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Appendix

Answers to Selected Problems

Chapter 2
dC
= 50q 2 + 2000q
dq
Prot = Revenue Cost = 25q 2

2.1 Revenue = q

2.2 a. q max = 200


b.

max = 2000 $/widget

c. Maximum surplus = $200 000. It cannot be realized because it is unlikely that


producers will sell for nothing.
d.

q = 100
Gross consumers surplus = $150 000
Revenue = $100 000
Net consumers surplus = $50 000

e. q = 80
Revenue = $96 000
f. = 1
g.

Gross consumers surplus = 2000q 5q 2


Net consumers surplus = 5q 2

h.

Gross consumers surplus = 200 000 0.05 2


Net consumers surplus = 200 000 200 + 0.05 2

2.3 a. q = 120
= 800 $/widget
b.

Consumers gross surplus: $168 000


Consumers net surplus: $72 000

Fundamentals of Power System Economics Daniel Kirschen and Goran Strbac


2004 John Wiley & Sons, Ltd ISBN: 0-470-84572-4

APPENDIX: ANSWERS TO SELECTED PROBLEMS

266

Producers revenue: $96 000


Producers prot: $36 000
Global welfare: $108 000
2.4 a. = 900 $/widget
q = 110
Consumers net surplus: $60 500
Producers prot: $46 750
Global welfare: $107 250
b.

= 600 $/widget
q = 80
Consumers net surplus: $80 000
Producers prot: $16 000
Global welfare: $96 000

c. = 1100 $/widget
q = 90
Consumers net surplus: $40 500
Producers prot: $20 250
Tax revenue: $40 500
Global welfare: $101 250
2.5
q = 200

2.6 11
12
22
21

q = 10 000/

200

50

150

200

100

100

100

150

50

1/3

66.6

200

50

= 0.120
= 0.048
= 0.108
= 0.160

2.8 a.

Since the average production cost must be lower than the price, we get 65
y 155; y opt = 110

b.

The xed cost is so high that there is no range of production at which the rm
would make a prot.

APPENDIX: ANSWERS TO SELECTED PROBLEMS

267

Chapter 3
3.2

Pool Price
($/MWh)

a.

NSPCo

SAlCo

16

Produces 200 MWh Receives $3200


from the pool

Consumes 200 MWh Pays $3200 to


the pool

18

Produces 200 MWh Receives $3600


from the pool Pays $400 to SAlCo

Consumes 200 MWh Pays $3600 to


the pool Receives $400 from NSPCo

13

Produces 200 MWh Receives $2600


from the pool Receives $600 from
SAlCo

Consumes 200 MWh Pays $2600 to


the pool Pays $600 to NSPCo

b.

18

Produces 50 MWh Receives $900 from Consumes 200 MWh Pays $3600 to
the pool Pays $400 to SAlCo
the pool Receives $400 from NSPCo

c.

13

Produces 200 MWh Receives $2600


from the pool Receives $600 from
SAlCo

Consumes 100 MWh Pays $1300 to


the pool Pays $600 to NSPCo

3.3
Company

Prot ($)

Red
Green
Blue
Yellow
Magenta
Purple

650
1280
1325
515
287.50
125

3.4 a. The supply curve is piecewise constant and is as follows in tabular form:
Company

Amount
(MWh)

Cumulative
Amount (MW)

Price
($/MWh)

Blue

200

0200

10.5

Red

100

200300

12.5

Blue

200

300500

13

Green

50

500550

13.5

100

550650

14

Green

50

650700

14.5

Blue

100

700800

15

Green

50

800850

15.5

Red

50

850900

18

Red

APPENDIX: ANSWERS TO SELECTED PROBLEMS

268

b.
Forecast
Load
(MW)

Demand
(MW)

Price
($/MWh)

Blue
Production
(MWh)

Blue
Revenue
($)

Red
Production
(MWh)

Red
Revenue
($)

Green
Production
(MWh)

Green
Revenue
($)

400

400

13.00

300

3900

100

1300

600

600

14.00

400

5600

150

2100

50

700

875

875

18.00

500

9000

225

4050

150

2700

Forecast
Load
(MW)

Demand
(MW)

Price
($/MWh)

Blue
Production
(MWh)

Blue
Revenue
($)

Red
Production
(MWh)

Red
Revenue
($)

Green
Production
(MWh)

Green
Revenue
($)

400

348

13.00

248

3224

100

1300

600

546

13.50

400

5400

100

1350

46

621

875

813

15.50

500

7750

200

3100

113

c.

