Economic evaluation of independent power producers (IPPs) viewed from total generating costs of electric power systems

In Japan, electric power utilities purchase electricity from independent power producers (IPPs) through competitive bidding, where the evaluation of IPP is based on the avoided cost of corresponding generators of utilities. In this evaluation, however, it is difficult to take into account the nonpricing factors such as power flow constraints in the electric power system. In this paper, we evaluated the maximum price to purchase the electricity from IPP on the basis of total generating costs of the electric power utilities, which was referred to as the breakeven cost. The main results are summarized as follows: (1) the breakeven cost depends on various factors such as IPP's generating pattern, location and capacity; (2) the breakeven cost for the base-type IPP is higher than the avoided cost of corresponding utility generator, because an IPP located at the end of the distribution system can reduce the transmission loss in the electric power system; and (3) the capacity of available utility generators affects the breakeven cost especially for the peak-type IPP which generates only during the peak demand period.