October 3, 2014
After discussing the crude oil and fuel market mechanisms in our ‘ABC of the crude oil and fuel prices’ series, it is now time to have a closer look at another key business segment. I have chosen to focus on the power segment, which lies at the very centre of the energy sector both in Poland and around the world. Not only does the power sector account for the largest share of the energy balance, but it also draws upon the widest range of competing technologies using all primary energy sources, including fossil fuels, nuclear energy and renewables. This is where we have seen a constant battle between technologies at different stages of maturity and energy efficiency. The idea is to generate energy safely and cost-effectively, both now and in the distant future. Security and continuity of energy supply is monitored and controlled by competent regulatory authorities, which are also responsible for setting the rules of the game in the power market, where the business community seeks to strike a balance between energy prices and new technology development. As a result, the power sector is the lifeblood rather than an ordinary sector of the economy. In the present series of posts, I will put a spotlight on selected technological aspects, the regulatory framework, and the rules of the market game, all which ultimately shape the prices of electricity and heat paid by households.
Since prices are typically associated with specific products, and pricing mechanisms with specific markets, we will start by defining the product and explaining how the power market is organised. We will also explain the meaning of certain terms denoting power and heat generation equipment.
What is the product on the power market?
Energy is traded on the power market and can take several basic forms, all of which constitute energy products:
Fuel is a form of chemical energy contained in a given substance. Fuels are broken down into three groups: solid fuels (such as coal, wood, peat, biomass, etc.), liquid fuels (fuel oils, etc.) and gaseous fuels (including natural gas, industrial and waste gases, biogas, etc.). This category of energy products also include nuclear fuels, such as uranium, where fuel energy is measured in a different manner than in conventional fuels.
In the latter case, the chemical energy content in fuel is measured in GJ (gigajoules). This is often referred to as calorific value of fuel, as calorie was historically used as the measure of fuel quality – one calorie equals approx. 4.2 J. Depending on the physical state of the fuel, its energy content is converted into fuel units. In the case of solid and liquid fuels, the standard unit is GJ/kg, and in the case of gaseous fuels – GJ/Nm3 (normal cubic meter); however, for comparison purposes, the uniform energy unit GJ/kg is used for all physical states of fuel.
When determining the amount of energy released by a unit of fuel, we often use terms such as calorific value or heat of combustion. Both these terms refer to the amount of heat released by fuel at complete combustion, which is expressed in J/kg. In the case of calorific value of fuel, the heat balance does not include heat remaining in steam contained in flue gases. However, it can make a difference for different physical states of fuel.
Heat as an energy product is the form of energy carried mainly by steam and water. Water, both as a liquid and in its gaseous phase, facilitates the conversion and transport of the necessary energy. Following the conversion (usually combustion) of fuel, its chemical energy is transferred to water or steam (depending on the pressure and temperature parameters), and may be transported by pipelines to another location and used for various purposes (for heating, as steam power to drive machinery, and in other applications).
Heat is measured and traded in GJ. Please note that water, as an energy carrier, also carries a certain amount of thermal energy. In heat generating systems, this energy is often referred to as condensate or return heat.
In the case of water and steam, the term ‘enthalpy’ is often used; it defines the potential of a given amount of energy carrier to perform work. For instance, 1 tonne of steam at the temperature of 250°C and the pressure of 0.75 MPa has much lower enthalpy then 1 tonne of steam at 550°C and 13 MPa, and, as such, offers lower potential for the performance of work. Therefore, feeding 1 tonne of steam with different enthalpy values into a turbine will generate different MW (megawatt) outputs. This means that the price of 1 tonne of high-enthalpy steam should be higher than the price of 1 tonne of lower-enthalpy steam. Although commercial settlements are GJ-based, the energy carrier must retain the pressure and temperature parameters (which are subsequently used to calculate the enthalpy value).