1751.50

3.5 a.
Item

Energy
bought
(MWh)

Industrial customer

Energy
sold
(MWh)

Price ($)

Expenses ($)

Revenue ($)

50

19.00

950.00

Other customers

1150

21.75

25 012.50

Future contract

200

21.00

4200.00

Put option

200

23.50

4700.00

Long-term contract

600

20.00

12 000.00

Future contract

100

22.00

2200.00

Call option

150

20.50

3075.00

Generation

300

21.25

6375.00

Spot market
purchase

450

21.50

9675.00

150 MW Call option


fee

1.00

150

200 MW Put option


fee

1.00

200

300 MW Call option


fee

1.00

300

Prot
Balance

887.50
1600

1600

34 862.50

34 862.50

APPENDIX: ANSWERS TO SELECTED PROBLEMS

b.

269

If the spot price increases to $23.47, the cost of the 450 MWh purchase on
the spot market would offset the prot. The 20.50 $/MWh call option and the
23.50 $/MWh put option would still be in the money. The 24.00 $/MWh call
option would still be out of the money.

3.6 Since the market operator accepted 175 MW of bids, using the supply curve, we
determine that the spot market price was 21.00 $/MWh.
a.
Item

Energy
bought
(MWh)

Energy
sold
(MWh)

Expenses ($)

Future T4

600

20.00

12 000.00

Nuclear unit

400

16.00

6400.00

Gas-red unit

200

18.00

3600.00

Forward T1

Revenue ($)

50

21.00

1050.00

Long-term T3

350

20.00

7000.00

Forward T5

100

22.00

2200.00

Exercise Put option T6

250

23.50

5875.00

50

21.00

1050.00

Residential customers

300

25.50

7650.00

Commercial customers

200

25.00

5000.00

Spot sale T9

Balancing spot purchase

100

21.00

2100

Fee option T6

2.00

500.00

Fee option T7

2.00

400.00

Fee option T8

2.00

200.00

Prot
Balance

b.

Price ($)

4625.00
1300

1300

29 825.00

29 825.00

Borduria Energys decit for that period would increase from 100 MW to
500 MW. The spot price would increase from 21.00 to 28.00 $/MW. The
cost of spot purchases would increase from $2000 to $14 000 but the cost of
operating the nuclear power plant would drop to zero. Borduria Energy would
therefore incur a loss of $975.00

Chapter 4
4.1 Cheapo Electrons makes a $1738.50 loss. The breakeven rate is 25.52 $/MWh.
4.2 The unit makes an operational prot of $690.07.

APPENDIX: ANSWERS TO SELECTED PROBLEMS

270

4.3 The unit makes an operational prot of $688.00


4.4 The unit should be brought on-line at the beginning of Period 3 and shutdown at
the end of Period 5. Its operational prot would then be $976.43.
4.5 The unit should be brought on-line at the beginning of Period 3 and shutdown at
the end of Period 6. Its operational prot would then be $680.43.
4.6 PA = 95.3 MW; PB = 74.2 MW; PC = 180.5 MW. Total hourly cost = 1927.15 $/h
4.7 PA = 85 MW; PB = 66 MW; PC = 160 MW; Market purchase: 39 MW
Total hourly cost = 1911.20 $/h
4.8 PA = 110 MW; PB = 86 MW; PC = 210 MW; Market sale: 56 MW
Prot from the sale: $33.03
4.9 PA = 100 MW; PB = 80 MW; PC = 210 MW; Market sale: 40 MW
Prot from the sale: $27.23
4.10 PA = 25 MW; PB = 30 MW; D = 55 MW; = 65 $/MWh; A = $725; B
= $1, 020
4.11 PA = 26.33 MW; PB = 31.33 MW; D = 55 MW; = 57.66 $/MWh; A =
$694; B = $982
4.12 Prot: $5235; Efciency that reduces prot to zero: 66.33%

Chapter 5
5.1
5.3
5.4
5.5

350 MW
a: 600 MW; b: 300 MW; c: 500 MW; d: 660 MW; e: 640 MW; f: 759 MW.
92.3 MW
106.5 MW

Chapter 6
6.1
F1 2 (MW)

F1 3 (MW)

F2 3 (MW)

Feasible?

Set 1

120

20

80

Yes

Set 2

400

400

No

Set 3

80

180

220

Yes

6.2 a. A = 80 $/MWh; B = 35 $/MWh; PA = 2000 MW; PB = 1000 MW;


FAB = 0
b.

A = B = 53 $/MWh; PA = 1100 MW; PB = 1900 MW; FAB = 900 MW

c. A = B = 65 $/MWh; PA = 1500 MW; PB = 1500 MW; FAB = 500 MW

APPENDIX: ANSWERS TO SELECTED PROBLEMS

d.

