CHAPTER 1

INTRODUCTION
1.1 RESTRUCTURE POWER MARKET
For many decades, vertically integrated electric utilities monopolized the way they
controlled, sold and distributed electricity to customers in their service territories. In this
monopoly, each utility managed three main components of the system : generation,
transmission and distribution. A competition is guaranteed by establishing restructured
environment in which customer would choose buy from different suppliers and change
suppliers as they wish in order to pay market-based rates.
To implement competition vertically integrated utilities are required to unbundle their
retail service in to generation, transmission and distribution. The vertically integrated system
is steadily restructuring to a more market-based system in which competition will replace the
role of regulation in the setting the price of electric price. In this environment customer will
choose will have the option to choosing the level of service reliability which will provide
greater incentives for short and long term efficiencies then is provide by economic regulation.
The competitive force will improve economic efficiency by further expanding the geographic
horizon in the operation of the interconnected generation and transmission systems.
Individuals working on restructuring would agree on a basic principle that access to
transmission service should accommodate customer choice and supply competition.
Restructuring is electricity industries will create new business opportunities where new firms
selling new products and services will appear.
1.1.1

RESTRUCTRING MODELS
Three major models are discussed as alternative to the current vertical integrated

monopoly. The three models are, PoolCo Model, Bilateral Model and Hybrid Model. Let us
discuss the above three models in below.

PoolCo Model
1

In a PoolCo, sellers and buyer submits their bits to injects power into and out the pool.
Sellers compete for the right to inject power into the grid, not for specific customers. If a
power provider bids too high, it may not be able to sell the power. On the other hand, buyers
compete for buying power and if their bids are too low, they may not be getting any power. In
market low cost generator would essential to rewarded.
Bilateral Contracts Model
The buyers and sellers will negotiate directly in the marketplace. In this model the
small customers aggregation is essential to ensure that they would benefit from competition.
This model permits direct contact between customers and generators without entering into
pooling arrangements. By establishing non-discriminating access and pricing rules for
transmission and distribution systems, direct sales of power over a utilities transmission and
distribution systems are guaranteed.
Hybrid Model
The hybrid model combines various features of the previous two models. The hybrid
model differs from the PoolCo model as utilizing the PX is not obligatory and customers are
allowed to sign bilateral contracts and choose suppliers from the pool. The pool would serve
all participants who choose not to sign bilateral contracts. The California model is an example
of the hybrid model.
1.2 CONGESTION
Congestion is a phenomenon that affects the entire system and, as such, all the players
in electricity markets. Once a line becomes congested, the entire system suffers the resulting
impacts: the market shifts from a single equilibrium point to possibly different nodal
equilibrium points, the individual surplus of each player changes and the market outcomes are,
consequently, changed. Congestion has come to play an important role in power systems in
the restructuring of the electricity industry. Transmission congestion existed of course, even
before restructuring, but was discussed in the context of constrained system operations.
The optimal operation of the system requires the optimization of a specified objective
function subject to ensuring that no violation of the constraints occurs. The utilities were
2

vertically integrated, owning and controlling both generation and transmission, so any conflict
between security and economics was resolved by the single decision-making entity, which
both owned and controlled all the facilities. However, in competitive markets, where
generation and transmission are unbundled, there are many players vying for transmission
services.
1.3 LOCATIONAL MARGINAL PRICING
From the 1980s, electrical engineers began to focus on how to deregulate the
power system. The most important problem is when generation transmission and
distribution are unbundled ensuring the electric grid's security, but at same time allowing
economic benefit.
F. C. Schweppe's book "Spot Pricing of Electricity" (1988) is regarded as a
milestone for electric power markets . Following that work, there is a clearly defined
`Spot Price' or `Nodal Price'. Based on the definition of spot price the LMP is used in
power markets and has become more and more important.
The main function of LMP is to give an economic signal to the system
operator for the competitive power market. The basic definition of LMP is "the price
of supplying an additional MW of load at each location (bus) in the system". There are three
main factors which will affect LMP:
1) Generation fuel cost and capacity,
2) Transmission and distribution network losses and capacities,
3) Demand and supply patterns.
Actually, both the generators and the transmission network will be involved in
the LMP calculations. From the generator side, the fuel price, maintenance and
operation costs and revenue reconciliation are related elements. From the transmission
side, the related elements are transmission losses and the revenue reconciliation requirement,
etc. After explaining what LMP is, and why we need LMP. The next questions arise
immediately:
3

 How to calculate LMP?

