Economic Evaluation of Cycling Plants – An Approach to Show the Value of Operational Flexibility H. Emberger, Dr. D. Hofmann C. Kolk, Siemens Power Generation, Erlangen
Introduction
Since the beginning of power market’s liberalization in the mid 1990ies, the power plant business has been changing fundamentally. Nowadays operators of power plants find themselves in a much more challenging market environment with the presence of strong competition, higher fluctuation of fuel prices and missing long term power purchase agreements. But apart from these new challenges, market’s liberalization also comes along with new business opportunities: Utilization of market price fluctuations for operation and maintenance optimization, participation in ancillary service markets and short term trading to mention a few can contribute to improve significantly the operating margins. By knowing howto approach these opportunities significant higher profits compared to a long term power purchase agreement can be achieved.

The changed market conditions have an influence on the operating profile of every power plant in order to be dispatched. Combined cycle power plants often do not strictly operate in a base load-like regime running 8000 hours per year. Many units are operating in a daily start-stop regime with units starting up to two times a day. In this market environment, an economic model that incorpo-rates only a certain amount of base load hours with fix power revenues will not describe the full picture, additional earnings from the above mentioned market opportunities would not be considered. To be more accurate, an extended approach for evaluating a cycling plant with high flexibility is necessary. Key parameters for operational flexibility are for example start-up time, standby operation and shut-down time. This paper describes an approach for evaluating flexibility for combined cycle cycling power plants.

Market environment
In the thirties of last century, the German steam turbine manufacture AEG (today a part of Siemens Power Generation) focused in one of its advertisements on operational flexibility – short start-up times and high part load efficiency – of its products.

Today, seventy years later, the topic operational flexibility is still very much up-to-date. In highly competitive liberalized markets, operational flexibility is one key issue for economic success. Many plants nowadays do not have a power purchase agreement that guarantees long term and stable revenues. They are more likely to operate as merchant plants according to market conditions in direct competition with other power plants on the most favorable dispatch rank. Energy traders have various markets with different opportunities to place the power output. Examples are bilateral OTC contracts, power exchanges or markets for ancillary services.

Each of these markets itself can be accessed with a variety of products. In this context one share of the power output can be placed with a long term contract, giving planning security for longer periods for lower margins, while other shares of the power output can be sold with short term agreements, on the day or even hour ahead spot market, offering higher margins linked to higher  risks. Apart from the idea to participate in the market by splitting up the power output there are yet other ways to achieve higher revenues in liberalized energy markets by offering ancillary services. For spinning reserve for instance an allowance is paid just for the capability to provide power on request. In case of being dispatched, the power must be provided within minutes and an additional utilization fee will be paid. The plants capability to do so is first of all a criteria for qualifying to this market, but can be evaluated as it brings extra earnings in the next step Main characteristic of all products of the mentioned markets (OTC, power exchanges, ancillary markets) is the time span between contract signature and delivery and the dynamic requirements during delivery.

A short time span increases the plant owner’s risk, knowing only at short term under which load and revenue conditions he operates, but widening the opportunities for higher earnings. For long term agreements signed well ahead of the delivery date it works vice versa. For products with high dynamic requirements like spinning reserve normally revenues are achieved well above power exchange prices.

The challenge placed is simple in theory: optimizing plant operation between these two extreme positions and defining the right mix of products in order to achieve the highest return on investment for each plant or a plant portfolio with the desired risk level.

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