PPT Slide
Problem 1.5: Economy Interchange and Wheeling Electric Power
Suppose Thailand and Singapore propose to enter into a 250 MW split-savings economy-interchange agreement in order to reduce their production costs. Obviously, in order to carry this out, the power will have to be wheeled (sold) across Malaysia’s transmission system (grid). Engineering studies indicate that Malaysia’s transmission losses will increase 56.25% from 10 MW to 15.625 MW as a result of the proposed power transfer and that the incremental costs will be 6 ˘/kWh, 9 ˘/kWh and 10 ˘/kWh for Thailand, Malaysia and Singapore respectively during the course of the transaction.
Part A: How much rent (in ˘/kWh sold) should Malaysia charge Thailand and Singapore for the use of its transmission system in order for it to just recover the cost of its increased transmission losses (i.e., in order for it to break even)?
Part B: For the break-even case of Part A, at what price (in ˘/kWh sold) should Thailand sell energy to Malaysia? At what price (in ˘/kWh sold) should Malaysia sell energy to Singapore? How much (in ˘/kWh sold) does each country benefit?
Part C: Suppose Malaysia offers a counterproposal for which its transmission rental fee is such that all three countries benefit equally. What are the answers to Part B in this case?
Part D: Is Part C’s counterproposal fair? Compare it to the hypothetical case where Thailand and Singapore trade directly by way of a fictitious lossless interconnection (rather than using Malaysia’s grid). Is Malaysia taking unfair advantage of its geographical position as the hypothetical analysis might suggest? Finally, how can Malaysia justify the profit it makes by simultaneously importing and exporting energy at prices lower than its own incremental cost? How would you explain this to a layman?