ESCUELA TÉCNICA SUPERIOR DE INGENIERÍA ICAI Natral gas consideration in a medim-term electricity market eqilibrim model Pablo Deñas, Jlián Barqín, Javier Reneses
Introdction Natral gas has been increasing its weight in electricity generation mix As a conseqence of Modlar design Lower investment cost ( /kw) Nclear Coal CCGT In detail, in Spain Electricity generation 2.5% in 2002 1500-1800 900-1100 450-600 Shorter constrction time (years) 26% in 2007 Nclear Coal CCGT >10 4-6 3 Higher operational cost, or not? Exclding CO 2 price ( /MWh) Coal CCGT 30 35-45 Installed capacity 5.4% in 2002 Inclding 15 /ton CO 2 price ( /MWh) Coal CCGT 40 40-50 24% in 2007 Merit order may be reverted Sorces: Spanish system operator, Electricity companies 2
Introdction Electricity generation companies sign gas spply contracts Usally, OTC contracts For instance, Spain lacks of an organized market To hedge risks Associated to price volatility Garantee of spply With general characteristics Annal, or mlti-annal, agreed qantity Monthly delivered qantity Price contract Indexed to some international markets May present flexibility May flctate monthly Possibility of diverting to Retailing market If the company has the commercial strctre International markets If destination clases do not oblige, maybe illegal? Optimization of gas contract exercise involves volme deliveries, brnt and diverted, and date deliveries 3
Introdction Gas system constraints may hamper optimal CCGT operation Depending on gas system infrastrctre, trade-off between Gas contract exercise Gas system operation Gas system constraints conseqence of Larger constrction time Gas infrastrctres respect to CCGT power plants Environmental concerns International disagreements Possible lack of foresight Optimization of gas contract exercise shold take into accont gas system constraints 4
Market eqilibrim model Companies spport their decision-making process in mathematical models According to time scope, gas contract exertion are medim-term decisions Eqilibrim models based on conjectral variation may represent adeqately market conditions Companies objective B = # " P! C ( P ) One-shot game Maxim. profit Cornot oligopoly 1 " =! 0 Strategic behavior Collsion $!# = "!P Monopoly Different degrees of oligopoly Perfect competition! = 0 5
Market eqilibrim model Eqilibrim can be defined as an eqivalent qadratic optimization problem If conditions are flfilled... can be formlated as an optimization problem obtaining relevant advantages 1. Single-node assmption is necessary 2. Cost fnction mst satisfy two reasonable conditions: To grow monotonosly To be convex min P,D s.t. U &[ C ( P )] + U( D) = 1 U $!& P % D = 0 : ' # = 1! " Technical Constraints Where the effective cost fnction is C ( P ) = C ( P ) 2 P "! + 2 1. Eqilibrim exists and the niqeness is garanteed 2. Linear constraints are inclded in a direct way 3. Dal variables provides with additional information 4. Large size problems are solved in a reasonable time Shold yo reqire any frther information Barqín J., Centeno E. and Reneses J. (2004). Medim-term generation programming in competitive environments: a new optimization approach for market eqilibrim compting, IEE Proceedings Generation, Transmission and Distribtion 151(1): 119-126 Centeno E., Reneses J. and Barqín J. (2007). Strategic Analysis of Electricity Markets Under Uncertainty: A Conjectred-Price-Response Approach, IEEE Transactions on Power Systems 22(1): 423-432 6
Gas contracts Gas contracts can be considered throgh contracts for differences Methodology involves Gas from contract exercise is virtally sold at spot price Spot Gas diverted to retailing market is virtally boght at diverted price Gas brnt in CCGT power plants is virtally boght at contract price ( ) ( ) p! p " V + p! p " V Int Brn Ret Int Ret c c c c If CCGT power plants need more gas, virtally boght at spot price Opportnity cost 7
