07/08/200307/08/2003 11

Economic Benefits From Economic Benefits From Integrated Electricity Integrated Electricity

MarketsMarketsBrian H. Bowen

F.T. SparrowZuwei Yu

Geoff GranumPower Pool Development Group

Purdue University, U.S.A

South Asia Regional Initiative in Energy Training ProgramJuly 19-23, 2003, Dhaka Bangladesh

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Purdue University

OverviewOverviewMany sound economic reasons exist for the development of regional electricity power pools. Let us consider the how when where and why as this topic relates to the economic growth of the South Asia region. Clearly electricity growth and economic development are closely related and whichever leads the other is open for debate. We make a good start by considering the experiences from other power pools and the use of the Purdue University models which include generation and transmission characteristics.

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Purdue’s Energy Trade Modeling SystemsPurdue’s Energy Trade Modeling Systems

Purdue’s SUFG has developed four major Purdue’s SUFG has developed four major energy planning decision support tools:energy planning decision support tools:Traditional rateTraditional rate--based regulation models.based regulation models.1010--year forecasting model for Indiana and year forecasting model for Indiana and ECAR/MAIN under free competition.ECAR/MAIN under free competition.ShortShort--run forecasting models for ECAR/MAIN run forecasting models for ECAR/MAIN peak hour prices.peak hour prices.Up to 20Up to 20--year forecasting for energy and year forecasting for energy and reserve trade models (SAPP & WAPP).reserve trade models (SAPP & WAPP).

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Electricity Market ModelingElectricity Market Modeling& & CostCost--Price Demand Feedback LoopPrice Demand Feedback Loop

Initial Prices& MarketStructure

Growing CustomerDemand

Utility SupplyThermal/HydroTechnologies

RegulatoryFrameworkRatesFinance

EquilibriumPrices

InvestmentPlans

Demand/TransmissionReliability

Costs/Trade

Pricing Policy/Contracts/Spot Markets

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Benefits from Power PoolingBenefits from Power Pooling

“Tight vs. Loose”

• Economies of Scale• Lower Reserve Requirement• Load Diversity• Economies of Operation• Cooperative Stimulus

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Electricity Needs of South AsiaElectricity Needs of South Asia

14 ,03299285.3USA

3654519.7Ghana

4,8106643.2South Africa

-52.1Lesotho

3636218.7Sri Lanka

48152141.5Pakistan

721523.6Nepal

333-0.3Maldives

52580+1,032.4India

--2.0Bhutan

11820133.3 Bangladesh

kWhproduction per

capitain 2000

* Population% access to electricity

*Population in 2001(millions)

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Purdue International ModelsPurdue International Models• Purdue’s SUFG, State Utility Forecasting Group

was formed in 1985.• Reason for SUFG: Marble Hill Nuclear Station• SAPP legal entity 1995, Purdue 1997 – 2001• Purdue starts with WAPP in 1999• WAPP legal entity in 2000• SAPP comes under SADC, Southern African

Development Community• WAPP is part of the ECOWAS, Economic

Community of West African States• PPDG, Power Pool Development Group, is

the international component of SUFG

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Purdue Power Pool Development Purdue Power Pool Development Group (PPDG)Group (PPDG)

To promote and support international electricitypolicy analysis and to build regional electricity

planning models. International application of the Purdue State Utility Forecasting Group

(SUFG) models

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PPDG ActivitiesPPDG Activities1. Establishing international partnerships for

energy policy analysis2. Development of regional policy for electricity

trading and capacity expansion plans using Purdue models & expertise

3. Provision of training in electricity data collection and the use of electricity planning models, for technical & general users

4. Implement technology transfer to see the developed models being used in regions outside of the United States

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Benefits to International PartnersBenefits to International Partners

Strengthening of international cooperation & collaborative planning in the development of regional electricity marketsCost minimization plans through improved trading arrangements & strategic capacity expansionsDetermination of the costs and benefits from improved reliability in electricity supply systemsTransparent & comprehensive regional electricity data management

