Hedging Strategy and Electricity Contract Engineering - IFOR

4.8 Transmission lines 95
Unit type Size [MW] FOR(%)
Fossil steam 12 2
Combustion turbine 20 10
Hydro plant 50 1
Fossil steam 76 2
Fossil steam 100 4
Fossil steam 155 4
Fossil steam 197 5
Fossil steam 350 8
Nuclear steam 400 12
Tab. 4.1: Typical force outages rates (FOR).
this probability seems to increase with the plant size and hydro plants seem to
have a high availability. The cost of unplanned outages are twofold. Firstly, the
potential profit is reduced, since the plant will not be able to run for a certain
time. Secondly, the potential loss and hence risk increases, since the time of
the outage is unknown.
4.8. Transmission lines
Transmission assets are not power plants. However, transmission lines have
interesting corresponding contracts similar to the contracts corresponding to
power plants. Transmission costs and constraints have the effect that price of
electricity in different locations can differ substantially. A transmission line
between location A and B makes it possible to transmit electricity from one
of the locations to the other. A transmission asset therefore enables the owner
to change electricity in one location for electricity in another. Some of the
electrical energy will however be lost due to resistance in the cable. Since the
resistance is proportional to voltage, which is constant over time, it is fair to
assume that the losses 0 K l 1, are proportional to the energy transmitted.
One unit of electricity in location A can therefore be exchanged for 1 K l
units of electricity in B and vice versa.
Let the price in location A and B be given by S A and S B respectively. In each