Gas contracts Gas contract characteristics are inclded throgh linear constraints Total amont of gas brnt at CCGT power plants of the company mst be at least total amont of gas provided by the contracts for brning T C Brn! t # Qmt $ Vcm t= 1 c= 1 t" c % % Avoiding commercial transactions withot physical meaning η t relates the generated power and the gas consmption Destination clases may be added Minimm and maximm Annal delivered qantity ( ) year! " M Brn year + Ret c cm cm! c m=1 V V V V Monthly delivered qantity Brn Ret V! V + V! V cm cm cm cm Monthly diverted qantity Ret Ret V! V! V Ret cm cm cm 8
Gas system Congestions can be taken into accont defining gas zones Constraints may be de to Technical capacity Utilization contracts Re-gasification terminals Storage facilities Transport pipelines Gas zones are established by limitations Maximm or minimm gas consmption CCGT power plants are associated to gas zones # %% U T mz! t $ mt # mz = 1 t= 1 t" z G Q G 9
Case stdy Optimization of gas contract exercise A company Faces a deterministic seasonal residal demand Owns one coal power plant and eight CCGT power plants Signs one gas contract Maximm and minimm annal volme Maximm and minimm monthly volme Maximm annal diverted volme Main reslts Maximm volme is delivered Gas volme enlarges when spread is wider Merit order is reverted dring spring and smmer 50 0,3 3000,0 45 40 0,25 2500,0 Price (!/MWh) 35 30 25 20 15 0,2 0,15 0,1 Volme (bcm) Cont. price Int. price Cont. vol. Int. vol. Divert. vol. Energy (GWh) 2000,0 1500,0 1000,0 Elect. cons. Coal PP CCGT PP 10 0,05 500,0 5 0 Jan Feb Mar Apr May Jn Jl Ag Sep Oct Nov Dic 0 0,0 Jan Feb Mar Apr May Jn Jl Ag Sep Oct Nov Dic 10
Case stdy Destination clase inclsion Company signs a new contract Maximm volme of gas 0.1bcm Deliveries in winter, i.e. December, Janary and Febrary Contract price 37 /MWh Destination clase to CCGT 1 International markets in first stage Main reslt Sorce for gas brnt in CCGT 1 shifts from international markets to gas contract Jan Feb Mar Apr May Jn Jl Ag Sep Oct Nov Dec 1 st Contract 0 0 0 0 0 0 0 0 0 0 0 0 International 1.79 0 0 0 0 0 0 0 0 0 1.02 2.64 2 nd Contract 4.13 1.73 0 0 0 0 0 0 0 0 0 4.13 International 0 0 0 0 0 0 0 0 0 0 1.02 0 50 0,3 45 40 0,25 Price (!/MWh) 35 30 25 20 15 0,2 0,15 0,1 Volme (bcm) GC1 price GC2 price Int. price GC1 vol. GC2 vol. Divert. vol. Int. vol. 10 5 0,05 0 Jan Feb Mar Apr May Jn Jl Ag Sep Oct Nov Dic 0 11
Case stdy Gas system constraint Gas volme consmption is limited De to some maintenance work in 2 nd semester For CCGT 4, 5 and 6 power plants Which are associated to a gas zone To 0.05bcm monthly (or 450GWh electricity generation) Main reslts CCGT power plants are limited to consme 0.05bcm monthly Shadow prices provide an idea of the cost (9.45M /bcm in Jly) Gas contract exercise is shifted from the end to the beginning of the year 2 nd stage 3 rd stage Jl Ag Sep Oct Nov Dec CCGT 4 228 211 219 225 210 211 CCGT 5 228 211 130 203 210 211 CCGT 6 100 135 219 203 251 185 Total 556 557 568 631 671 607 CCGT 4 192 209 28 203 202 211 CCGT 5 228 211 211 203 202 28 CCGT 6 30 30 211 45 47 211 Total 450 450 450 450 450 450 Volme (bcm) 0,2 0,15 2nd stage 3rd stage 0,1 Jan Feb Mar Apr May Jn Jl Ag Sep Oct Nov Dic 12
Conclsions Gas has been increasing its share in electricity generation mix De to CCGT proliferation Bt gas infrastrctre expansion Electricity generation companies signed gas spply contracts Whose characteristics shold be inclded in day-to-day operation However, gas system constraints may have inflence in the optimal operation Proposal of an eqilibrim market model that incorporates Gas contracts throgh contract for differences in objective fnction Gas system constraints by the definition of gas zones Dal variable provides economic signals To renegotiate a gas contract To claim a compensation de to gas system constraints Ftre research development in gas system description 13