Hedging Strategy and Electricity Contract Engineering - IFOR

duction cost
Marginal pro
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2.3 Supply stack 13
G as
Co al
O il
Hydro
Nuclear
Total production
Fig. 2.2: Schematic supply stack.
2.3. Supply stack
The supply stack is the ranking of all generation units of a given utility or of
a given set of utilities. The generation units are ordered according to the total
amount of production that has to be exceeded until they are brought on-line.
This ranking is based on many factors, such as marginal cost of production,
which is the most important one, or the response time of the several generation
unit types. The utility will typically first dispatch hydro units, 6 if available,
followed by nuclear and coal units. These types of plants are generally used to
cover the base load, whereas gas-fired plants are used to meet peak-demand.
This ordering, the so-called supply stack, can be illustrated in a graph showing
the marginal production cost as a function of total production. Figure 2.2
shows an example of such a supply stack. The flat part to the left in the graph
represents the base load, which is met by plants with relatively low marginal
costs, but often with a low flexibility, implying that the response time may be
high or that it has to produce some constant amount of electricity. The middle
part represents the intermediate load and is covered by units with intermediate
marginal costs, such as coal and oil plants. The steep part to the right represent
6 In Chapter 4.3 we will however see that this should not necessarily be the case for hydro
storage plants.