Electrical Power Economics

Introduction

Electrical power is necessary for industrial and overall growth of a nation as most of the industries are directly / indirectly dependent on electricity. Hence it is necessary to study electrical power system and its economics.
Electrical power industry is different compere to other industries in following:

• Electricity cannot be stored. One has to generate electricity instantaneously to meet end customers' demands. 
• Electrical power demand is fluctuating. It is difficult to predict demand with ~ 100% accuracy, based on past data. 

Terms and their meaning

Base load and peak load of power grid
Base load is constant or permanent load on power grid. Peak load is maximum load on power grid.
Base load and peak load terms are also used for power stations. In this document we are using these terms with reference to power grid.
Capital expenditure and Operational expenditure
A capital expenditure (Capex) is money invested by a company to acquire or upgrade fixed, physical and non-consumable asset such as building, generator, turbines, boiler, transmission lines, transformers etc.
An operational expenditure (Opex) is the money a company spends on an ongoing, day-to-day basis in order to run a power system. Fuel cost, employee salaries, cost associated with transmission and distribution losses are few examples of Opex.
Generation, Transmission and Distribution
Electrical power activities can be broadly divided in these three categories. Power stations generate electricity. Typically, power stations are away from civilisation.
Transmission lines carry power from power stations to substations at higher voltage. Distribution lines carry power from substation to end customers of electricity at lower voltage.
Power station load factor
Power station load factor in a given duration is defined as number of units generated divided by maximum units plant can generate. For example if 100MW power station generates 2400 MWH power in one day, power station load factor is 100% for that day. Power companies are interested in ~100% power station load factor.

Electrical power supply and associated economics 

All the power stations are connected to electrical power grid and they together supply electrical power to all end customers.
In a supply chain, distribution company buys power from generation company and sells it to end customer. Distribution company then collects revenue from end customer for units consumed by him.
In fluctuating electrical demand, all generation companies are interested in supplying base load and not peak load of power grid. Base load supply ensures that their power station load factor is better, which further ensures better Return on Investment (ROI) on Capex.
However, all the power stations cannot be designed to supply base load. Some power stations has to take peak load. Load factor for power stations dealing with peak load would be much less compare to power stations dealing with base load.
Also, all types of power stations cannot act as a peak load power stations. Thermal power station and nuclear power station cannot act as a peak load power stations as it takes lot of time to switch on and switch off these types of power stations.
Another challenge is distance between power station and distribution substation as transmission losses are directly proportional to this distance -- more distance, more transmission losses.
Companies involved in transmission and distribution of electrical power are also interested only in base load. Base load ensures better Return on Investment (ROI) on their Capex.
End customer is not interested in all these things. He demands continuos supply of electricity and prefers paying only for electrical units he is consuming.

Conclusion

Currently end customer is charged based on his electrical consumption. He should also be charged for his maximum demand in peak hours. Charges associated with maximum demand should be ~50% of total bill.