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Cairo University

Faculty of Engineering
Electrical Power and Machines Dept.
Ph.D. Course 707: Generation and Utilization of Electrical Energy II

Amal Abdel-Aal Hassan Mohamed

Supervised By
Prof. Dr. Essam El-Din Mohammed Abou-

Tariff should satisfy the following requirements:

(1) It should be easier to understand.
(2) It should encourage the consumers having high load factors.
(3) It should take into account maximum demand charges and energy
(4) It should provide less charges for power connections than for
(5) It should avoid the complication of separate wiring and metering

The various types of tariffs are as follows,
(1) Flat demand rate
(2) Straight line meter rate
(3) Step meter rate
(4) Block rate tariff
(5) Two part tariff
(6) Three part tariff.
The various types of tariffs can be derived from the following
general equation:
Y = DX + EZ + C
Y = Total amount of bill for the period considered.
D = Rate per kW of maximum demand.
X = Maximum demand in kW.
E = Energy rate per kWh.
Z = Energy consumed in kWh during the given period.
C = Constant amount to be charged from the consumer during each billing period.
Various type of tariffs are as follows:

(1) Flat Demand Rate.

It is based on the number of lamps installed and a fixed number of hours
of use per month or per year. The rate is expressed as a certain price
per lamp or per unit of demand (kW) of the consumer. This energy
rate eliminates the use of metering equipment.

Various type of tariffs are as follows:
(2) Straight Line Meter Rate.
According to this energy rate the amount to be charged from the consumer
depends upon the energy consumed in kWh which is recorded by a means
of a kilowatt hour meter. It is expressed in the form
Y = EZ
This rate suffers from a drawback that a consumer using no energy will not pay
any amount although he has incurred some expense to the power station due
to its readiness to serve him. Secondly since the rate per kWh is fixed, this
tariff does not encourage the consumer to use more power.

(3) Step Meter Rate.

According to this tariff the charge for energy consumption goes down as the energy
consumption becomes more. This tariff is expressed as follows.
Y = EZ If 0 ≤ Z ≤ A
Y = E1Z1 If A ≤ Z1 ≤ B
Y = E2Z2 If B ≤ Z2 ≤ C
And so on. Where E, E1, E2 are the energy rate per kWh and A, B and C, are the
limits of energy consumption.
Various type of tariffs are as follows:
(4) Block Rate Tariff.
According to this tariff a certain price per units (kWh) is charged for all or any
part of block of each unit and for succeeding blocks of energy the
corresponding unit charges decrease.
It is expressed by the expression
Y = E1Z1 + E2Z2 + E3Z3 + E4Z4 + .....
where E1, E2, E3.... are unit energy charges for energy blocks of magnitude Z1,
Z2, Zg,.... respectively.
(5) Two Part Tariff (Hopkinson Demand Rate).
In this tariff the total charges are based on the maximum demand and energy
consumed. It is expressed as
Y = D . X + EZ
A separate meter is required to record the maximum demand. This tariff is used
for industrial loads.
(6) Three-Part Tariff (Doherty Rate).
According to this tariff the customer pays some fixed amount in addition to the
charges for maximum demand and energy consumed. The fixed amount to be
charged depends upon the occasional increase in fuel price, rise in wages of
labor. It is expressed by the expression
Y = DX + EZ + C. 6
Optimal Pricing of Electric

Economic Operation of Power System
Economic operation of power system identifies which
units to operate and the amount to generate in order to
achieve a set of economic goals. The goal is to choose a
control strategy that minimizes losses or maximizing
profit subject to meeting a certain demand and other
system constraints (costs, prices, voltage level, system
reliability and security).

Economic Operation of Power System
1- Economic Dispatch

An economic dispatch calculation (EDC) is performed to

dispatch, or schedule, a set of online generating units
to collectively produce electricity at a level that
satisfies a specified demand in an economical manner.

