Environmental Engineering Reference
In-Depth Information
7
Power System Economics and
the Electricity Market
7.1 Introduction
This chapter reviews the economics of renewable power generation and the electricity market,
which is increasingly the mechanism that determines what generation is used and when. At
the outset a comparison is made between the capital and running costs of renewable and
conventional forms of generation. Consideration is then given to how the economics change
if external costs are taken into account along with the benefi ts/costs of small scale embedded
renewable energy generation.
A description is then given of how renewable energy generation is fi nancially accommo-
dated within an electricity system in which power from a generation plant is dispatched to
meet the varying electricity demand. The UK situation is reviewed to illustrate how renew-
able energy generation fi ts within a system that has evolved from being wholly state owned
and controlled to a privatized market with open competition and trading.
Finally, the support mechanisms that are used around the world to encourage the growth
of renewable energy generation are briefl y reviewed.
7.2 The Costs of Electricity Generation
7.2.1 Capital and Running Costs of Renewable and Conventional
Generation Plant
In order to assess the economics of renewable energy generation, it is fi rst necessary to
compare the costs of building and operating such plant in comparison to those of conventional
generation. Installed costs and performance levels of renewable energy plant are broadly
similar around the world, although no single fi gure can quantify the exact costs and perfor-
mance of any technology. In the case of wind and solar energy, for example, the energy
