya; , "The comparisons between pricing methods on pool-based electricity market using agent-based simulation," Electric Utility Deregulation, Restructuring and Power Technologies, 2004. (DRPT 2004). Proceedings of the 2004 IEEE International Conference on , vol.1, no., pp. 285- 289 Vol.1, 5-8 April 2004

[10] Abdullah, M.P.; Hassan, M.Y.; Hussin, F.; , "Congestion cost allocation in a pool-based electricity market," Power and Energy Conference, 2008. PECon 2008. IEEE 2nd International , vol., no., pp.1033-1037, 1-3 Dec. 2008

[11] Yongjun Ren; Galiana, F.D.; , “Pay-as-bid versus marginal pricing – Part I: strategic generator offers,” Power System IEEE Transactions on , vol.19, no.4, pp.1771-1776, Nov. 2004


211

[ieee 2012 ieee international conference on power and energy (pecon) - kota kinabalu, malaysia...

Documents