Electricity is generated from fuels as a product of the fuel’s chemical energy conversion processes. The conversion is associated with the notion of generation efficiency, whereby the amount of chemical energy purchased in fuel is compared with the amount of electricity sold to a power grid. In the power market, electricity is measured and traded in MW. As fuel energy and heat are measured and traded in GJ, to simplify the calculation of power generation efficiency we may assume that 1 MW=3.6 GJ
How is the power market organised?
The power market is divided into individual interconnected segments combined into one value chain:
- Production (upstream) – The upstream segment supplies fuels containing the required chemical energy to the hydrocarbons-based power sector.
- Generation – In the generation segment, various forms of energy (such as kinetic energy in the case of wind power or chemical energy in the case of combustion-based power plants) are converted into electricity.
- Transmission – This is where electricity is transported over long distances from fuel generation sources to distribution systems (and, rarely, directly to end users).
- Distribution – Just as in the transmission segment describe above, in the distribution segment electricity is also transported but over shorter distances, via lower-voltage lines, and primarily to end users.
- Wholesale (Trade) – In this segment, market players purchase electricity (or related products such as certificates of origin or CO2 emission allowances) in wholesale quantities for subsequent resale to other market participants. These transactions include both physical delivery and virtual transactions (for speculative or hedging purposes).
- Retail – Electricity is supplied by power companies to end users.
What kind of equipment is used to generate electricity?
Power generating turbine
Turbines are flow-through units in which an energy carrier flows through turbine stages and transfers energy to turbine blades, thereby driving the shaft. A turbine is referred to as a steam turbine if steam is the energy carrier, and a gas turbine if the source of energy are hot flue gases. Wind turbines are also used in wind power plants, in which case the rotor blades are driven by the force of wind. Turbines are the key power-generating units in the commercial power sector. Also in nuclear power plants, turbines are driven by steam generated in the process of cooling the reactor.
Steam generator (boiler)
Steam generators are used to combust fuel which releases heat to water and/or steam, thereby converting chemical energy of the fuel into thermal energy of steam or hot water. Steam generators may be fuelled with any type of combustible solid fuel (such as coal or biomass), liquid fuel (fuel oils) or gaseous fuel. Combined systems are also used, such as gas-and-oil generators.
A unit which converts other types of energy, mainly mechanical energy, into electricity in power plants. Generators are driven by turbines or other power-generating drives, and use electromagnetic induction to generate electricity.
Turbine generator set
A turbine generator set is a drive unit which combines a turbine and a power generator. The two parts need to be installed at a close distance since they are connected with an energy transmission shaft; therefore, they share certain systems (such as oil and measurement systems, a common foundation, etc.). Both parts of a turbine generator set operate simultaneously and usually undergo planned repairs at the same time.
Steam condenser and steam turbine cooling system
A steam condenser is installed at the exit of a steam turbine, where used steam condenses and releases condensation heat to cooling water. A condenser usually consists of thousands of tubes through which cooling water flows, washed over on the outside with condensing steam. Condensate is collected in a condensate tank and pumped back into the steam generator.
Power plants fitted with a condenser unit are referred to as condensing power plants. Sometimes it is possible to use all steam exiting the turbine as process steam or as heat used for heating purposes. However, in that case a certain amount of steam enthalpy will be lost and will never be converted into electricity.
The cooling system may be open (water from rivers, lakes or seas is pumped through the condenser and heats up in the process) or closed (cooling water circulates between the condenser and e.g. a cooling tower).
Where availability of water is limited, air-cooled condenser or semi-dry systems may be used.
In a condensing power plant, a steam-and-water unit is a closed-loop system in which the energy carrier (water) circulates between the upper (steam generator) and lower (condenser) heat source, changing into water vapour inside the boiler and condensing again in the condenser. As a result, energy is transported and converted from fuel into mechanical energy which drives the turbine.
A step-up transformer is used to transform generator-level voltage (low voltage at approx. 20 kV) to transmission-level voltage (high voltage at 220 or 400 kV). The transformation process depends on the voltage in the network to which the power unit is connected.