Where can we use LMP in theoretical terms?
Which countries use LMP in practice?
The simplest way to calculate LMP depends on the definition of LMP. Many
kinds of stimulate software for power system can give LMP as an output, such as Mat
power, Power world and Dash Optimization . There are many research studies on how to
calculate LMP, depending on exact market models.
1.4 OPTIMAL POWER FLOW
Present commercial OPF programs can solve very large and complex power
systems optimization problems in a relatively less time. Many different solution methods
have been suggested to solve OPF problems. In a conventional power flow, the values of the
control variables are predetermined.
In an OPF, the values of some or all of the control variables need to be known so as to
optimize(minimize or maximize) a predefined objective. The OPF calculation has many
applications in 45 power systems, real-time control, operational planning, and planning OPF is
used in many modern energy management systems (EMSs).OPF continues to be
significant due to the growth in power system size and complex interconnections For
example, OPF should support deregulation transactions or furnish information on what
reinforcement is required.
OPF studies can decide the tradeoffs between reinforcements and control options
as per the results obtained from carrying out OPF studies. It is clarified when a control
option enhances utilization of an existing asset (e.g., generation or transmission), or
when a control option is an inexpensive alternative to installing new facilities. Issues of
priority of transmission access and VAr pricing or auxiliary costing to afford price and
purchases can be done by OPF.

CHAPTER 2
4

LITERATURE SURVEY
Tao Huang, Ettore Bompard, Zheng Yan Congestion management impacts on bilateral
electricity markets under strategic negotiation.
Congestion management design is key to a fair and efcient use of transmission
facilities and an improvement exible, private and decentralized decision-making scenario,
in which the self-interested players autonomously search for counterparts to negotiate
protable transactions. In competitive bilateral markets of imperfect and incomplete
information and explicit consideration of the network constraints, which make the markets
signicantly complex, more sophisticated bargaining strategies and market evaluation tools
are imperative to both players and regulators.
In this paper, under an assumption of imperfect and incomplete information,
evolutionary bipartite complex network theory is employed to develop quantities bidding
strategies through a dynamic game, in which the players drive the evolution of the network
while maximizing their own utilities with explicitly considering the congestion
management results. Resorting to adjustment bids, two congestion management schemes,
with and without balancing bilateral transactions, are considered. The approach is
illustrated with an application to the IEEE3 test system, assessing the impact of different
congestion management schemes on the negotiations, market equilibrium, market
performance and gaming opportunities for the market participants in congestion
managements.
Basanta Kumar Panigrahi Locational Marginal Pricing (LMP) in Deregulated
Electricity Market International Journal of Electronics Signals and Systems (IJESS),
ISSN No. 2231- 5969, Volume-1, Issue-2, 2012.
The deregulation of electricity markets has a very large impact on almost all the
power systems around the world. Competitive markets are complex systems with many
participants who buy and sell electricity. Much of the complexity arises from the
limitations of the underlying transmission systems and the fact that supply and demand
must be in balance at all times. Generally the Locational marginal pricing (LMP) is
5

obtained by solving a linear programming formulation. Network losses are considered

through the preset loss factor based on historical operational information. This usually
brings error in the calculated loss under different new scenarios.
The new iterative LMP calculation method is proposed to overcome the
aforementioned drawbacks associated with the traditional LMP calculations. At each
iteration, a linear programming problem for market clearing is solved first .Losses on
branches are considered as fictitious nodal demand at their terminal buses .Secondly the
AC power flow calculated according to the dispatch results. Loss factors and fictitious
nodal demand are then updated according to the AC power flow solution. The effectiveness
of the proposed method is illustrated on PJM 5 bus.
Here a new method to calculate LMP iteratively is presented to tackle the main
drawbacks with the DC power flow based LMP calculations that would lead to
inaccuracies in loss calculations and dependency on the choice of reference bus. For easy
implementation and consistency with the widely used LMP model, a linear programming
problem is formulated and solved at each iteration.
Haifeng Liu, Member, IEEE, Leigh Tesfatsion, Member, IEEE, A. A. Chowdhury, Fellow,
IEEE Locational Marginal Pricing Basics for Restructured Wholesale Power
Markets IEEE Trans,Power Syst., vol. 22, pp. 1638-1646, Nov. 2007.
Although Locational Marginal Pricing (LMP) plays an important role in many
restructured wholesale power markets, the detailed derivation of LMPs as actually used in
industry practice is not readily available.
This lack of transparency greatly hinders the efforts of researchers to evaluate the
performance of these markets. In this paper, different AC and DC optimal power flow
(OPF) models are presented to help understand the derivation of LMPs. As a byproduct of
this analysis, the paper provides a rigorous explanation of the basic LMP and LMPdecomposition formulas (neglecting real power losses) presented without derivation in the
business practice manuals of the U.S. Midwest Independent System Operator.