Economic Operation of Power System
Factors to Consider in the Economic Dispatch
* The Cost of Generation
Cost is one of the primary characteristics of a generating
unit, which is primarily determined by fuel cost and
usage. Fuel usage is closely related to generation level.
** Economic Distribution of Loads between the
Units of a Plant
To determine the economic distribution of a load
amongst the different units of a plant, the variable
operating costs of each unit must be expressed in
terms of its power output.
Economic Operation of Power System
The relationship between power level and fuel cost is
approximated by a quadratic curve:

where ai, bi, and ci are the cost coefficients of generator i.

The incremental operating cost of each unit is then
computed as.

Economic Operation of Power System

Economic Operation of Power System
** Economic Sharing of Loads between Different

The load is distributed between the different plants that

are joined by transmission lines, then the line losses
have to be explicitly included in the economic dispatch

Economic Operation of Power System
* Generating Limits
Other characteristics of generating units that affect the Economic Dispatch are
the minimum and maximum generation levels at which they may operate.

The less efficient units are switched off during off peak hours. There is a certain
amount of shut down and start up costs associated with shutting down a unit
during the off peak hours and servicing it back on-line during the peak
To meet the sudden change in the power demand, it may therefore be necessary
to keep more units than it necessary to meet the load demand during that
time. This safety margin in generation is called spinning reserve .

Economic Operation of Power System
* The Price
The price at which an electric supplier will be
compensated is another important factor in
determining an optimal economic dispatch. In many
areas of the world, regulations allow the utilities to
charge rates that guarantee them a nominal profit. In
competitive markets, price is determined through the
forces of supply and demand, if the total supply is high
and the demand is low, the price is likely to be low, and
vice versa.

Economic Operation of Power System
* The Quantity Supplied
The amount of electric energy to be supplied is another fundamental
input for the Economic Dispatch. Regions of the world require electric
utilities to serve all electric demand within a designated service region.

In competitive markets, this obligation to serve is limited to those with

whom the GENCO has a contract. Beyond its contractual obligations,
the GENCO may be willing to supply additional consumer demand.
GENCO determining the schedule of its own online generating units
and may choose to supply all, none, or only a portion of that additional
consumer demand. The decision is dependent on the objective of the
entity performing the EDC (e.g., profit maximization, improving
reliability, etc.).

Economic Operation of Power System
** The old central dispatch problem:
- Some generators cost more to run.
- Minimize the cost of the dispatch.
The Solution:
- Collect all the cost and transmission-line data.
Solve a linear program. Tell each power plant when to start and how much
to produce.
** New central dispatch problem
- Find the prices that will cause power plants to produce power a least
cost and consumers to use power efficiently.
The New Solution:
- Have power plants bid: Marginal cost, Startup cost, …etc
- Collect transmission data.
- Solve for the competitive prices.
Economic Operation of Power System
2- Unit Commitment
The unit commitment (UC) problem is defined as the
scheduling of a set of generating units to be on, off, or
in stand-by/banking mode for a given period of time to
meet a certain objective. For most power systems,
committing units is performed centrally by the utility,
and the objective is to minimize costs subject to
supplying all demand (and reserve margins).
In a competitive environment, each GENCO must decide
which units to commit, such that profit is maximized,
based on the number of contracted MW.
Economic Operation of Power System

Economic Operation of Power System
Factors to Consider in Solving the UC Problem
* The Objective of Unit Commitment
The objective of the unit commitment algorithm is to
schedule units in the most economical manner. For
the GENCO deciding which units to commit in the
competitive environment, economical manner
means one that maximizes its profits. For the
monopolist operating in a vertically integrated electric
system, economical means minimizing the costs.

Economic Operation of Power System
* The Quantity to Supply
In systems with vertically integrated monopolies, it is common for electric
utilities to have an obligation to serve all demand within their territory.
The UC objective is to minimize the total operational costs subject to
meeting all of this demand (and other constraints they may be

* Compensating the Electricity Supplier

Maximizing profits in a competitive environment requires that the
GENCO know what revenue is being generated by the sale of electricity.
While a traditional utility might have been guaranteed a fixed rate of
return based on cost, competitive electricity markets have varying
pricing schemes.

