Market Overview in Electric Power Systems

1
Department of Electrical and Computer
Engineering Illinois Institute of Technology
Market Overview in Electric Power Systems
Mohammad Shahidehpour
March 2002
2
Restructuring Decomposition of the three
components of the electric power industry
Introduction
Separation of transmission ownership from
transmission control Creation of a competitive
electricity market
3

• Electricity Market Objectives
• Ensure a secure operation
• Facilitate an economical operation.
• Regulated environment cost-based central
  dispatch
• Restructuring priced-based market

Introduction
4
Introduction
Source PA consulting
5
Introduction
Source PA Consulting
6
Introduction
Source PA Consulting
7
ISO
Load Forecasting
Market Forecasting
Price Forecasting
Forward Market SCUC
Ancillary Services Auction
Market Operation
Congestion Management
Schedules
Transmission Pricing
Bids
Market Power
Market Monitoring
Introduction

• Markets
• Energy
• Ancillary Services
• Transmission

Load Forecasting
Forecasting
Price Forecasting
Schedules
PBUC
Bids
Arbitrage
Bidding Strategy
Market Power Gaming
Asset Valuation Risk Analysis
Risk Management
GENCOs

8
Restructuring
Introduction

9
Markets Strategies Reduce the cost of
electricity utilization (primary motive for
restructuring) Enhance the security of power
system through economical means
Introduction
10
Electricity Market Models
PoolCo Model Bilateral Contracts Model Hybrid
Model
Market Structure and Operation
11
Market Structure
Market Operators ISO, PX Market Participants
Genco, Transco, Disco, Retailco, Aggregator,
Marketer, Broker, Customer
Market Structure and Operation
12
Market Types
Energy market Ancillary services market
Transmission market
Market Structure and Operation
Forward market (day-ahead, hour-ahead)
Real-time market
13
Key Components in Market Operation
The ISO Must forecast the system load
accurately
Market Structure and Operation
Must be equipped with powerful tools Must
monitor the market power to protect the benefits
of market participants.
14
GENCOs
Objective maximize profit. Accurate forecasts
of the system information, including load and
price. Good bidding strategy based on the
forecasted system information. PBUC will be the
basis for bidding strategy.
Market Structure and Operation
15
Overview of the Market
Information Forecasting

• Two sets of forecasted information
• Load
• Electricity price

Market Overview
16
Load Forecasting
Basis for price forecasting Most important price
driver Load forecasting applications Unit
Commitment, Power System Security, Generation
Reserve Allocation, Market Behavior.
Market Overview
17
Load Forecasting
Market Overview
18
Load Forecasting
Market Overview
19
Load Forecasting
Market Overview
20
Price Forecasting
Price forecasting is of utmost importance to
GENCOs. The price signal reflects the market
situation and would lead every action that GENCOs
may take.
Market Overview
21
Price Forecasting

Market Overview
22
Price Forecasting

Market Overview
23
Price Forecasting
Simulation of the actual system dispatch with
system operating requirements and constraints can
provide insight on price. Potential price
drivers such as line limits, line outages,
generator outages, load patterns and bidding
patterns can be identified through sensitivity
analysis.

Market Overview
24
Unit Commitment in Markets
In California and New England, GENCOs will run
the unit commitment, which is called price based
unit commitment.
In PJM and New York, ISO runs the transmission
security and voltage constrained unit commitment,
which is called security constrained unit
commitment.
Market Overview
25
Unit Commitment in Markets PBUC
Market Overview
26
Unit Commitment in Markets
Impact of Reliability
Market Overview
27
Arbitrage in Electricity Markets
The usage of arbitrage includes any activity that
attempts to buy a relatively under-priced
commodity and to sell a similar and relatively
overpriced commodity for profit.

Market Overview
28
Market Power and Monitoring
Uncertainty and the competitiveness of the
market gaming strategy is an indispensable tool
for GENCOs.
Identify non-competitive situations in
restructured energy marketplaces Provide support
for minimizing risks involved in price decisions
in restructured energy marketplaces
Market Overview
29
Asset Valuation / Risk Management
Asset valuation and risk management requires
PBUC, arbitrage and gaming.
Market Overview
30
Asset Valuation / Risk Management
Market Overview
31
Ancillary Services Auction
Social cost minimization
Objective
Procurement cost minimization
Market Overview
Pay-as-bid pricing
Settlement
Marginal Pricing
rule
Uniform pricing
Demand substitution pricing
Substitution pricing
Supply substitution pricing
32
Ancillary Services Auction
Market Overview
33
Transmission Pricing

• meet revenue expectations,

• promote an efficient operation of electricity
  markets,
• encourage investment in generation and
  transmission,
• reimburse owners of transmission assets
  adequately.

Market Overview
34
Transmission congestion and losses based on
LMPs.
Flow-based tracing method allocation of
transmission charges. Hedging volatility
risks FTRs credits based on flow calculations
and LMPs. Contracts for Differences
Transmission Congestion Contracts
Market Overview
35
Introduction
Source EIA
36
Thank You
Mohammad Shahidehpour