Locational marginal pricing plays an important role in many recently restructured

wholesale power markets. Different AC and DC optimal power flow models are carefully
presented and analyzed in this study to help understand the determination of LMPs. In
particular, the paper shows how to derive the full-structured DC OPF model from the fullstructured AC OPF model, and the reduced-form

8DC OPF model from the full-

structured DC OPF model. Simple full-structured and reduced-form DC OPF three-bus

system examples are presented for which the LMP solutions are derived using envelope
theorem calculations.
These examples are also used to illustrate that LMP solution values derived for the
full-structured DC OPF model are the same as those derived for the reduced-form DC OPF
model. As a byproduct of this analysis, the paper provides a rigorous explanation of the
basic LMP and LMP-decomposition formulas (neglecting real power losses) presented
without derivation in the MISO Business Practices Manual 002 for Energy Markets.
P. Ramachandran, and R. Senthil Locational marginal pricing approach to minimize
congestion in restructured power market J. Electrical Electron. Eng. Res.
The privatization and deregulation of electricity markets has a very large impact on
almost all the power systems around the world. Competitive electricity markets are
complex systems with many participants who buy and sell electricity. Much of the
complexity arises from the limitations of the underlying transmission systems and
the fact that supply and demand must be in balance at all times. When the
producers and consumers of electric energy desire to produce and consume in
amounts that would cause the transmission system to operate at or beyond one or more
transfer limits, the system is said to be congested.
Locational Marginal Pricing approach is adopted to locate the spots of congestion in
the Indian utility system under various critical conditions of the system, such as
transmission line outage, increase in loads and generation failure and the results are found
efficient in minimizing the congestion. Electricity

markets

throughout

the world

continue to be opened to competitive forces. The underlying objective of introducing

competition into these markets is to make them more efficient with other parties to
7

hedge possible risks and get better returns. In this work, the Locational Marginal
Pricing (LMP) was proved to be an effective solution in overcoming the above said
barriers of deregulation. The LMPs are computed for the Indian utility system under
normal and contingency conditions. Increase in LMP holds to be a good signal for
identifying the Congested locations.
S.M. Nabav, Shahram Jadid, M.A.S. Masoum, Senior Member, IEEE, and A. Kazemi
Congestion Management in Nodal Pricing with Genetic Algorithm 0-7803-9772X/06/2006 IEEE.
Congestion cost allocation is an important issue in congestion management. This
paper presents a genetic algorithm (GA) to determine the optimal generation levels in a
deregulated market. The main issue is congestion in lines, which limits transfer capability
of a system with available generation capacity. Nodal pricing method is used to determine
locational marginal price (LMP) of each generator at each bus. Simulation results based on
the proposed GA and the Power World Simulator software are presented and compared for
3-bus and 5-bus test systems. In this paper a genetic algorithm is proposed and
implemented to minimize the total cost of generation in power systems.
Nodal pricing method is used to determine marginal cost at each bus. The locational
marginal cost of each bus is determined by adding marginal cost of reference bus and the
cost due to congestion. Simulation results of the proposed GA for sample systems with
there and five buses indicate a significant reduction in system's total cost to be provided by
the consumers. Sample 3-bus and 5-bussystems are also simulated using the Power World
Simulator software to illustrate the fine accuracy of the proposed approach for congestion
management in deregulated environments.

CHAPTER 3
EXISTING SYSTEM
3.1 INTRODUCTION
8

Electricity Supply Industry throughout the world, is restructuring for better utilization of
resources and providing quality service and choice to the consumer at competitive prices.
Restructuring of the power industry abolishing the monopoly in the generation and trading
sectors, thereby, introducing competition at various levels wherever it is possible. Electricity
sector restructuring, also popularly known as deregulation, is expected to draw private
investment, increase efficiency, promote technical growth and improve customer satisfaction
as different parties compete with each other to win their market share and remain in business.
Competitive electricity markets are complex systems with many participants who buy and sell
electricity. Much of the complexity arises from the limitations of the underlying transmission
systems and the fact that supply and demand must be in balance at all times.
When the producers and consumers of electrical energy desire to produce and consume
in amounts that would cause the transmission system to operate at or beyond one or more
transfer limits, the system is said to be congested. The LMP (Locational Marginal Pricing) at a
location is defined as the marginal cost to supply an additional increment of power to the
location without violating any system security limits. This price reflects not only the marginal
cost of energy production, but also its delivery. Because of the effects of both transmission
losses and transmission system congestions, LMP can vary significantly from one location to
another.
3.2 PROPOSED LMP MODEL
In real power market security checks are performed after the market clearing and LMP
calculations. In the security check Step, reactive power may also be considered .The influence
of reactive power can be taking into account if the full AC instead of DC power flow
constraints is considered in the procedure of LMP calculations.
Non linear programming model is not employed because of the problem in solution
robustness algorithm and the difficulties in the software development for practical
implementation. The following model is proposed for the iterative LMP calculations,
Min

