Instructions Please answer all questions clearly and complet

Instructions: Please answer all questions clearly and completely. If you use graphs or tables in your answers, they must be clear enough that the graders can understand them (this means labeling axes, variables, and so forth). If a question requires you to make calculations, you must show your work

(5 points) This question is based on a two-node network. There is generation at nodes 1 and 2, and a customer at node 2. A transmission line with a capacity of 100 MW connects the two nodes. The other information about the system is as follows:

MC(G1) = $25/MWh; Capacity = 200 MW.

MC(G2) = $55/MWh; Capacity = 200 MW.

Demand at node 2 is given by P = 250 – 1.5(G1+G2).

Assume that G1 always prices at marginal cost. Does G2 have incentives to price competitively? Why or why not? Calculate the LMPs at each of the two nodes

A)all the costs incurred during building the infrastructure and the future investment, operating, maintenance costs are summed up (rolled-in) together and then are allocated to various wheeling customers on various basis. The basic philosophy behind this paradigm of transmission pricing paradigm

Postage stamp methodology is the simplest and easy to implement methodology of transmission pricing. A postage stamp rate is a fixed charge per unit of power transmitted within a particular zone. The rate does not take into account the distance involved in the wheeling. There are various versions of postage stamp methodology. In some versions, both, generators and loads are charged for transmission usage, while in others, only loads pay for the same. Some variants charge loads for their peak value while in others, they are charged on the basis of average loads. A simpler version of postage stamp mechanism is explained with the help of following illustration.

There are various ways of expressing the postage stamp rates. Normally it is given in INR/ MW/ day for Indian system. Let us assume that the loads make the whole payment towards the transmission charges. Then, the transmission charges paid by each load will be proportional to its MW. Hence, the transmission price paid per day by each load

Effectively, this boils down to directly or indirectly quantifying the extent of usage of the network by each transaction. The diversity of underlying assumptions, methodologies, etc. lead to many choices or versions of methods under this category. Some of the commonly practiced methods are as follows:

Postage Stamp Method (transaction / non-transaction)
Contract Path Method (transaction based)
Distance Based MW-Mile Method (transaction based)
Power Flow Based MW-Mile Method (transaction based)
Power flow tracing based on proportionate sharing principle (non-transaction)
Equivalent bilateral exchange (EBE) method (non-transaction)
Zbus based method (non-transaction)

There are some methods that allocate costs to individual bilateral transactions. These methods are known as transaction based methods. On the other hand the rest of the methods allocate the total costs to all the participants of the pool. These methods are called as non-transaction based methods. All these methods will be explained one by one with an illustrative example in the following sub-sections.

Postage Stamp Method

The postage stamp rates are based on average system costs and may have a variety of rate designs based on energy charges, capacity charges, or both. Rates may include separate charges for peak and off-peak periods, may vary by seasons and in some cases may be different for weekdays and weekends.

Some of the advantages of Postage Stamp Method are as follows:

The method is simple and easy to implement.
It is transparent and is easily understood by all.
There is no mathematical rigor involved.
Recovers sunk cost of transmission system.
Being very simple and straightforward, it is easy to get political backing for it to be implemented.

Disadvantages of the Postage Stamp Method can be quoted as follows:

Pancaking: In case a transaction takes place such that the power is transmitted through multiple intermittent utilities or zones, pancaking of access charges takes place.
No economic signal: With regard to the principles discussed in the earlier sections, postage stamp allocation does not create an economic signal associated with the effect of a particular transaction.
No extent of use of network: Postage stamp allocation does not take into consideration the extent of use of the network by a particular transaction. The transmission charges paid by two loads, out of which, one is very near to a generator, while the other is miles apart, is the same. It is obvious that transmission network use by the other load is more than the first.

Incremental Postage Stamp Methodology

To reduce the effect of pancaking, an alternate version of postage stamp method, called ‘Incremental Postage Stamp Method’ is sometimes employed. An incremental postage stamp rate could be applied to a zone which is much smaller than a region. This avoids pan-caking in the case of inter-regional transactions. If an incremental postage stamp rate is assigned to a zone of Xkm x Xkm , then the charges for distance greater than Xm would become sensitive to distance.

In Figure 7.4, suppose a bilateral contract exists between entities A and B, where A is situated in area P and B is situated in area Q. Suppose stamp of area P is INR 90/MW and that of area Q is INR 180/MW. Then the transaction pays a charge of INR 270/MW towards wheeling. Now consider the second figure. Both areas, P and Q are divided into sub-areas and each horizontal block of 3 sub-areas is assigned an equal postage stamp. That means, each sub-area in area P has a postage stamp of INR 10/MW and each sub-area in Q has postage stamp of INR 20/MW. Now, the transaction between A and B has to pay a charge of INR 30/MW towards wheeling, instead of INR 270/MW in the earlier case.

Instructions: Please answer all questions clearly and completely. If you use graphs or tables in your answers, they must be clear enough that the graders can un

Instructions Please answer all questions clearly and complet

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