Mark B. Lively--Utility Economic Engineer--301-428-3618 1 Wide Open Load Following: Mark Lively’s Approach to Pricing Reactive Power 2004 December 2 CEIC

Mark B. Lively--Utility Economic Engineer--301-428-36181

Wide Open Load Following:Mark Lively’s Approach to

Pricing Reactive Power

2004 December 2CEIC Luncheon Seminar

Carnegie Mellon UniversityElectric Industry Center


Reactive Power Payments

• Mandatory Reliability Standards

• NERC imposes fines each time it identifies problem

• Offender pays NERC fund

• Counter-party ???

• Market for Unscheduled Flows

• FERC sets mechanism for metered amounts

• Offender pays counter-party

• Counter-party earns revenue


Reactive Power PricingList of Approaches

• Cost of service for generation

• Competitive bidding among generators

• Tie to providing active power generation

• WOLF for unscheduled amounts– Generation– Load– Independent reactive sources– Inter-control area flows


Reactive Power Pricing Cost of Service Method

• AEP Method (Opinion 440, 1999 July 30)

• Annual revenue requirement

• Used recently by several IPPs– Big Sandy Peaker Plant, LLC ER04-1103 – Hills Energy, LLC ER04-1102

• PJM has a performance requirement, or else payment is withheld


Reactive Power Pricing Competitive Bidding

• Ancillary service

• Bid for capacity availability

• Dispatched by system operator

• Performance requirement (?)


Reactive Power Pricing Tie to Providing Active Power

• Reactive Capability Related to Active Capability– Perhaps 5 KVAR for 100 KW– .9 Leading (48 kvar) or .95 Lagging (-33 kvar)

• Most generators able to produce some reactive under normal conditions

• Actual reactive power dispatched centrally

• Nonperformance charge (?)


Reactive Power PricingWOLF for Unscheduled Amounts

• Mortar for the brick wall of contracts

• Payment for non-performance

• Payment for over-performance

• Non-participating IPPs, including DG

• Loads

• Standalone reactive devices

• Inter-control area flows


Wide Open Load Following

“People worked harder for a reward, especially one that coincided with patriotism.” Tom Clancy, Without Remorse.

“Producers work harder for a reward, especially one that coincides with reliability.” Mark Lively, in explaining WOLF.


Wide Open Load FollowingBasic Concept

Use the quantification of the quality of public goods to set the simultaneous prices of the unscheduled portion of related commodities whose usage impacts the public goods. Note that the unscheduled portion of the commodity can be positive or negative.


Wide Open Load FollowingPublic Goods

• Non-excludability—It is difficult to keep people out—Fireworks display

• Non-rivalrous consumption—My usage does not interfere with your usage—Fireworks display

• For electricity, electric potential meets this description of a public good

• Measured as voltage


Wide Open Load FollowingReactive Power

Power provided and maintained for the explicit purpose of insuring continuous, steady voltage on transmission networks. Reactive power is energy which must be produced for maintenance of the system and is not produced for end-use consumption. Electric motors, electromagnetic generators and alternators used for creating alternating current are all components of the energy delivery chain which require reactive power. Losses incurred in transmission from heat and electromagnetic emissions are included in total reactive power. This power is supplied for many purposes by condensers, capacitors and similar devices which can react to changes in current flow by releasing energy to normalize the flow, and regulating generators may also have this capability.



• Power merely absorbed and returned in load due to its reactive properties

• Symbolized by the letter Q and is measured in the unit of Volt-Amps-Reactive (VAR)

• Mathematical construct



• In an alternating current circuit both the current and voltage are sinusoidal. If there is a phase separation between the two quantities, the instantaneous power will have to 'work' harder to produce the equivalent power if they were in phase.

• Reactive power is described as the amount of power required to overcome the phase shift between the current and voltage. It is generally regarded as waste power as it is used to 'energize' the circuit to allow it do useful work.

• In an alternating current circuit both the current and voltage are sinusoidal and power is expressed as the product of current and voltage. In a simple resistive circuit the voltage and current are in phase, the real power is equal to the apparent power and no reactive power flows.

• However when the voltage and current pass through certain types of circuits (inductive or capacitive) the voltage and current become out of phase. This phase separation is usually called the Power factor and the current is said to lag or lead the voltage.

• Capacitive circuits generate reactive power and inductive circuits absorb reactive power. If large quantities of reactive power (positive or negative) are present then the overall power factor will be low.

http://www.wordiq.com/definition/Inductive

http://www.wordiq.com/definition?title=Capacitive

http://www.wordiq.com/definition/Power_factor



• In alternating current power transmission and distribution, reactive power is an abstract quantity used to describe the effects of a load which on the average neither supplies nor consumes power. It is defined as the product of the rms voltage, current, and the sine of the difference in phase angle between the two. Compare to other definitions of power (effective power, apparent power, complex power). Reactive power is usually denoted Q and expressed in volt-amperes reactive, or var (not watts). This is to avoid confusion when specifying the power of a load (var automatically refers to reactive power).