CT P G

Where LFAC,OFFSETAC and DAC are not preset before solving this model. Instead they
are obtained from the solution of the full AC power flow.
3.3 CALCULATION PROCEDURE AND CONVERGENCE
The basic procedure of the proposed LMP calculation method is shown in the figure 3.1.
The criterion for checking convergence is given as follows. Compare the clearing results for
each generator with the results of the previous iteration.

Figure 3.1 Calculation Procedure of LMP

CHAPTER 4
OPTIMAL POWER FLOW
4.1 INTRODUCTION

10

This chapter covers existing methodologies for solution of Optimal Power Flow (OPF)
problem. They include formulation of OPF problem, objective function, constraints,
applications and in-depth coverage of various popular OPF methods. The OPF methods are
broadly grouped as Conventional and Intelligent. The conventional methodologies include the
well known techniques like Gradient method, Newton method, Quadratic Programming
method, Linear Programming method and Interior point method. Intelligent methodologies
include the recently developed and popular methods like Genetic Algorithm, Particle swarm
optimization. Solution methodologies for optimum power flow problem are extensively
covered in this chapter.
4.2 OPTIMAL POWER FLOW PROBLEM
In an OPF, the values of some or all of the control variables need to be found so as to
optimize(minimize or maximize) a predefined objective. It is also important that the proper
problem definition with clearly stated objectives be given at the onset. The quality of the
solution depends on the accuracy of the model studied. Objectives must be modeled and its
practicality with possible solutions. Objective function takes various forms such as fuel cost,
transmission losses and reactive source allocation.
The objective function of interest is the minimization of total production cost of
scheduled generating units. This is most used as it reflects current economic dispatch practice
and importantly cost related aspect is always ranked high among operational requirements in
Power Systems. OPF aims to optimize a certain objective, subject to the network power flow
equations and system and equipment operating limits.
The optimal condition is attained by adjusting the available controls to minimize an
objective function subject to specified operating and security requirements.
Active power objectives
1. Economic dispatch (minimum cost, losses, MW generation or transmission losses)
2. Environmental dispatch
3. Maximum power transfer
Reactive power objectives
11

MW and MVAr loss minimization

General goals
1

1. Minimum deviation from a target schedule

2. Minimum control shifts to alleviate Violations

3. Least absolute shift approximation of control shift

Among the above the following objectives are most commonly used:
1) Fuel or active power cost optimization
2) Active power loss minimization
3) VAr planning to minimize the cost of reactive power support
4.3 OPTIMAL POWER FLOW CHALLENGES
The demand for an OPF tool has been increasing to assess the state and recommended
control actions both for off line and online studies, since the first OPF paper was presented in
60s. The thrust for OPF to solve problems of todays deregulated industry and the unsolved
problem in the vertically integrated industry has posed further challenges to OPF to evaluate
the capabilities of existing OPF in terms of its potential and abilities .Many challenges are
before OPF remain to be answered. They can be listed as given below.
1) Because of the consideration of large number of variety of constraints and due
to non linearity of mathematical models OPF poses a big challenge for the
mathematicians as well as for engineers in obtaining optimum solutions.
2) The deregulated electricity market seeks answer from OPF, to address a variety
of different types of market participants, data model requirements and real time
processing and selection of appropriate costing for each unbundled service
evaluation.
3) To cope up with response time requirements, modeling of externalities (loop
flow, environmental and simultaneous transfers), practicality and sensitivity for
on line use.
4) How well the future OPF provide local or global control measures to support
the impact of critical contingencies, which threaten system voltage and angle
stability simulated.
12

