## Understanding the world of electricity trading electricity projects for grade 7

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Imagine a highway system. In this analogy, the driver would be the generator, the highway system would be the grid and whoever the driver is going to see would be the load. And the price would be considered as the time it takes you to get to your destination. Notice that I mentioned the highway system and not simply roads, which is an important nuance. The highway system is the equivalent of high voltage power lines while local streets 5 gases in the atmosphere are analogous to the retail distribution system. The retail distribution system is made up of the poles you see on your street while the grid is made up of big electricity pylons holding high voltage lines. ISOs and the general market are mainly concerned with the grid while retailers or Load Serving Entities (LSE) get the power from substations to your home. So let’s remember this, cars are power, people are electricity 2pm mp3 the generators, the destination (a highway exit and not someone else’s home) is the load and price is time. We’ll use this analogy from time to time to explain some more complex concepts but remember that the analogy is imperfect, so treat each reference to the analogy independently.

All ISOs use a form of pricing called locational marginal pricing (LMP). This is one of the most important concepts in electricity markets. The Locational refers to the clearing price at a given point on the grid (we’ll get to why prices are different at various locations in a moment). The Marginal means that the price gas oil ratio for weed eater is set by the cost of delivering one more unit of power, usually one megawatt. Therefore, the LMP is the cost of providing one more megawatt of power at a specific location on the grid. The equation for an LMP generally has three components: the energy cost, the congestion cost and losses. The energy cost is the compensation required for a generator to produce one megawatt at the plant. Losses are the amount of electric energy lost while zipping along the lines. These first two components are simple enough but the last one gas in dogs causes, congestion is trickier. Congestion is caused by the physical limitations of the grid, namely transmission line capacity. Power lines have a maximum level of power they can carry without overheating and failing.

Returning to our que gases componen el aire y su porcentaje analogy, congestion could be considered to be traffic jams and losses would be the equivalent of the wear and tear on your car. Just like you don’t really worry about wear and tear on your car when visiting a friend, losses are fairly stable across the grid and are the smallest component of the LMP. They also mainly depend on the quality of the road you are driving on. So given that LSEs are looking to minimize their costs, they rely on the ISO to dispatch the lowest cost generator to supply them with electricity. When a low cost generator is willing but unable to deliver power to a given point because of congestion on the line, the dispatcher will instead dispatch a different generator elsewhere on the grid, even if the cost is higher. This is similar to having someone else drive to the destination even though electricity and magnetism review they live further away but because traffic is so bad the person living closer cannot even get on the highway! This is the main reason prices differ by location on the grid.