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Purdue & Regional ModelingPurdue & Regional Modeling

IndianaIndianaMidMid--West, USA, ECARWest, USA, ECAR--MAINMAINPacific Northwest, USAPacific Northwest, USASouthern African Power Pool (SAPP)Southern African Power Pool (SAPP)West Africa Power Pool (WAPP)West Africa Power Pool (WAPP)South Asia’s Pool FormationSouth Asia’s Pool Formation

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ECARECAR--MAIN Participating MAIN Participating MembersMembers

SPIL (Springfield Illinois City Water, Light and Power).CP (Consumers Energy)

SIPC (Southern Illinois Power Coop.)IPL (Indianapolis Power & Light Co.)CILC (Central Illinois Light Co.)

SIGE (Southern Indiana Gas & Electric Co.)

HE (Hoosier Rural Electric Coop.)IP (Illinois Power Co.)

CE (Commonwealth Edison Co.)

BREC (Big Rivers Electric Corp)OVEC (Ohio Valley Electric Corp.)FE (First Energy)

NIPSCO (Northern Indiana Public Service Co.)

EKPC (East Kentucky Power Coop.)

CG&E (Cincinnati Gas & Electric Co.) and PSI (PSI Energy Inc.)

LGEK (Louisville Gas & Electric + Kentucky Utilities Co.)

DP&L (Dayton Power & Light Co.)AMRN (Ameren)

EEI (Electric Energy Inc.)DLC (Duquesne Light Co.)AE (Alliant East) and AW (Alliant West)

DECO (Detroit Edison Co.)AP (Allegheny Power)AEP (American Electric Power)

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Network Topology of the Network Topology of the ECARECAR--MAIN ModelMAIN Model

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NERC RegionsNERC RegionsECAR, East Central Area Reliability Coordination AgreementERCOT, Electric Reliability Council of TexasFRCC, Florida Reliability Coordinating CouncilMAAC, Mid-Atlantic Area CouncilMAIN, Mid-America Interconnected NetworkMAPP, Mid-Continent Area Power PoolNPCC, Northeast Power Coordinating CouncilSERC, Southeastern Electric Reliability CouncilSPP, Southwest Power PoolWSCC, Western Systems Coordinating Council

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NERC RegionsNERC RegionsNorth American Electric Reliability CouncilNorth American Electric Reliability Council

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LongLong--Term Model Characteristics Term Model Characteristics & Applications& Applications

Cost MinimizingCost MinimizingEngineering & EconomicsEngineering & EconomicsGeneration & Transmission Generation & Transmission –– Existing and ProposedExisting and ProposedTrading of Energy & Power ReservesTrading of Energy & Power ReservesPolicy Priorities Policy Priorities –– Interdependence, Reliability, Sharing Interdependence, Reliability, Sharing Gains, PricingGains, PricingLongLong--Term Planning Term Planning –– 10 to 20 years10 to 20 yearsCosts of operation, fuels, investmentsCosts of operation, fuels, investmentsProvision of policy decision support toolsProvision of policy decision support toolsLarge regional model, user friendly interface, easy Large regional model, user friendly interface, easy technology transfertechnology transfer

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SAPP Transmission CapacitiesSAPP Transmission Capacities

6. Namibia (H, T)

(H) = Hydro Site

5B. N. Mozambique

5A. S. Mozambique (H)

4. Malawi

3. Lesotho

2. Botswana (T)

1. Angola (H)

12. Zimbabwe (H, T)

(T) = Thermal Site

11. Zambia (H)

10. DRC

9. Tanzania (H, T)

8. Swaziland

7B. S. South Africa

7A. N. South Africa (T)

2000

180

3001200

350014001400

650

550

320

130

850

2 5A

9

7B8

11

12

3

6

4

7A

5B

10

1

700 1200

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SAPP Background & ModelingSAPP Background & Modeling12 National Utilities 12 National Utilities with Power Poolwith Power PoolCreated 1995Created 1995Purdue LongPurdue Long--Term Term Model CreatedModel CreatedDisplacement of Displacement of thermal generation thermal generation with hydropower with hydropower from the north.from the north.