5) Future OPF has to address the gamut of operation and planning environment in
providing new generation facilities, unbundled transmission services and other
resources allocations.
Finally it has to be simple to use and portable and fast enough. After brief overview of
the applications of Optimal Power Flow as mentioned above, detailed explanation of the most
common applications is given below.
4.4 OPF SOLUTION METHODOLOGIES
A first comprehensive survey regarding optimal power dispatch was given by
H.H.Happ and subsequently an IEEE working group presented bibliography survey of major
economic-security functions in 1981. Thereafter in 1985, J. Carpentier presented a survey and
classified the OPF algorithms based on their solution methodology. In 1990, B. H. Chowdhury
did a survey on economic dispatch methods. In 1999, J. A. Momoh et al [3] presented a review
of some selected OPF techniques.
Table 4.1 OPF Solution Methods

1
2
3
4
5
6

OPF SOLUTION METHODOLOGIES

Conventional Methods
Intelligent Methods
Gradient Methods
1 Artificial Neural Networks
a Generalized Reduced
b Reduced Gradient
2 Fuzzy Logic
c Conjugate Gradient
Hessian Based
3 Evolutionary Programming
Newton Based
Linear Programming
4 Ant Colony
Quadratic Programming
Interior Point
5 Particle Swarm Optimization
The solution methodologies can be broadly grouped in to two namely:
1) Conventional (classical) methods,
2) Intelligent methods.

The further sub classification of each methodology is given below as per the Tree table 4.1.
4.4.1 CONVENTIONAL METHODS
13

Traditionally, conventional methods are used to effectively solve OPF. The application
of these methods had been an area of active research in the recent past. The conventional
methods are based on mathematical programming approaches and used to solve different size
of OPF problems. To meet the requirements of different objective functions, types of
application and nature of constraints, the popular conventional methods is further sub divided
into the following
1) Gradient Method
2) Newton Method
3) Linear Programming Method
4) Quadratic Programming Method
5) Interior Point Method
Even though, excellent advancements have been made in classical methods, they suffer
with the following disadvantages:
In most cases, mathematical formulations have to be simplified to get the solutions
because of the extremely limited capability to solve real-world large-scale power system
problems. They are weak in handling qualitative constraints. They have poor convergence,
may get stuck at local optimum, they can find only a single optimized solution in a single
simulation run, they become too slow if number of variables are large and they are
computationally expensive for solution of a large system.
4.4.2 INTELLIGENT METHODS
To overcome the limitations and deficiencies in analytical methods, Intelligent methods
based on Artificial Intelligence (AI) techniques have been developed in the recent past. These
methods can be classified or divided into the following,
1) Artificial Neural Networks
2) Genetic Algorithms
3) Particle Swarm Optimization
4) Ant Colony Algorithm

14

The major advantage of the intelligent methods is that they are relatively versatile for
handling various qualitative constraints. These methods can find multiple optimal solutions in
single simulation run.
So they are quite suitable in solving multi objective optimization problems. In most
cases, they can find the global optimum solution. The main advantages of intelligent methods
are Possesses learning ability, fast, appropriate for non-linear modeling, etc. whereas, large
dimensionality and the choice of training methodology are some disadvantages of intelligent
methods. Detailed description on important aspects like Problem formulation, Solution
algorithm, Merits & Demerits and Researchers contribution on each of the methodology as
referred above is presented in the coming sections.
The contribution by Researchers in each of the methodology has been covered with a
lucid presentation in Tabular form. This helps the reader to quickly get to know the significant
contributions and salient features of the contribution made by Researchers as per the Ref. No.
mentioned in the list of References.
4.5 CONVENTIONAL METHODOLOGIES
The list of OPF Methodologies is presented in the Tree diagram Fig. 3.1. It starts with
Gradient Method.
4.5.1 Gradient Method
The Generalised Reduced Gradient is applied to the OPF problem [29] with the main
motivation being the existence of the concept of the state and control variables, with load flow
equations providing a nodal basis for the elimination of state variables. With the availability of
good load flow packages, the sensitivity information needed is provided. This in turn helps in
obtaining a reduced problem in the space of the control variables with the load flow equations
and the associated state variables eliminated.
Merits
1) With the Gradient method, the Optimal Power Flow solution usually requires 10 to 20
computations of the Jacobean matrix formed in the Newton method.
15

