ECEN415/715:Physical and Economical Operations of Sustainable

Energy Systems
Spring 2021 Homework Assignment #3
Notice:
• Submit the electronic copy using Teams, no hard copy required.
• Please summit your homework only in PDF format
• Due on Feb 28th (Tuesday), 2021.

Problem 1 (40 pints)

An area of an interconnected power system has two follsil-fuel units operating on economic dispatch.
The variable operating cost of these units are given by
C1 = 10P1 + 8 × 10−3 P12 $/hr (1)
−3
C2 = 8P2 + 8 × 10 P22 $/hr (2)
where P1 and P2 are in megawatts. Given that the total load demand PT = 1000 MW.
• Wring down the optimization formulation
• What are the power output of each unit that minimizes the total generation cost?
• What’s the corresponding incremental operating cost of each unit?
• What is the corresponding total generating cost?

Solutions:
minimize 10P1 + 8 × 10−3 P12 + 8P2 + 8 × 10−3 P22
P1 ,P2

subject to P1 + P2 = 1000
The marginal cost of each generator is
dC1
= 10 + 16 × 10−3 P1 (3)
dP1
dC2
= 8 + 16 × 10−3 P2 (4)
dP2
(5)
At the minimum cost, the marginal cost should be the same:
10 + 16 × 10−3 P1 = 8 + 16 × 10−3 P2 (6)
With the constraint that P1 + P2 = 1000, then P1 = 437.5, P2 = 562.50.
The incremental operation cost of each unit is the same and equal to 10 + 16 × 10−3 × 437.5 = 17
$/hr.
The total generating cost is
10 × 437.5 + 8 × 10−3 × 437.52 + 8 × 562.50 + 8 × 10−3 × 562.502 = 12938 $
   
(7)

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Problem 2 (60 pints)
The following six companies participate, along with others, in the Southern Antarctica electrical
energy market:

• Red: A generating company owning a portfolio of plants with a maximum capacity of 1000
MW.

• Green: Another generating company with a portfolio of plants with a maximum capacity of
800 MW.

• Blue: A retailer of electrical energy.

• Yellow: Another retailer of electrical energy.

• Magenta: A trading company with no generating assets and no demand.

• Purple: Another trading company with no physical assets.

The following information pertains to the operation of this market for Monday, 29 February
2016 between 1:00 and 2:00 pm:
Load forecasts: Blue and Yellow forecast that their customers will consume 1200 MW and
900 MW respectively during that hour.
Long-term contracts:

1. June 2015: Red signs a contract for the supply of 600 MW at 15$/MWh for all hours between
1 January 2015 and 31 December 2020.

2. July 2015: Blue signs a contract for the purchase of 700 MW for all hours between 1 February
2016 and 31 December 2016. The price is set at 12 $/MWh for off-peak hours and at 15.50
$/MWh for peak hours.

3. August 2015: Green signs a contract for the supply of 500 MW at 16 $/MWh for peak hours
in February 2016.

4. September 2015: Yellow signs a contract for the purchase of electrical energy. The contract
specifies a profile of daily and weekly volumes and a profile for daily and weekly price. In
particular, on weekdays between 1:00 and 2:00 pm, the volume purchased is 550 MW at 16.25
$/MWh.

Future contracts: All contracts are for delivery on 29 February 2016 between 1:00 and 2:00
pm.
Options contracts:

1. In November 2015, Red bought a put option for 200 MWh at 14.75 $/MWh. The option fee
was 50 $.

2. In December 2015, Yellow bought a call option for 100 MWh at 15.50 $/MWh. The option
fee was $25.

Outcome:

1. The spot price on the Southern Antarctica electricity market was set at 15.75 $/MWh for 29
February 2016 between 1:00 and 2:00 pm.

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 Table 1: Future contracts
Date Company Type Amount Price
10/9/2015 Magenta Buy 50 14.5
20/9/15 Purple Sell 100 14.75
30/9/15 Yellow Buy 200 15
10/10/2015 Magenta Buy 100 15
20/10/15 Red Sell 200 14.75
30/10/15 Green Sell 250 15.75
30/10/15 Blue Buy 250 15.75
10/11/2015 Purple Buy 50 15
15/11/15 Magenta Sell 100 15.25
20/11/15 Yellow Buy 200 14.75
30/11/15 Blue Buy 300 15
10/12/2015 Red Sell 200 16
15/12/15 Red Sell 200 15.5
20/12/15 Blue Sell 50 15.5
15/1/16 Purple Sell 200 14.5
20/1/16 Magenta Buy 50 14.25
10/2/2016 Yellow Buy 50 14.5
20/2/16 Red Buy 200 16
25/2/16 Magenta Sell 100 17
28/2/16 Purple Buy 250 14
28/2/16 Yellow Sell 100 14

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 2. Owing to the difficulties at one of its major plants, Red was able to generate only 820 MW.
Its average cost of production was 14.00 $/MWh.

