Economic evaluation of independent power producers viewed from total generating costs of electric power systems

Abstract

In Japan, electric power utilities purchase electricity from independent power producers (IPPs) through competitive bidding; the IPP evaluation is based on the avoided costs of corresponding generators of utilities. In this evaluation, however, nonpricing factors such as power flow constraints in the electric power system cannot be considered. In this paper, we propose a new approach to evaluate economic impacts of IPPs, the IPP electricity being priced on the basis of total generating costs of the electric power utilities. Such a price to purchase the electricity of IPPs is referred to as the “break-even cost.” The main results are summarized as follows: 1) Break-even cost depends on not only the power flow constraints in the system, but also various IPP factors such as generating pattern, location, and capacity, 2) Break-even cost for the base-type IPP is higher than the avoided cost of corresponding utility generators, because IPPs located on demand sides can reduce the transmission power loss in the electric power system, 3) Break-even cost is affected by available capacity of utility generators, especially for the peak-type IPP generating only during peak demand periods. © 2000 Scripta Technica, Electr Eng Jpn, 133(2): 20–30, 2000