2) The Gradient procedure is used to find the optimal power flow solution that is feasible
with respect to all relevant inequality constraints. It handles functional inequality
constraints by making use of penalty functions.
3) Gradient methods are better fitted to highly constrained problems.
4) Gradient methods can accommodate non linearity easily compared to Quadratic
method.
5) Compact explicit gradient methods are very efficient, reliable, accurate and fast.
This is true when the optimal step in the gradient direction is computed automatically
through quadratic developments.
Demerits
1) The higher the dimension of the gradient, the higher the accuracy of the OPF solution.
However consideration of equality and inequality constraints and penalty factors make
the relevant matrices less sparse and hence it complicates the procedure and increases
computational time.
2) Gradient method suffers from the difficulty of handling all the inequality constraints
usually encountered in optimum power flow.
3) During the problem solving process, the direction of the Gradient has to be changed
often and this leads to a very slow convergences. This is predominant, especially
during the enforcement of penalty function; the selection of degree of penalty has
bearing on the convergence.
4) Gradient methods basically exhibit slow convergence characteristics near the optimal
solution.
4.5.2 Newton Method
In the area of Power systems, Newtons method is well known for solution of Power
Flow. It has been the standard solution algorithm for the power flow problem for a long time
The Newton approach is a flexible formulation that can be adopted to develop different OPF
16

algorithms suited to the requirements of different applications. Although the Newton approach
exists as a concept entirely apart from any specific method of implementation, it would not be
possible to develop practical OPF programs without employing special scarcity techniques.
The concept and the techniques together comprise the given approach.
Other Newton-based approaches are possible. Newtons method is a very powerful
solution algorithm because of its rapid convergence near the solution.
This property is especially useful for power system applications because an initial
guess near the solution is easily attained.
Merits
1) The method has the ability to converge fast.
2) It can handle inequality constraints very well.
3) In this method, binding inequality constraints are to be identified, which helps in fast
convergence.
4) For any given set of binding constraints, the process converges to the Kuhn-Tucker
conditions in less iteration.
5) The Newton approach is a flexible formulation that can be used to develop different
OPF algorithms to the requirements of different applications.
6)

With this method efficient and robust solutions can be obtained for problems of any
practical size.

7) Solution time varies approximately in proportion to network size and is relatively

independent of the number of controls or inequality constraints.
Demerits
1) The penalty near the limit is very small by which the optimal solution will tend to the
variable to float over the limit

17

2) It is not possible to develop practical OPF programs without employing sparsity

techniques.
3) Newton based techniques have a drawback of the convergence characteristics that are
sensitive to the initial conditions and they may even fail to converge due to
inappropriate initial conditions.
4.5.3 Linear Programming Method
Linear Programming (L.P) method treats problems having constraints and objective
functions formulated in linear form with non negative variables.
Basically the simplex method is well known to be very effective for solving LP
problems. The Linear Programming approach has been advocated on the grounds that
1) The L.P solution process is completely reliable.
2) The L.P solutions can be very fast.
The accuracy and scope of linearised model is adequate for most engineering purposes.
It may be noted that point (a) is certainly true while point (b) depends on the specific
algorithms and problem formulations. The observation (c) is frequently valid since the
transmission network is quasi linear, but it needs to be checked out for any given system and
application.
Merits
1) The LP method easily handles Non linearity constraints
2) It is efficient in handling of inequalities.
3) Deals effectively with local constraints.

CHAPTER 5
CONGESTION MANAGEMENT
5.1 INTRODUCTION
18

Congestion occurs whenever the preferred generation/demand schedule requires the

provision of transmission services beyond the capability of the transmission system. In such a
case, the preferred schedule cannot be accommodated without violating the physical limits of
the transmission network. Congestion is a real fact-of-life phenomenon whose presence does
impact the outcomes of the markets. Consequently, the benefits fore seen through restructuring
may not be fully realized since the presence of congestion does introduce unavoidable losses in
efficiency.
Therefore, the effective management of congestion is a critically important contributor
into the smooth functioning of competitive electricity markets through its key role of
minimizing the impacts of congestion on both the individual players and the market as a
whole. In this chapter, we examine the characterization of congestion and its impacts. We
provide additional insights into the measures defined in the previous chapter. The analysis in
this chapter serves to lay the foundation for the motivation of the simulation studies.
5.2 CONGESTION
Congestion is a phenomenon that affects the entire system and, as such, all the players
in electricity markets. Once a line becomes congested, the entire system suffers the resulting
impacts: the market shifts from a single equilibrium point to possibly different nodal
equilibrium points, the individual surplus of each player changes and the market outcomes are,
consequently, changed. Congestion has come to play an important51role in power systems in
the restructuring of the electricity industry. Transmission congestion existed of course, even
before restructuring, but was discussed in the context of constrained system operations.
The optimal operation of the system requires the optimization of a specified objective
function subject to ensuring that no violation of the constraints occurs. The utilities were
vertically integrated, owning and controlling both generation and transmission, so any conflict
between security and economics was resolved by the single decision-making entity, which
both owned and controlled all the facilities. However, in competitive markets, where
generation and transmission are unbundled, there are many players vying for transmission
services. The IGO, therefore, faces the challenge of maximizing the social welfare of the
market while ensuring the reliability and integrity of the system.
19

