EBF 483
Introduction to Electricity Markets

4.1 The Dispatch of Power Plants by an Electric Utility

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Since electricity cannot be stored in power lines, the entity operating the power grid must continuously adjust the output of its power plants to meet electricity demand. This process is called the "dispatch" of power plants. There are actually two stages to the dispatch process, and they occur over different time horizons.

The first stage is called "unit commitment," which occurs a day or more in advance of the need to meet real-time electricity demand. Under unit commitment, the utility or power grid operator makes decisions about which of its power plants to turn on or off in anticipation of needing to meet electricity demand. If a plant is turned on in the unit commitment process, we say that the plant has been "committed" or "scheduled" to produce electricity.

The second stage is what we refer to as "dispatch," where the plants that are committed are selected to run at a given level to meet total electricity demand. The dispatch decision is driven primarily by economic factors, as we'll see in the next section, but other types of operational considerations such as ramp rates and minimum run times (which we met in the previous lesson) are also used in the dispatch decision. Our focus in this lesson will be on those economic factors.

But to see how some of these other considerations might work, let's look at how the unit commitment and dispatch decision might work over a typical day. The figure below shows electricity demand for the ERCOT system (which comprises much of Texas) over a 24 hour period. You can note the following:

  • There is a certain amount of electricity demand, known as "base load," that the grid operator in ERCOT will need to meet every single hour.
  • Demand is generally higher during the day than at night. So the grid operator in ERCOT will need to schedule some types of power plants to produce electricity during the day, but not at night.
  • Finally, there are a few hours per day when demand is extraordinarily high. These are known as "peak" hours and the ERCOT grid operator would need to schedule some types of power plants to be "on-demand" to run only during these peak demand hours. These power plants can be turned on and off quickly but are also very expensive to operate since they aren't terribly efficient.
graphic showing electricity demand in ERCOT for a summer day
Figure 4.1: Electricity demand in ERCOT for a summer day.
Source: Seth Blumsack, based on ERCOT data

So, the combination of unit commitment and dispatch for the ERCOT grid operator for a summer day would look something like this:

  • The grid operator would commit a collection of base load plants that may have long minimum run times but low marginal costs. From hour to hour it would make economic decisions about how much each of these plants should produce.
  • The grid operator would also commit a collection of plants that are relatively quick to start up to run during the daytime hours. It would then make hour-to-hour decisions about how much electricity each of these plants should produce.
  • Finally, the grid operator would commit a collection of "peaking plants" that could be turned on (dispatched) within minutes if needed.

The material that follows in this lesson will focus on the dispatch decision that the electric utility or grid operator would make on an hour-to-hour basis within a given day. For now, we'll ignore any of the decisions related to unit commitment.