Renewable Energy Pricing

Renewable Energy Pricing
Key issues in renewable energy pricing
* Characteristics of Renewable Energy Plants
Small size (installed capacity)
Large in number
* High Initial Capital Costs
* Intermittency and Grid Interconnection
- Is it possible to integrate small RE power plants into the system
dispatch schedule?
- Problems of ensuring grid discipline
- Who (the developer or power purchaser or the transmission/ distribution
company) should bear the cost of connection facility up to the nearest
receiving sub-station?
Renewable Energy Pricing
Key issues in renewable energy pricing

* Requirement of renewable energy obligation along

with feed-in tariffs

* Quantifying Environmental Benefits

The environmental benefits that achieved by producing power using RE
sources should be quantified and built-in the tariff structure of such

Renewable Energy Pricing
Renewable Energy Policy & Best International Practices
** Feed-in Tariffs (E.g. Germany, Denmark)
A minimum guaranteed price per unit of produced electricity to be paid to
the producer; it is a premium that is paid in excess of the market price
for electricity

** Renewable Energy Obligation (E.g. UK, Texas)

This is an obligation on licensed suppliers to supply a specified proportion
of their electricity supplies to their customers from renewable sources of

** Other Financial Incentives and Subsidies (Germany, Thailand,

Production Tax Credits, Investment Tax Credits
Renewable Energy Pricing

A feed-in tariff involves the obligation on the part of a

utility to purchase electricity generated by renewable
energy producers in its service area at a tariff determined
by public authorities and guaranteed for a specific period
of time (generally 20 years). The rate of a FiT is
furthermore reduced each year for new installations in
order to stimulate decrease in production costs. It is paid
in excess of the market price for electricity.

Renewable Energy Pricing
RE Technologies 2005 (Cent/kWh) Degression
Hydropower 6.65-9.67 0
Biomass (<20MW) 8.27-17.33 1.5
Geothermal energy (<20MW) 7.16-15.00 1.0
Wind energy (onshore) 5.39-8.53 2.0
Wind energy (offshore) 6.19-9.10 2.0
Solar energy 43.42-59.53 5.0
Degression: The tariff remains constant for commissioned installations, but depends on the
year of the initial operation. The later an RE installation is commissioned, the lower the

Renewable Energy Pricing
Advantages of Feed in Tariff
* Capacity expansion and renewable energy systems
electricity production growth
Countries with feed-in tariffs for wind power have seen the
largest growth of RES electricity. After the Electricity Feed-
in Law was passed in Germany, installed capacity of wind
energy more than doubled year-on-year during the 1990-95
period. The German case is also a good example of the FiT
effect on installed PV capacity expanding it from less than 20
MW per year to 130 MW per year.

Renewable Energy Pricing
Advantages of Feed in Tariff
* Energy generation cost competitiveness in
the longer term
It is estimated that competitiveness of solar
photovoltaic electricity for peak power price
rates will be reached around 2015 in regions
with higher irradiation. Competition with bulk
power is projected to require 10 additional
years. The market segment “grid connected
systems” will be competitive, when PV
electricity generating costs based on private
investments are lower compared to utility
prices in a liberalized market. This will most
likely happen as most PV generated kWh are
produced in peak hour time and future
electricity bills will charge higher prices
during peak times.

Renewable Energy Pricing
* Encouragement of technological development
and high quality
This process is stimulated through the application of an
annual decrease in FiT rate for new installations.
Producers with lower turnover aim at improving their
efficiency through technology development to stay
competitive on the market.

1- A. K. Raja, Amit Prakash, and Manish Dwivedi, “Power Plant Engineering”, New Age
International Publishers, 2006.
2- Bruce F. Wollenberg, “The Electrical Engineering Handbook”, CRC Press, 2001.
3- Arindam Ghosh, “Power System Analysis”, downloaded from
PROGRAME”, IEEE 4th world conference on photovoltaic energy conversion, Vol. 2, 2006.
5- “Renewable Energy Pricing”, downloaded from