0-7803-8237-404517.00220041EEE
2004 IEEE Imerational Conference on Electric Uility Deregulation, Resivturing and Power Technologies (DRPT2004) April 2004 Hong Kon,
STABILITY IMPACTS ON CROSS-BORDER ELECTRICITY TRADING
WP. So
TS. Chung
CT. Tse
EE Dept, The Hong Kong Polytechnic University, Hong Kong
sings to introduce competitive market
structure with market transparency in order to avid
‘economic inefficiencies. Theoretically economists
‘expect competitive behaviour in the deregulated
ectricty market would provide benefits on the
‘economic aspeets. However, i may ako generate
technical preblems on the security and stay ofthe
lnerconnected electvicity system. This paper
Dretents some preliminary studies caried out 10
investigate possible stability problems after the
‘opening of electricity market in the region,
Index Terms - Deregulation, Energy 7
Market Model, Stability Study
1. INTRODUCTION
The existing Scheme of Control Agreements
(SCA) beoween the local power companies and
Govemment would expire in 2008 An interim
review in 2004 might have fundamental and
wide-ranging effets on Hong Kong's electricity
industry. In view of the international treads and the
problems encountered in several countries rently,
itis not yet clear a6 to whether a power market
structure i 0 be proposed,
While the benefits of competition ate generally
expected to allow a lowering of electricity prices
from market operation, it could lead to general
benefit for society in various and wide-ranging
sectors, However, there has been a long-standing
technical concer particularly on the system stability
consequences that power system interconnection
might cause greater nteregional power transfer and
inevitably lead to significant stability
problems
A. Opporneiy of Mainland HKSAR
Imcerregional Elect Liberalization
would
Rapid increase in demand for energy has gone
with China's strong economic grow, Energy
supply in South China provinces such as
Guangdong is now in shortage and the demand is
expected 10 be further increased. espe
industrial and domestic sectors, Consequently,
315
‘Guangdong is planned to be supplied in the near
furse with electricity potential capacity or
‘generation options ftom neighbouring provinces.
Hycro-clectricity resources have been exploited in
Yunnan and Guangxi provinces tobe transmitted to
Guangdong. Furthermore, enormous hydro-electric
power would be provided ater the completion ofthe
famous Three Gorges Project in Central China. 1 is
thus quite attractive to impor electricity from
‘mainland due to the relatively more expensive
generation cost in Hong Kong locally. Eleticity
‘ill increasingly be seen as a potential commodity
to optimize resources allocation and help reduce
cose.
However, capable networks does not currently
exist readily among provinces. due to political,
technical, commercial and regulatory difficulties
associated with transmiting electricity across
emote provinces with long distance.
H, BcoNoMIC CONCEPTS APPLIED To
FLECTRICITY TRADING
1 useful at this point to recap the relevant
concepts which are essential in our economic
analyses
A. Categories of dusries
[A Sion canbe clasifedin one of four matket
types: perfect competion: monoplisic
‘empeiton,oigpoly and monaply
These ange fiom most competitive 10 leat
competitive respectively. Perfect competion and
monopoly ar the two extremes and very few fis
«an be said 0 be either purely competitive o purely
smonopalisic. However, to eter understand the
‘more realistic industry types its important to define
tbe two execs fst
Perfect competition is market smuctue in which
there are many competing firms selling identical
products or serves,
‘A monopoly isan industry with only one seller.
The product which the firm sells typically has no 2004 IEEE International Conference on Electric Utility Deregulation, Restructuring and Power Technologies (DRPT2004) April 2004 Hong Keng
close substitutes. Most monopoles are regulated by
_govemment
1B. Society s Deadweight Lass Under Monopoly
A natural monopoly is firm that ean produce a
given level of output at a lower cost than n¥0
separate firms could produce that output. Ths is
called subadiiviy and is represented
mathematically below
6 < C1) + C2)
The left side of the inequality represen the cost
to the natural monopolist of producing @ given
output, . The right side ofthe inequality epresents
the cost of two separite firms producing that same
ouput, where X¥Z-Y. In such a case itis most
efficient forone firm to produce this product.
This monopolist price is higher than in the
perfectly competitive case since the monopolist is
not a price taker and can set its output where
‘marginal revenue equals marginal cost. The natural
monopolist’ average cos lies above marginal cost
and subsequently the firm produces ata loss i it
prices at mareinal cost In the perfectly competitive
market, price is set equal to marginal cost and
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