Hedging Strategy and Electricity Contract Engineering - IFOR

14 The electricity market
the peak load. This load has to be met by very flexible plants, since demand
is highly stochastic and hence the points in time of peaking demand. This
flexibility normally has a negative effect on the marginal cost, why flexible
units, such as the gas turbine tend to have high marginal costs, whereas a
hydro-storage plant, on the other hand, is an example of a very flexible unit
with low marginal costs. Since the available water is limited one can however
argue that the shadow price of that water should be included in the marginal
cost.
The supply stack is not static in time, since there are many factors that may
alter the ordering of the generation units. The price of the fuel used in, for
example, oil and gas fired units are highly volatile. The fuel price often makes
up the majority of the marginal cost, why changes in these prices may have
a substantial impact on the supply stack. Another factor affecting the supply
stack is outages of plants. These outages can be due to regular maintenance
operations, transmission constraints or unforeseen breakdowns. Such an outage
will simply merge the supply stack’s part to the left with the part to the right of
the unit that becomes unavailable for dispatch.
In [SJR97] base load is defined as the load that is exceeded in 80% of all hours
in a year. Generating plants that run nearly all time ( 80% of the time) is
consequently referred to as base load resources. Intermediate load is the level
of demand that occurs between 20% and 80% of the time, and plants that run
for this fraction of time are intermediate load resources. Peak load is the level
that is exceeded less than 20% of the year and the corresponding plants are
called peak load resources. This can be illustrated in a load duration curve,
showing the cumulative frequency distribution of load levels, as in Figure 2.3.
2.4. Transmission costs
In contrary to other goods and energy sources, electricity has, because of the
limited storage possibilities, to be produced and consumed simultaneously.
This rises an important task of managing the production and consumption
in such a way that equality between the two holds at every instant of time.
This is normally done by the ISO. Unlike railways, roads or see routes, where
transports in different directions are conducted sometimes at the same time,