Economic Research and Perspectives

Economic Research and Perspectives

Economic modeling of power pool of Iran and western neighbors using optimization approach

Authors
Mahsa Mehrabi 1
Alimorad Sharifi 2
babak saffari 3
1 Ph.D. student, Department of Economics, University of Isfahan, Iran
2 Associate Professor of Economics, Department of Economics, University of Isfahan, Iran
3 Assistant Professor of Economics, Department of Economics, University of Isfahan, Iran
10.22034/24.1.163
Abstract
Introduction

Among energy carriers, electricity is a very basic factor for the global economy; To the extent that per capita electricity production and consumption indicators are used to determine the economic status of countries and their welfare level. The growth of electricity demand is affected by factors such as gross domestic product, the price of energy carriers, temperature, population growth, the development of energy-intensive industries, structural changes in the economy, and improving efficiency. Responding to the growth of demand can lead to the development of the electricity supply sector in order to meet this demand. On the one hand, governments are facing financial limitations in investing and developing electricity supply, and on the other hand, some countries are facing surplus electricity generation due to limited domestic demand in some days of the year. So, creating a power pool is necessary to meet the demand and sell the excess electricity produced (Bhattacharyya, 2019).

It should be noted that the actual progress of power pool is different among countries according to the potential of electricity production, its production cost and the price of electricity, so the examination of these observations has important consequences for the development of power pool between the countries of Iran, Türkiye and Iraq.

Electricity supply in the countries of Iran, Türkiye and Iraq is made from fossil fuel, electric and renewable power plants, and most of the sources of electricity production in the studied countries are fossil fuels. The production of electricity from electric power plants is affected by climate changes, so that in recent droughts it has caused blackouts during peak summer hours in these countries. Therefore, by connecting the power pool between these three countries, the blackout rate can be reduced. Also, examining the minimum cost of the power pool between the three countries of Iran, Türkiye and Iraq, taking into account the cost of subsidized fuel in all three countries, and comparing to the minimum cost of the electricity network of all three countries without forming power pool between them is the innovation of this paper.

Due to the lack of integrated electricity market between the countries of Iran, Türkiye and Iraq, for the economic modeling of electricity market integration, optimization method using past information and with the help of GAMS software, it is possible to determine how the electricity market is integrated.

Methodology

The regional electricity market is modeled based on short-term and long-term approaches. Cost minimization techniques are usually used. In the short-term approach, there will be no capacity increase in the planning horizon. The length of the short term can be chosen from a few hours to a year. By using short-term modeling, it is possible to evaluate the profitability of the developing electricity trade between the countries under study in current conditions without changes in their production capacity.

Results and Discussion

1- For the development of the international market in the country, new laws in the electricity sector and laws related to the export and import of electricity should be developed, and the criteria for granting licenses to the domestic private sector or foreign companies to establish commercial and export electricity companies in the country should be determined. This process was accelerated. 2- through joint investment with neighboring countries for constructing new transmission lines and border power plants and the joint exploitation of these power plants, due to the difference in peak times of electricity consumption in Iran and neighboring countries, electricity exchange is possible in the long term. Currently, Iran's electricity export and import program with neighboring countries is carried out in the form of annual agreements, but long-term joint investment projects are very effective in stabilizing international electricity trade programs. 3- An auction system should be established in the electricity market so that by creating databases, it is possible to get information on the latest information on the sale and export price of electricity between exporting and importing countries and electricity companies. Then, using the auction system, determined the minimum selling price for electricity export and the maximum price offered by the buyers and proceeded to sell electricity. 4- Establishing power pool between the countries of the region can lead to the formation of the international electricity market in the Middle East and its electricity exchange with Europe and North Africa. In the power pool, it is possible to buy and sell electricity on a daily basis and for shorter times during the day, and the price of electricity is different at any time. In power pool, each country can act as a wholesaler, and after meeting local and regional needs, it exchanges electricity with other wholesale electricity markets. 5- An optimal price based on LRMC method should be used as the base price in electricity marketing and bargaining in the market to determine the final price.

Conclusion

In this article, an economic energy model was presented for the countries of Iran, Türkiye and Iraq. In this study, the short-term electricity exchange network model between the countries of Iran and its western neighbors (Türkiye and Iraq) is presented. This model is designed to minimize the power pool between Iran, Türkiye and Iraq.

1- The cost of fuel has an effect on the minimum short-term cost of the power pool. Using the international fuel cost for the power plants of the three countries of Iran, Türkiye, and Iraq causes an increase in the minimum cost of the power pool. 2- The effect of transmission line losses on the total production of thermal and electric hydroelectric power plants in Iran, Türkiye and Iraq causes the increase in production of thermal power plants in Iran and Iraq, but changes the production of thermal power plants in Türkiye. With the increase in the loss factor of the transmission lines between zero and one, the output of Türkiye's electric power plant increases, but the output of Iran's and Iraq's electric power plants does not change. The optimal production of thermal and electric power plants in the countries of Iran, Türkiye and Iraq and the optimal electricity export and import and the amount of unmet electricity demand of these countries have been analyzed. 3- The graphs that present the electricity production of thermal and hydroelectric power plants in 2019 in the countries of Iran, Türkiye and Iraq, compared to the optimal values of thermal and hydroelectric power plants obtained from the model show that using the power pool, the production of electricity in the thermal power plants of Iran and Iraq will decrease, and by joining this power pool, the production of Türkiye will become zero, and the amount of electricity produced by the hydroelectric power plants of all three countries in this power pool should increase. It causes cost reduction in mentioned countries because it reduces the cost of operating thermal power plants in countries, so they can supply cheaper electricity. Also, the optimal amount of electricity transmission between countries shows the export and import of electricity between countries should increase. 4- With the joining of the countries of Iran, Türkiye and Iraq to the short-term power pool, there will be no unmet electricity demand in them. 5- the capacity values of the existing transmission lines between the three countries of Iran, Türkiye and Iraq, which are presented in Table 7, and the electricity export and import between Iran and Türkiye in 2019 in Table 6, compared to the optimal values of the model in Table 17 shows that exchange of electricity should be done according to this capacity, i.e. 450 megawatts between Iran and Türkiye. Also, the electricity export from Iran to Iraq should be increased and electricity import from Iraq to Iran should be done according to the capacity of the existing electricity transmission lines between Iraq and Iran, i.e. 1200 megawatts.

According to the hypotheses of this research, which state that the power pool between the countries of Iran, Türkiye and Iraq will create benefits in the short term, and the power pool will reduce the operating costs of power plants in the studied countries in the short term, it can be seen that these hypotheses are confirmed because the results of the model show that this power pool in the short term causes no unmet electricity demand in sample countries, and also increases the export and import of electricity between the countries. As a result, within the power pool, Iran, Türkiye, and Iraq will reduce the production of thermal power plants and increase the production of hydroelectric power plants, which will reduce the cost of fuel and operating costs of power plants, and also reduce environmental pollutants. This power pool also reduces the consumption of fossil fuels used by power plants, which creates benefits for the countries studied in this research.
Keywords
Economic Modeling
Electricity Market
Power Pool
Regional Integration
Iran and Western Neighbors

Subjects

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Economic Research and Perspectives
Volume 24, Issue 1
Spring 2024
Pages 163-192