CHAPTER 2 POWER SYSTEM DEREGULATION

2.1 Introduction
Electrical power industry has been dominated by large utilities that have overall authorities on activities in generation, transmission and distribution of power refer to as vertically integrated utilities. During the nineties many electrical utilities and power network companies world wide have been forced to changed their ways of doing business from vertically integrated mechanism to open market system. This kind of process is called as deregulation or restructuring. Deregulation word refers to un-bundling of electrical utility or restructuring of electrical utility and allowing private companies to participate. The aim of deregulation is to introduce an element of competition into electrical energy delivery and thereby allow market forces to price energy at low rates for the customer and higher efficiency for the suppliers.

2.2 Vertically Integrated Electrical Utility (VIEU)

VIEU is referred as Regulated Electrical Power Industry. Regulation means that the Government has set down laws and rules that put limits on and define how a particular industry or company can operate.

2.2.1 Need for regulation

1. Risk free way to finance the creation of electric industry 2. Recognition and support from local government to utilities 3. Assured return on investments 4. Establishment of local monopoly

In Fig. 2-1 shows the basic structure of regulated power system, in which one controlling authority-the utility-operated the generation, transmission and distribution systems located in a fixed geographic area.

Fig. 2-1: Basic structure of VIEU

2.2.2 Features of VIEU

1. Overall authority, overall activities in generation transmission distribution of power utility lie within its domain of operation. 2. VIEU will be the only electricity provider in the region and it has obligation to provide electricity to every one in the region. 3. Information flow is a bilateral one between generation and transmission system but money flow was unidirectional.

2.2.3 Demerits of VIEU

1. It was often difficult to regulate the cost incurred in generation transmission and losses occurred in distribution.

2. Losses occurred in distribution is accounted by spreading the cost over all three components. Hence utilities often charged their customers at an average tariff depending upon their aggregated cost during the particular period. 3. The prices setting is done by an external regulator agency often involved considerations other than economics. (Political party interferences or government policies on new issues etc.)
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4. The main objective of VIEU is to minimize the total cost while satisfying all the associated problems and constraints, but this leads to complex operation issues because of the big size VIEU. Further VIEU needs centralized planning for longterm generation, transmission expansion, midterm planning activities such as maintenance, production scheduling, fuel scheduling for optimal cost.

In spite of all the above demerits VIEU have performed satisfactorily over the long years with respect to operation, control and planning. But after 1990 there has been very big mismatch between the growth of the load and the generation expansion. This has led to ineffective operation of the system. Hence the concept of deregulation has been mooted. When the generation, transmission and distribution system control are separated in terms of management and ownership, the power system is said to be deregulated.

2.3 Deregulated electrical power industry

Deregulation in power industry is a restructuring of the rules and economic incentives that governments set up to control and drive the electric power industry.

Fig. 2-2: Unbundling the system

Fig. 2-3: Typical configuration of restructured or deregulated power system

Competitive Generation Market Transco & Disco

Competitive Retail market Multiple Buyers

Multiple sellers

Competition

Regulated monopoly

Competition

Fig. 2-4: The competition

ISO (Independent System Operator)

ISO was appointed for the whole system and its main responsibility is to keep the system in balance. i.e., Imports + productions = Exports + Consumption + losses. Thus ISO must be an independent authority without any involvement in market competition. But it validates all the transactions before the actual operation takes place

from the point of view of security of the systems, congestion management, real time operation etc. Responsibilities of Independent System Operator 1. System security and reliability 2. Power delivery 3. Transmission pricing 4. Service quality assurance 5. Promotion of economic efficiency and equity 6. Fair market

Market trader/Market operator (Retailer) Market operator is an entity in the de-regulated environment and is responsible for the operation of market trading of electricity. He receives the bid offers from various market participants and determines the markets price based on certain criteria in accordance with the market structure.

2.3.1 Need for Deregulation

1. To provide cheaper electricity. 2. To offer greater choice to the customer in purchasing the economic energy. 3. To give more choice of generation. 4. To offer better services w.r.t power quality i.e. Constant voltage, constant freq. and uninterrupted power supply.

2.3.2 Benefits of deregulated power system

1. Cheaper electricity. 2. Efficient capacity expansion planning at GENCO level, TRANSCO level and DISCO level. 3. Pricing is cost effective rather than a set tariff. 4. More choice of generation. 5. Better service is possible.