3. Green generated 750 MW at an average cost of 14.25 $/MWh.

4. Blue’s demand turned out to be 1250 MW. Its average retail price was 16.50 $/MWh.

5. Yellow’s demand turned out to be 850 MW. Its average retail price was 16.40 $/MWh.

Question: Assuming that all imbalances are settled at the spot market price, calculate the
profit or loss made by each of these participants.

Solutions:
Red (Generation Company)

Long term contract

Sell: 600 MW at $15.00/MWh → revenue: $9,000.00
Future contract
Sell: 200 MW at $14.75/MWh → revenue: $2,950.00
Sell: 200 MW at $16.00/MWh → revenue: $3,200.00
Sell: 200 MW at $15.50/MWh → revenue: $3,100.00
Buy: 200 MW at $16.00/MWh → expense: ($3,200.00)
Total: 400 MW sold → revenue: $6,050.00
Option contract
Option to Sell 200 MWh at $14.75/MWh
Option Fee of $50 → expense: ($50.00)
The spot market price was higher than the option price, so the option was not picked up.
Generation cost
Production: 820 MW at $14.00/MWh → expense: ($11,480.00)
Spot Market
Actual Production – Power Sold = 820 MW – (600 MW – 400 MW) = -180 MW
Red has a deficit of 180 MW that must be made up at the spot market price.
Buy: 180 MW at $15.75/MWh → expense: ($2,835.00)
Net income
$9,000+ $6,050 - $50 - $11,480 -$2,835=$685

Green (Generation Company)

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 Long term contract
Sell: 500 MW at $16.00/MWh → revenue: $8,000.00
Future contract
Sell: 250 MW at $15.75/MWh → revenue: $3,937.50
Option contract
None
Generation cost
Production: 750 MW at $14.25/MWh → expense: ($10,687.50)
Spot Market
Actual Production – Power Sold = 750 MW – (500 MW – 250 MW) = 0 MW
Greens power commitment matches its power production.
No spot market transactions are made.
Net income
$8,000 + $3,937.50 - $10,687.50 = $1,250

Blue (Retail Company)

Long term contract

Buy: 700 MW at $15.50/MWh → expense: ($10,850.00)
Future contract
Buy: 250 MW at $15.75/MWh → expense: ($3,937.50)
Buy: 300 MW at $15.00/MWh → expense: ($4,500.00)
Sell: 50 MW at $15.50/MWh → revenue: $775.00
Total: 500 MW purchased → expense: ($7,662.50)
Option contract
None
Spot Market
Power Owned – Actual Demand = 1,200 MW – 1,250 MW = -50 MW
Blues has a power deficit of 50 MW that must be made up at the spot market price.
Buy: 50 MW at $15.75/MWh → expense: ($787.50)
Retail market
Sold: 1,250 MW at $16.50/MWh → revenue: $20,625.00
Net income
$-10,850 - $7662.50 - 787.50 + 20,625 = $1,325

Yellow (Retail Company)

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 Long term contract
Buy: 550 MW at $16.25/MWh → expense: ($8,937.50)
Future contract
Buy: 200 MW at $15.00/MWh → expense: ($3,000.00)
Buy: 200 MW at $14.75/MWh → expense: ($2,950.00)
Buy: 50 MW at $14.50/MWh → expense: ($725.00)
Sell: 100 MW at $14.00/MWh → revenue: $1,400.00
Total:350 MW purchased → expense: ($5,275.00)
Option contract
Option to Buy 100 MWh at $15.50/MWh
Option Fee of $25 → expense: ($25.00)
The spot market price was higher than the option price, so the option was picked up.
Buy: 100 MW at $15.50/MWh → expense: ($1,550.00)
Spot Market
Power Owned – Actual Demand = (900 MW + 100 MW) – 850 MW = 150 MW
Yellow has a power excess of 150 MW that must be sold at the spot market price.
Sell: 150 MW at $15.75/MWh → revenue: $2,362.50
Retail market
Sold: 850 MW at $16.40/MWh → revenue: $13,940.00
Net income
-$8,937.50 -$5,275 -$25 -$1,550 +$2,362.50 + $13,940=$515

Magenta (Trading Company)

Long term contract

None
Future contract
Buy: 50 MW at $14.50/MWh → expense: ($725.00)
Buy: 100 MW at $15.00/MWh → expense: ($1,500.00)
Sell: 100 MW at $15.25/MWh → revenue: $1,525.00
Buy: 50 MW at $14.25/MWh → expense: ($712.50)
Sell: 100 MW at $17.00/MWh → revenue: $1,700.00
Total: Zero net power purchased → revenue: $287.50
Option contract
None
Spot Market
No Transactions
Net income
$287.50

Purple (Trading Company)

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Long term contract
None
Future contract
Sell: 00 MW at $14.75/MWh → revenue: $1,475.00
Buy: 50 MW at $15.00/MWh → expense: ($750.00)
Sell: 200 MW at $14.50/MWh → revenue: $2,900.00
Buy: 250 MW at $14.00/MWh → expense: ($3,500.00)
Total: Zero net power purchased → revenue: $125.00
Option contract
None
Spot Market
No Transactions
Net income
$125.00