What Is the Best Way to Determine Electricity Prices on an Isolated Island?

[Kolika28]

Homework Statement

a) What will be the price for the following hour?

b) Draw a graph showing Merit order, electricity production as a function of installed power, and show how the market price is set.

Relevant Equations

Merit order

An isolated island has a specific electricity demand of 75 MW for a specific hour. The power producers have made the following offers during the hour:

To be honest, I don't understand both a and b. When it comes to a, should I just use several of the options in the table to get 75 MW? Or should I just choose ONE option that gives me 75MW, like coal power?

When it comes to b, I do understand what the Merit order shows us, but I don't understand how to make it.

 

[haruspex]

Merit order works like this:
- pick the cheapest type of power
- if that provides all the demand, you are done, otherwise..
- add in the second cheapest
- if the running total provides all the demand, you are done, otherwise..
- add in the next cheapest
etc.

When you have enough to satisfy demand, all of those you picked warns the rate of the last one you picked, i.e. the highest of those you picked.

 

[haruspex]

For part b, not quite sure what they want. Seems to me there are two graphs.
A stacked column graph, cheapest at the bottom, would show what the power mix would be for any given demand.
But to see how the price per MW depends on demand, a line graph plotting that price against demand would be better.

 

[Kolika28]

Merit order works like this:
- pick the cheapest type of power
- if that provides all the demand, you are done, otherwise..
- add in the second cheapest
- if the running total provides all the demand, you are done, otherwise..
- add in the next cheapest
etc.

When you have enough to satisfy demand, all of those you picked warns the rate of the last one you picked, i.e. the highest of those you picked.

Hmm, I'm not sure if I understand a. Should I just use coal power, since it statisfy the demand?
So the price is:
$100MW*10^3kW/MW*1h*0.35USD/kWh=35 000 USD$?

 

[jbriggs444]

Hmm, I'm not sure if I understand a. Should I just use coal power, since it statisfy the demand?
So the price is:
$100MW*10^3kW/MW*1h*0.35USD/kWh=35 000 USD$?

If you follow the algorithm given by @haruspex, what is the first step?

 

[BvU]

Asking for clarification: if someone offers 100 MW at 0.35 USD/kW, does that imply they are obliged to deliver, say 32.5 MW at the same rate ?

 

[haruspex]

Asking for clarification: if someone offers 100 MW at 0.35 USD/kW, does that imply they are obliged to deliver, say 32.5 MW at the same rate ?

Yes. The offer is up to the 100MW.

 

[BvU]

Rather unrealistic: you need a full crew, even for one third of the capacity ...

 

[haruspex]

Rather unrealistic: you need a full crew, even for one third of the capacity ...

It must be realistic because that is how it works. These deals are struck at five minute intervals, so the crew is there anyway. It's largely automated.

 

[DEvens]

Asking for clarification: if someone offers 100 MW at 0.35 USD/kW, does that imply they are obliged to deliver, say 32.5 MW at the same rate ?

Depends on the market and the market rules.

For this particular homework problem, probably what the OP should do is pick a rule, state it, and solve the problem using that rule.