SAPP Demonstration Total Costs(for 16 years is $11.474 Billion)

Total Optimal Variable Costs for the HorizonFuel 5.604O&M 0.923Water 0.419

Total $6.947bnTotal Optimal Expansion Costs for the Horizon

Thermal 2.651Hydro 1.187Transmission 0.690Unserved Energy 0.000

Total $4.527bnDemonstration results & not used for project evaluation

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SAPP Pool PlanSAPP Pool PlanSAPP ~ 1997 to 2000

SAPP ~ ST cost savings $100mper year; LT expansion plan, RSA pumped hydros, RSA refurbishments, DRC hydro& central spine.

2,000

3,726

500300

2,000

2,750

2826

43

972

= new generation capacity

= new transmission capacity

NH = new hydroSC = small coalPH = pumped hydroGC = combined cycleGT = gas turbineLC = large coal

CC-152GT-143

NH-557

NH-120

CC-1046NH-262

NH-360CC-485

LC-1372PH-3000CC-6277

NH-3500

GT-1320NH-572SC-1800GT-840

GT-235CC-3552

LC-5615SC-1590GT-1222

GT-343

CC-406

138

2000 ~ 2016

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Purdue University

SAPP LeastSAPP Least--Cost Detailed Cost Detailed Expansion PlanExpansion Plan

Period 2001-2004: (a) Major (4490 MW) increase in transmission capacity of DRC/Taz/Zam/Zim/Bot/NSA “spine,” connect DRC/Ang;

(b) Build DRC Inga 3 (3500 MW), NSA Camden (950 MW), CT in Taz Period 2005-2008: (a) Minor (846 MW) increase in transmission capacity of spine; (b) Recommission NSA Grootvlei (1140 MW), Camden (570 MW), CT

(750 MW), build SSA pumped storage (3000 MW), Nam Epupa (360 MW), CT in Taz

Period 2009-2012: (a) Expand Zim/Moz transmission link; (b) Build hydro in Zam (940 MW), Zim (500 MW), NMoz (1240 MW),

Taz (268.5 MW), Mwi/Ang (90 MW), SSA (P$ 1000 MW); build SC in NSA (890 MW), CT in NSA (250 MW), NUC (1000 MW) in SSA

Period 2013-2016: (a) Minor (300 MW) increase in spine transmission capacity; (b) Build hydro in Ang (280 MW), Zam (240), Taz (220), Mwi (90), Zim

(200); build SC in Zim (1800), LC in NSA (3954), CC in Nam (750)

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SAPP & Trade PolicySAPP & Trade Policy Free Trade, MW

(AFP = 0%) Limited Trade MW

(AFP = 70%) Free Trade, MWh

(AFE = 0%) $13.10* billion

Base Case $13.66* billion

4.1% Limited Trade, MWh

(AFE = 70%) $14.67* billion

10.7% $14.81* billion

11.5%

All 12 countries in SAPP are shown with same All 12 countries in SAPP are shown with same trade policy comparing free trade with limited trade policy comparing free trade with limited trade (70% autonomous)trade (70% autonomous)11.5% cost savings with free trade, compared to 11.5% cost savings with free trade, compared to a total regional limited trade of 70%.a total regional limited trade of 70%.

