Chapter 1
Chapter 2
Chapter 3
Chapter 4
Chapter 5
Chapter 6

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4. Introduction to the Business of Energy

This section is intended to serve as an introduction to energy from a business perspective. The main concepts to be discussed include: power management, unit commitment and optimal power flow, energy markets, financial risk management, and demand forecasting. Some case studies will also be presented to illustrate these concepts. The first of the concepts will be explored below.

4.1 Power Management

4.1.1. The Infrastructure of a Power System.

A power system is a large, complex integration of large generators, a transmission grid, distribution grids, distributed generators and loads, which are connected at points called busses .   In describing the management of a power system we must define several components of the system:

•  Physical assets - generators, loads and grids

•  Asset owners - government, corporations and consumers

•  Asset operators - public and private utilities, consumers

•  Asset managers and energy markets - bi-lateral, wholesale, retail, ancillary-services markets and grid management

•  Risk markets - financial risk portfolio managers, over-the-counter derivatives markets (OTC), commodity/derivative exchanges

•  Asset managers - public and private utilities, contractors, independent service operators (ISO)

Figure 1.1 illustrates this system of interconnected components.

Figure 1.1: Power System Assets Loads

A load is a demand for electric power.   In power-grid management all loads are identified by the bus at which they connect to the distribution grid.   There are three categories of loads: residential, commercial and industrial

Residential load = the demand for electric power from home-owners, apartment dwellers and any other form of residence.

Commercial load = the demand for electric power from shopping malls, stores, government agencies and light business activities.

Industrial load = the demand for electric power from manufacturing facilities and other forms of heavy industry.

Most users of electricity do not purchase power directly from a generator.    Instead they purchase power from a retailer.   These retailers are known as load serving entities (LSE) or load aggregators .   Retailers purchase power from wholesalers who, in turn, purchase power from suppliers.   The actual delivery of electric power is sub-contracted to power-line owner/operators. Islanded and interconnected DG

The source of electric power that is potentially nearest to a load is a small generator that is connected directly to the load and serves that load only.   This kind of generation is called islanded distributed generation (DG).   The qualifier "islanded" implies that this type of generator cannot deliver power to loads other that the one to which it is connected.   Examples of islanded DG are small gas-turbine generators that provide power to commercial or industrial sites such as universities, shopping malls and refineries or clusters of residential loads such as apartment complexes.   Other examples of islanded DG are solar panels atop houses and buildings.

In the management of a power grid, islanded DG has the effect of reducing the average load placed on the distribution grid as a DG unit can provide some or all of power required by the facility to which it is connected.   However, the reliability of a DG unit has an effect on the variability of the load placed on the distribution grid as the shutdown of a DG unit suddenly transfers the facility's demand for power from the DG unit to the distribution grid.

Some distributed generators may be connected to the distribution grid in addition to a particular load.   This kind of generation is called interconnected DG .   The owner of an interconnected distributed generator may be able to use the power of this generator for the load to which it is connected as well as for sale to other loads within a distribution grid. Generators, IOU, PU

Most generation comes from large power plants, which are typically fueled by coal, fissionable radioactive elements or natural gas.   Wind farms, hydroelectric generators, geothermal generators and other new generation technologies round out the portfolio of large-scale generation sources.  

These generators are owned and operated either by public utilities ( PU ) or private, investor owned utilities ( IOU ).   Large generators are usually located long distances from the many loads that they serve.   Consequently, large generators make their power available to transmission grids, which carry power from the generators over high-voltage power lines across large geographical areas. Transmission grids, basis points, ISO

A transmission grid is a network of high-voltage power lines, transformers and busses that transfer electric power from large generators to distribution grids.   A bus that connects a distribution grid to the transmission grid is called a basis point .   A transmission grid covers a large geographical area and is connected to numerous large generation assets.   The topology of the transmission grid is complex and allows for power to flow in each branch of the network in either direction as conditions require.  

Transmission grids are owned and operated by regulated business entities called independent service operators ( ISO ).    ISO's are responsible for ensuring that the transmission grid is maintained, all large generators have access to the grid and that all loads placed on the grid at basis points are supplied.

Transmission grids are connected to one another to form a large power grid that can stretch across national regions and even international borders.   Transferring large amounts of power from one transmission grid to another is a transaction known as wheeling. Distribution grid

A conventional distribution grid is a network of low-voltage power lines, transformers and busses that bring electric power to loads within a small geographical area such as a small city, town or rural area within a county.   The conventional topology of a distribution grid is arborescent, which means that the power enters the grid at a basis point and is distributed to loads through successive branching.   Each bus in such a network has one line that brings power into the bus and several lines that bring power away from the bus.   The terminal points of a distribution grid are the loads that the grid supplies. Figure 1.1.5 illustrates a distribution grid.

Figure 1.1.5 Distribution Grid Topology

Distribution grids are owned and operated by public utilities, cooperatives or investor-owned utilities that are granted monopoly rights over the grid's power distribution.   These service organizations are responsible for the maintenance of the distribution grid.

The development of cost-effective DG has introduced two modifications to the conventional power grid.

•  Islanded DG can reduce the load placed on the distribution grid at the discretion of the operator of the DG asset.   Although the average load placed on the distribution grid is reduced by islanded DG, the volatility of this load may be increased due to the uncertainty in the DG operation.

•  Interconnected DG can inject power into the distribution grid.   This injection supplants some of the power that the distribution grid would purchase from the transmission grid.   However, interconnected DG can cause power to flow in directions opposite to the conventional flow of power from the trunk of the distribution grid outward to the ends of the terminal branches.   This reverse flow and the associated inverted bus voltages within the distribution grid raise safety and reliability concerns.   See Chapter 2 Environmental Impacts.




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