126 What Price Power

One substantial impact of deregulation is the emergence of more accurate locational and temporal pricing of electricity. Regulated utilities were allowed to amortize investments over several decades and dilute price spikes across their entire customer base. While this system denied customers any choice in electricity suppliers, it did reduce their price risk. One mile of a 64kVA distribution line can vary tenfold in construction costs, however, depending upon local requirements (above ground versus overhead, rights-of-way procurement, environmental impacts, relationship to other lines, etc.). Additionally, as Figure 1.6 shows, the distribution grid is designed and built for the highest level of service required, a capacity rarely used.

The generation assets vary widely in the marginal cost of power. Petroleum and coal-fired steam turbines running constantly to supply the baseload may be able to sell into a regional power exchange at $0.02/kWh. But, as additional power is needed (e.g., after 4 p.m. in the residential sector), gas turbines or even combustion engine generator sets may be brought online and used for a much smaller percentage of the temporal load (as few as 200 to 400 hours of operation annually), driving up the incremental cost of power.

New generation assets in a deregulated market will no longer adhere to a 10- or 20-year amortization plan. Additional capacity today will be sited to provide incremental peak power, not baseload. This is a logical response to return-on-investment and risk hedging for private investors. And, as Figure 1.6 shows, a truly deregulated, open market may require much higher price signals before new capacity is built.

One of the ongoing debates in electricity deregulation involves identifying the market price signals for new capacity. If a combustion turbine plant costs $350/kW to construct, with annual operation and maintenance (O&M) costs of 20%, at a capacity factor of 5% (peak shaving, 438 hours/year), the fixed costs for operation would result in:

If the new capacity were required for a smaller percentage of the peak, e.g., needle peak for 100 hours each year, the ultimate cost of producing electricity would be:

Thus, covering peak demand is far more expensive on the open market than customers have previously come to expect when prices reflect embedded costs to all customers across the utility's load. In an open market, prices would need to rise significantly above current regulated retail prices before sufficient demand could be proven to produce incentives for supply expansion. See Figure 1.7 for a comparison of necessary price durations to build new capacity at $350/kW and $650/kW installed cost, respectively. This is also a powerful argument that prices will ultimately rise, not fall, across the country as deregulation takes effect and existing capacity erodes.

Commodity prices may not fall but may actually increase as new generation is sited only in high-cost areas, eventually raising the cost of electricity to a more even balance between demand and supply, rather than lowering the cost to meet the current lowest-cost supplier.

Duration (percent of year)

FIGURE 1.6

Temporal load duration for distribution grid.

Duration (percent of year)

FIGURE 1.6

Temporal load duration for distribution grid.

FIGURE 1.7

Price/duration requirements for new capacity investment.

FIGURE 1.7

Price/duration requirements for new capacity investment.

Solar Stirling Engine Basics Explained

Solar Stirling Engine Basics Explained

The solar Stirling engine is progressively becoming a viable alternative to solar panels for its higher efficiency. Stirling engines might be the best way to harvest the power provided by the sun. This is an easy-to-understand explanation of how Stirling engines work, the different types, and why they are more efficient than steam engines.

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