Congestion thus becomes a key issue in the effective operation of power systems under
competitive conditions. Congestion may occur at any point in time, so its study may be
undertaken over different time frames. Over the short term, congestion conditions must be
managed in the day-ahead market as well as over the shorter term in the hour-ahead and the
real-time markets. Several congestion management schemes have been proposed by and
implemented in various jurisdictions around the world.
These schemes differ in terms of their objectives, the approach for congestion relief
and the pricing mechanism. For example, some schemes have as primary objective the
redispatch of the least amount of megawatts, in order to minimize the change in the preferred
generation/demand schedule. Other schemes have the objective to minimize the costs incurred
in the redispatch. The set of rules involved in each congestion management scheme need to be
robust, fair and clear to each market participant to facilitate the competition in the market.
Over time, the increased use of the grid exacerbates the congestion situation. Then,
new investments in the expansion/improvement of the transmission network become necessary
to alleviate the congestion bottleneck impacts and to accommodate the changing patterns over
time of regional energy transfers. Our focus is the evaluation of congestion and its impacts in
the day-ahead market. The measures we discuss and the analysis we undertake are appropriate
for such markets.
The discussion of the long-term congestion issues and the analysis of real-tie
congestion are beyond the scope of this report. The IGO ensures the reliability of the system
by verifying the capability of the network to provide transmission services for the forecasted
reference case condition as well as under set of postulated contingencies. Congestion is said to
occur if, in any of these cases including each contingency case considered, the network is
unable to accommodate the desired generation/demand schedule.
For the purpose of simplicity, we only consider the forecasted reference case in this
thesis. However, the analysis used here can be extended in a straight forward way to include
also all the postulated contingency cases. The problem of congestion lies in the insufficient
transfer capability of the system. Under the ideal conditions of the transmission-unconstrained
markets, the buyers try to purchase energy from the sellers with the lowest offer prices. When
20

the physical constraints of the transmission network are also considered, the constrained
transfer capabilities of the network may be unable to accommodate the preferred unconstrained
market schedule without violating the physical constraints.
Therefore, congestion is caused by the lack of sufficient transfer capabilities to
simultaneously transfer energy between the various selling and buying entities. The congestion
conditions may be alleviated if the lower priced sellers are located at areas from which
additional transfers may be carried out without stressing the limited transfer capabilities of the
transmission network.
Congestion affects virtually each market player either in a positive or in negative way.
For example, a seller (buyer) located at an importing node may suffer an(a) increase (decrease)
in its producer (consumer) surplus. This situation arises because such a buyer is limited in his
ability to access the energy from other locations due to system transfer constraints. Therefore,
the only choice is to buy the energy from the higher-priced seller located at the importing
node. This lack of choice may result in the higher payment prices and/or reduced purchases of
energy.
Therefore, the buyers consumer surplus decreases. However, a seller located at the
importing node may offer his output at higher prices, and if there is willingness to pay on the
part of the buyers, he may sell more energy, resulting in an increased producer surplus.
Conversely, a seller (buyer) located at the exporting node may suffer a (an) decrease (increase)
in his producer (consumer) surplus.
In the presence of congestion, the clearing price at the exporting node may decrease,
resulting in this sellers lower energy sales than in the unconstrained market; consequently, its
producer surplus decreases. The buyer, on the other side, may increase its energy purchases if
the buyers willingness to pay insufficiently high and in this way its consumer surplus
increases over that of the constrained market. In addition to the change in the surplus of each
individual player, the producers surplus and the consumers surplus also change under
congestion.
Therefore, it is possible to view generation and transmission as substitutable goods.
changes implies that the social welfare reached at the unconstrained case is redistributed in the
21