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WAPP Background & Purdue WAPP Background & Purdue ModelingModeling

14 National Utilities within Power Pool (2000)Zone A & Zone B parallel development (2001)Prioritize new international transmission projectsRole of West African Gas Pipe Line, WAGPL Infrastructure developmentPolicy analysis trainingECOWAS data collection, training & management

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WAPP Transmission Expansions WAPP Transmission Expansions 20022002--20202020

Gbi – Guinea Bissau

Gui – Guinea

Gha – Ghana

Gam – Gambia

ICo – Cote D’Ivoire

BFa – Burkina Faso

Ben – Benin

27

10

150 289

9322

2697

12

20

200

224 785 985

15

1175

Tog – Togo

SLe – Sierra Leone

Sen – Senegal

Ngr – Niger

Nga – Nigeria

Mal – Mali

Lib – Liberia

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Vital New Power LinesVital New Power Lines Existing international lines 2001-2002

Proposed new lines by ECOWAS Master PlanProposed new lines by ECOWAS Data Set #4

West AfricaTransmission PlanRestricted& Free Trade

Zone BZone A

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WAPP Gains From Trade With WAPP Gains From Trade With Improved ReliabilityImproved Reliability

19.3%9990806020%16.5%9324794910%15.6%939479245%14.9%928879040%

Percentage Cost Savings With Free Trade

WAPP Total Cost & Independence ($ million)

WAPP Total Cost Free Trade ($ million)

Thermal & Hydro Reserve Margins

Cost of improved Reliability is relatively low (only Cost of improved Reliability is relatively low (only 2% increase with free trade)2% increase with free trade)Large cost savings of 14.9% to 19.3% from free Large cost savings of 14.9% to 19.3% from free trade, with alternative reserve margins.trade, with alternative reserve margins.

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South Asia Regional ModelSouth Asia Regional Model

Pakistan

Bangladesh

BhutanNepal

9

87

2000**

300*

200*

500**

800+

150*200*500**

450*500**

15

42

6

1000**

200*

1011Maldives

Sri Lanka

3

1 India Northern Region2 India Western Region3 India Southern Region4 India Eastern Region5 India North-Eastern

Region

* 220 kV line** HVDC line+ 400 kV line

Existing linePlanned line

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South Asia Existing GenerationSouth Asia Existing Generation

136,449TOTAL

62%37%petroleum

1,779Sri Lanka

12%86%45% nat.gas41% petrol

18,000Pakistan

87%13%347Nepal

-100%petroleum

25Maldives

22%74%53% coal

112,000India

99%-355Bhutan

6%94%68% nat.gas

3,600Bangladesh

Percentagehydropowergeneration

Percentage thermal generation

Total Generation Capacity

(MW)

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South Asia Critical ProjectsSouth Asia Critical Projects

2,50010 Year Development Plan with $1bn for generation & $1.5 for lines

Sri Lanka

83,000MW hydropower potentialNepal

-6,000MW to 20,000MW hydropower potentialBhutan

-Enmore LNG station 1,886MW & LNG import terminal

India5,000Hirma coal-fired station, 3,960MWIndia

Unification of the national power gridIndia

-150MW international transmission to IndiaBangladesh4,400Power System Master Plan, PSMPBangladesh

Capital cost($ millions)

Name of projectCountry

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Strategy For South Asia Strategy For South Asia Energy Infrastructure BuildingEnergy Infrastructure Building

Identify all the stakeholders: utilities, Identify all the stakeholders: utilities, governments, investors and customers.governments, investors and customers.Define key objectives for next five yearsDefine key objectives for next five yearsLegal Establishment of power poolLegal Establishment of power poolEstablishing working committeesEstablishing working committeesAgreement on policy building prioritiesAgreement on policy building prioritiesData collection and policy analysisData collection and policy analysis

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PPDG Model InterfacePPDG Model Interface

Technical Users:EngineersEconomists

General Users:Governmentplanners

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In SummaryIn Summary

Great economic gains can be made from Great economic gains can be made from improved regional energy infrastructuresimproved regional energy infrastructuresThe desire for regional integration and The desire for regional integration and international cooperation (e.g. early days international cooperation (e.g. early days of the EU steel industry)of the EU steel industry)International experience to be drawn uponInternational experience to be drawn upon