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13: Economics of Electrical Grids - Coggle Diagram
13: Economics of Electrical Grids
13.1 Grid Properties and System Services
13.1.1 Electrotechnical Aspects
AC three-phase current; synchronized frequency (50Hz EU)
Voltage levels: extra-high, high, mid, low
Transmission losses <5%; inversely related to voltage
Integrated grid indivisible (Kirchhoff’s laws)
History: insular systems → national grids → ENTSO-E integration
Efficiency benefits: pooling, smoother load, scale economies, HVDC for long-distance
13.1.2 Services by Grid Operators
TSO responsibilities: reliability, secure operation
Day-ahead aggregate data exchange
Services: frequency control, voltage control, black-start, loss compensation, redispatch, interconnection, RES balancing
TSO vs DSO roles
13.1.3 Markets for Control Power
Balance demand-supply; deviations shown by frequency shifts
Procurement by TSOs on transparent markets
Primary reserve (auto 15s), Secondary reserve (30s–5min), Tertiary reserve (15min)
Pay-as-bid pricing, not uniform
Costs: capacity (flat fee), energy (to balancing groups by deviations)
13.3 Economic Approach to Transmission Bottlenecks
Kirchhoff’s law → loop flows → congestion
System operator adjusts schedules to prevent overload
Options: Rationing, Explicit auctioning, Implicit auctioning (market coupling), Market splitting (nodal pricing)
Regulator incentives required for grid expansion
13.2 Regulation of Grid Fees
13.2.1 Grid as Essential Facility
Natural monopoly: sub-additive cost function
AC < MC; high entry barriers
Essential facility doctrine: must regulate access to avoid abuse
13.2.2 Optimal Grid Fees
First-best: price=MC → not viable (MC<AC)
Cost-plus regulation: covers AC but reduces efficiency
Split tariffs: price discrimination (WTP-based); forbidden by EU rules
Two-part tariffs: MC pricing + capacity fee
Ramsey pricing: surcharges depend on elasticity; peak customers bear more
Regulatory questions: depreciation, rate of return, equity share
13.2.3 Incentive Regulation
Principal-agent problem: info asymmetry regulator vs operator
Rate-of-return regulation → Averch-Johnson effect (overcapitalization)
Price-cap regulation → underinvestment risk
Revenue-cap regulation → minimize costly services
Incentive regulation (Littlechild): profit allowed for efficiency improvements
Formula: SRt = SRt-1*(1+RPI-Xgeneral+Xindividual)
Quality indicators: SAIDI, SAIFI, CAIDI
13.2.4 Unbundling
Undoing vertical integration to foster competition
EU Directive 2009/72/EC: legal unbundling required
PJM ISO example: nodal pricing, 5-min intervals
Efficiency trade-offs: loss of vertical integration benefits