271

A = B = 57 $/MWh; PA = 900 MW; PB = 2100 MW; FAB = 1100 MW

e. A = 62 $/MWh; B = 47 $/MWh; PA = 1400 MW; PB = 1600 MW; FAB =


600 MW
6.3
Case:

EA ($)

160 000

106 000

130 000

114 000

124 000

EB ($)

35 000

53 000

65 000

57 000

47 000

RA ($)

160 000

58 300

97 500

51 300

86 800

RB ($)

35 000

100 700

97 500

62 700

75 200

The generator at B and the demand at A benet from the line because it increases
the price at B and lowers the price at A.
6.4 $9000. The congestion surplus is equal to zero when the ow is equal to zero
and when it is equal to the unconstrained value of 900 MW.
6.5 PA = 0 MW; PB = 0 MW; PC = 120 MW; PD = 400 MW
1 = 2 = 3 = 10 $/MWh
6.6 F21 = 120 MW; F31 = 280 MW; F32 = 200 MW
Line 13 is overloaded by 30 MW.
6.7 Method 1:
PA = 0 MW; PB = 48 MW; PC = 72 MW; PD = 400 MW
F21 = 102 MW; F31 = 250 MW; F32 = 182 MW
Increase in cost: $240
Method 2:
PA = 80 MW; PB = 0 MW; PC = 40 MW; PD = 400 MW
F21 = 150 MW; F31 = 250 MW; F32 = 150 MW
Increase in cost: $160
Method 2 is preferable because it is cheaper.
6.8 1 = 13.33 $/MWh; 2 = 12.00 $/MWh; 3 = 10.00 $/MWh
6.9 PA = 63.33 MW; PB = 10 MW; PC = 6.67 MW; PD = 400 MW
1 = 15 $/MWh; 2 = 12 $/MWh; 3 = 10 $/MWh

APPENDIX: ANSWERS TO SELECTED PROBLEMS

272

6.10 FBA = 730 MW; PA = 1270 MW; PB = 1783 MW; Losses = 53 MW


A = 58.10 $/MWh; B = 50.67 $/MWh;
Surplus: $2727
6.11
100.00

1000
900

90.00

Flow

80.00

800
700

70.00

MCA

60.00

(MW)

600

50.00 ()

500
MCB

400
300

30.00

200

20.00
10.00

100
Losses

0
0

0.0001

0.0002
0.0003
K = R/V2

0.00
0.0004

Figure P6.11 Losses and optimal ow


6.12


40.00

Y11 1 y13 31 = y12 2 + y13 3


y21 1 = Y22 2 + y23 3
1 = 13.33 $/MWh
31 = 5.33 $/MWh

6.13 Slack bus at bus 1:



y21 1 = Y22 2 + y23 3
y31 1 + y31 31 = Y33 3 + y32 2
Slack bus at bus 2:

Y11 1 y13 31 = y12 2 + y13 3
y31 1 + y31 31 = Y33 3 + y32 2
6.14 K = {1, 2, 3}; U = ; 31 and 21 are unknown.
Choose bus 1 as the slack.

y21 21 = Y22 2 + y21 1 + y23 3
y31 31 = Y33 3 + y31 1 + y32 2

21 = 1.67 $/MWh
31 = 7.00 $/MWh

0.0005

APPENDIX: ANSWERS TO SELECTED PROBLEMS

273

6.16 62.5 MW of owgate rights on branch 3-1.


6.17 37.5 MW of owgate rights on branch 2-1 and 62.5 MW of owgate rights on
branch 3-1.

Chapter 7
7.1
7.2
7.3
7.4
7.5

12.14%; 32.28 $/MWh


11.17%
14.13%; 12.33%;
Yes, because the IRR is 12.49%.
The investment is higher if technology A is adopted, but the Incremental Internal
Rate of Return on the additional investment is 14.13%, which is higher than the
Minimum Acceptable Rate of Return.
7.6 The plant should continue operating because it continues to generate a positive
cash ow of $32 524 128 per year. Borduria Power would not have built the plant
because it would not have achieved its MARR.
7.7 If the plant has 20 years of expected life left, Borduria Power should repair it
because the Internal Rate of Return on the investment required for the repair is
12.17%, which is above the MARR used by the company. If the plant has only
15 years left, the IRR is only 10.51% and the plant should be closed down.
7.8 Minimum price: 78.80 $/MWh. Average production cost: 37.70 $/MWh.

Chapter 8
8.3 8.00 $/MWh
8.4
Short run marginal value of transmission
50

40

30

20

10

0
0

100

200

300

400

500

600

700

10
Transmission capacity (MW)

800

900

1000

274

8.5
8.6
8.7
8.8
8.9

APPENDIX: ANSWERS TO SELECTED PROBLEMS

T = 45 0.05 FBA
12.00 $/MWh
660 MW
750 MW; $78 750 000. The two amounts are identical.
500 MW; $90 000 000 versus $52 500 000
1000 MW; $35 000 000 versus $105 000 000