• Reactive power is associated with the reactance of a load, and unlike effective power, can be positive or negative. A purely capacitive load is associated with a positive reactive power, whereas a purely inductive load is associated with a negative reactive power. To maintain efficient transmission, it is often necessary to reduce the magnitude of the reactive power in a system. This is known as power factor correction

http://www.webster-dictionary.org/definition/alternating%20current

http://www.webster-dictionary.org/definition/Electric%20power%20transmission

http://www.webster-dictionary.org/definition/Root%20mean%20square


Wide Open Load FollowingVoltage and Reactive Power

• Leading reactive power raises local voltage—Add capacitors to counteract low voltage conditions

• Lagging reactive power lowers local voltage– Add reactors to counteract high voltage

conditions– Turn off capacitors



Voltage

Low High

Leading Good Bad

Lagging Bad Good



High Voltage

Reward Lagging

Punish Leading

Low Voltage

Reward Leading

Punish Lagging



Higher Than Normal Voltages

Lower Than Normal Voltages

Q Pricing

($/KVARH)

High VoltageReward LaggingPunish Leading

Low VoltageReward LeadingPunish Lagging

High limit

Low limit

NOTE: Q is defined to be positive for leading reactive power

India UI

India UI



Higher Than Normal Voltages

Lower Than Normal Voltages

Q Pricing

($/KVARH)

High VoltageReward LaggingPunish Leading

Low VoltageReward LeadingPunish Lagging

High limit

Low limit

NOTE: Q is defined to be positive for leading reactive power


Wide Open Load FollowingMarginal Cost Pricing

• Each participant has incentive to increase production until its marginal cost is equal to the WOLF price

• The WOLF price decreases as participants increase production

• The WOLF price thus provides an indirect measure of marginal cost



Dynamic Economic Theory

Demand Supply

Equilibrium Price

Nominal Price

Price

($/MVARH)

Reactive Power

(MVAR)

Price Pressure


Wide Open Load FollowingAdjusting the Curve

• For small voltage excursions, no harm, no foul

• Low voltage excursions are more serious than high voltage excursions

Voltage

Severity of problem


Wide Open Load FollowingControl Theory

-

target

+Quantify

Power Quality

$

cost


Wide Open Load FollowingVariance from Marginal Cost

• Large participants can optimize income by producing such that their marginal cost is less than the WOLF price

• Set production level so that marginal cost is equal to marginal revenue

• Marginal revenue is price plus production times the derivative (which is negative) of price with respect to production







Wide Open Load FollowingVariance from Marginal Cost

• Incremental cost

• Need better definition of cost shape

• Integrate under the curve

• Price varies with amount of reactive produced


frequency

Wide Open Load FollowingControl Theory

-

target

+Quantify

Power Quality

$

cost

Voltage


Wide Open Load FollowingSimultaneous Pricing Working in India

• Infamous for low frequency

Frequency Distribution-Southern Region of IndiaNumber of Minutes Each Month With Specified Average Frequency

0

2,000

4,000

6,000

8,000

10,000

12,000

47.7

0

47.8

5

48.0

0

48.1

5

48.3

0

48.4

5

48.6

0

48.7

5

48.9

0

49.0

5

49.2

0

49.3

5

49.5

0

49.6

5

49.8

0

49.9

5

50.1

0

50.2

5

50.4

0

50.5

5

50.7

0

50.8

5

51.0

0

51.1

5

51.3

0

51.4

5Hertz

Jan-02

Feb-02

Mar-02

Apr-02



• Introduced Reliability Tariff 2003 January 1• Raised all UI prices about 40% 2004 April 1

0

1

2

3

4

5

6

7

48.5 49 49.5 50 50.5 51

Frequency (Hz)

UI R

AT

E (

Ru

pee

s/kW

h) 135

90

45

0

US

$/M

Wh




• Average frequency dramatically improved

South India Region Frequency Analysis

-2.5

-2

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

Jan-

02

Mar

-02

May

-02

Jul-0

2

Sep-0

2

Nov-0

2

Jan-

03

Mar

-03

May

-03

Jul-0

3

Sep-0

3

Nov-0

3

Jan-

04

Mar

-04

May

-04

Jul-0

4Her

tz Freq. Deviation

Std. Err. (50)

UI Price =0.0 Max Price =420.0+42%


47.7

47.9

48.1

48.3

48.5

48.7

48.9

49.1

49.3

49.5

49.7

49.9

50.1

50.3

50.5

50.7

50.9

51.1

51.3

51.5

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Co

un

t o

f M

inu

tes

Hertz

Monthly Distribution of Minute by Minute Frequencies

Jan-02 48.69 Hertz


• Improved Frequency Distribution47

.7

47.9

48.1

48.3

48.5

48.7

48.9

49.1

49.3

49.5

49.7

49.9

50.1

50.3

50.5

50.7

50.9

51.1

51.3

51.5

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Co

un

t o

f M

inu

tes

Hertz


Jan-02 48.69 Hertz

Jan-03 49.91 Hertz

47.7

47.9

48.1

48.3

48.5

48.7

48.9

49.1

49.3

49.5

49.7

49.9

50.1

50.3

50.5

50.7

50.9

51.1

51.3

51.5

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

10000

Co

un

t o

f M

inu

tes

Hertz


Jan-02 48.69 Hertz

Jan-03 49.91 Hertz

Jul-04 50.02 Hertz


WOLF & Negotiated Contracts

• WOLF Pricing provides– Alternative price– Way to determine penalty– Way to determine reward– Assessment of successful contract

negotiations– Pricing for affiliates


$/KVAR-Year

Annual Hours of Operation

WOLF Versus Negotiated Contract



• Provides price for unscheduled reactive power

• Leads to marginal cost price discovery

• Feedback corrects the price

• Works with partial VAR obligation

• Related concept a success in India

• Supports contract negotiations

Documents

Mark B. Lively--Utility Economic Engineer--301-428-3618 1 Wide Open Load Following: Mark Lively’s Approach to Pricing Reactive Power 2004 December 2 CEIC