06.10.2013 Views

Introduction to Deregulation in Power Industry - nptel

Introduction to Deregulation in Power Industry - nptel

Introduction to Deregulation in Power Industry - nptel

SHOW MORE
SHOW LESS

You also want an ePaper? Increase the reach of your titles

YUMPU automatically turns print PDFs into web optimized ePapers that Google loves.

4. Conditions that Led <strong>to</strong> <strong>Deregulation</strong><br />

4.1 Basic motivation: Change <strong>in</strong> power <strong>in</strong>dustry scenario<br />

There are many reasons that led <strong>to</strong> deregulation of power system. One<br />

force that led <strong>to</strong> the deregulation of electric power was the change <strong>in</strong><br />

generation economies of scale that occurred throughout the 1980’s.<br />

Traditionally, electric utility systems evolved with the central station<br />

concept because of significant economy of scale <strong>in</strong> power generation. Very<br />

large genera<strong>to</strong>rs produced power at less than half the cost per kilowatt of small<br />

genera<strong>to</strong>r units, and the bigger the genera<strong>to</strong>r, the more economical the power it<br />

produced.<br />

For the reasons stated below, the shift <strong>in</strong> economy of scale was observed:<br />

1. Technological <strong>in</strong>novation improved the efficiency of small units<br />

for gas turb<strong>in</strong>es, comb<strong>in</strong>ed cycle, hydro and fuel cells over that of<br />

large ones.<br />

2. Improvements <strong>in</strong> materials, <strong>in</strong>clud<strong>in</strong>g new high temperature metals,<br />

special lubricants, ceramics, and carbon fiber, permit vastly<br />

stronger and less expensive small mach<strong>in</strong>ery <strong>to</strong> be built.<br />

3. Computerized control systems have been developed that often<br />

reduce the number of on-sight personnel <strong>to</strong> zero.<br />

4. Data communications and off-site moni<strong>to</strong>r<strong>in</strong>g systems can control<br />

the units from remote operations centers, where one central<br />

opera<strong>to</strong>r can moni<strong>to</strong>r a dozen units at various sites, as if present at<br />

each.<br />

Thus <strong>in</strong> many <strong>in</strong>stances, it was possible <strong>to</strong> build new power plants that<br />

could provide energy at a lower price than what cus<strong>to</strong>mers were pay<strong>in</strong>g for<br />

that com<strong>in</strong>g from the exist<strong>in</strong>g old, giant power plants. It became possible for<br />

the <strong>in</strong>dustrial and commercial users of electricity <strong>to</strong> build and operate their<br />

own plants <strong>to</strong> produce power cheaper than that of utility and also sell the<br />

excess power <strong>to</strong> small cus<strong>to</strong>mers.<br />

4.2 The reasons for deregulation<br />

The reasons for <strong>in</strong>itiat<strong>in</strong>g the idea of deregulation <strong>in</strong> power <strong>in</strong>dustry are<br />

many. Follow<strong>in</strong>g are the ma<strong>in</strong> reasons:<br />

1. The need for regulation changed.<br />

More fundamental than any other reasons for change was the fact that the<br />

basic needs for regulation of electric <strong>in</strong>dustry had died away before the end of<br />

20 th century. First, the orig<strong>in</strong>al need for regulation, which was <strong>to</strong> provide risk<br />

free f<strong>in</strong>ance <strong>to</strong> build the <strong>in</strong>frastructure, did not exist anymore. Second, the<br />

omnipresent electric system created, was paid for, decades ago. The revenues<br />

ga<strong>in</strong>ed by the electric utilities was <strong>in</strong>vested <strong>to</strong> renew their system and the level<br />

of risk <strong>in</strong> do<strong>in</strong>g so was less as compared <strong>to</strong> that existed <strong>in</strong> the <strong>in</strong>itial era.<br />

Be<strong>in</strong>g a proved technology, the risk <strong>in</strong>volved <strong>in</strong> <strong>in</strong>vest<strong>in</strong>g money <strong>in</strong> such a<br />

technology was nullified. The electricity could be thought of an essential<br />

commodity, which can be bought and sold <strong>in</strong> the marketplace <strong>in</strong> a competitive<br />

manner, just like other commodities.<br />

4

Hooray! Your file is uploaded and ready to be published.

Saved successfully!

Ooh no, something went wrong!