constrained case. The reductions in the producers surplus or consumers surplus or both make
up the congestion rents and the market efficiency loss. The problems caused by congestion do
not necessarily lead to efforts for its total elimination since the costs of removing congestion
may be far greater that the benefits attainable. It is unrealistic to design a network that would
have no congestion. Strategic investments in transmission facilities may result in lowering the
congestion rents and the market efficiency loss.
The congestion rents and market efficiency loss constitute shorttermsignals. How they
may be used to create long-term signals to incentive transmission investments is still an open
research area. We use the discussion on congestion and its impacts of this section to develop
the analysis in the next sections in order to explain in more detail the deployment of the
metrics we need to measure the quantifiable impacts of congestion.
The Nature of Congestion Rents
We defined the congestion rents as the difference between the payments of the buyers
and the revenues of the sellers. These rents are a direct function of the LMP differences
between the receiving and sending nodes, and the amounts of power transfers. The congestion
rents provide a measure of the impacts of congestion on the entire market.
We analyze congestion rents by making use of the fictitious transactions concept
discussed in Section The matching process that established the preferred generation/demand
schedule may be viewed in effect, as a set of fictitious transactions between the selling entities
and the buyers. The aggregated supply and demand curves are constructed by ordering the
offers and bids, respectively, so that the seller with the lowest offer prices is systematically
matched with the buyer with the highest bid prices in sequence. In this way, the matches
become the fictitious transactions. The presence of congestion brings about a change in the
schedule of these fictitious transactions. We view the changed schedule as a modified set of
fictitious transactions for the congested network.
The congestion rents for each fictitious transaction in the modified set is simple
multiplication. A fictitious transaction between nodes n and m for t MWh/h,injects t MWh/h at
bus n and withdraws t MWh/h at node m. Then, the fictitious transaction congestion rents are
t(pm*-pn *) $/h where pm*( pn*) is the LMP at node n(m)This value may be positive, negative or
22

zero depending on the LMP difference. Positive rents are collected for negative fictitious
transaction congestion rents are collected for the opposite case. The rationale behind the sign
of the fictitious transaction congestion rents is the contribution of each fictitious transaction to
the network congestion. If pm* >pn* the fictitious transaction aggravates the existing
congestion, otherwise, the fictitious transaction flows from a higher-priced node to a lower
priced node. The sum of the congestion rents of all the fictitious transactions equals the
congestion rents for the entire market given in. The congestion rents are the costs of providing
transmission service for the modified set of fictitious transactions by the congested network
5.3 MARKET EFFICIENCY LOSS
The overall performance of the market is measured by the social welfare. We have seen
that the implication of this inequality is that congestion reduces the social welfare reached in
the transmission-unconstrained market. The difference between the social welfare of the
unconstrained market and that of the constrained market is the market efficiency loss .This
inefficiency is due to the inability of the network to accommodate the preferred
generation/demand schedule.
The market efficiency loss defined by is not meaningful for the case of markets with
inelastic demand. In such markets, the social welfare is undefined since it goes to infinity due
to the fact that the consumer surplus goes to infinity. In Figure we illustrate this situation.
When transmission considerations are taken into account and congestion occurs, the
social welfare of the market still tends to infinity for the same reason. Consequently, we cannot
define the market efficiency loss in such markets. One way to get around this situation is by
redefining the social welfare as the negative of the payments by the buyers. In this way, we can
still use to compute the market efficiency loss, and since the payments of buyers in the
constrained market are always greater or equal than the payments in the unconstrained market,
the market efficiency loss is nonnegative.
In general, it is difficult to pinpoint how congestion results in the reassignment of the
individual surplus changes into congestion rents and market efficiency loss from the
unconstrained market outcomes.

23

Figure 5.1 Supply curve and an inelastic demand curve.

We illustrate how the social welfare in the unconstrained market gets redistributed in
the constrained market. We note that we cannot identify exactly what portion of the surplus of
a player is taken by the congestion rents, market loss of efficiency or even by the surplus of
other players. It remains an open question to determine the pattern in the reassignment of the
individual players surplus into the market efficiency loss, if any.

Figure 5.2 Redistribution of transmission constrained market.

The market efficiency loss is principally due to the physical limitations of the
transmission network. The constraints imposed on the market because of the network
considerations result in the change of the preferred generation/demand schedule. The impacts
of the change away from the preferred schedule the fact the network is unable to
accommodate all transaction that economically would be desirable are measure by the
market efficiency loss.
24

5.4 CONGESTION AND MARKET POWER

A seller is said to exercise market power when he reduces his output or raises the price
of his offer. Such actions lead to a change in the market clearing price. Figure illustrates how
the clearing price of a market with inelastic demand increases when a seller withholds a block
of his offer. In this way, the seller controls the clearing price of the market.

Figure 5.3 The Original supply curves with blocks B1 and B2 of seller B.

Figure 5.4 The Modified supply curve with block B1 removed.

A seller who is unable to exercise market power is known as a price taker. A seller who
is a price taker can maximize his profits by offering his energy at his marginal costs. On the
other hand, a seller who successfully offers his energy at a price above his marginal costs is
said to exercise market power and is a price maker. We illustrate simple example of market
power exercise in an unregulated monopoly and a price inelastic demand in Figure. As the
monopoly supplier increases his offer prices, the market clearing price increases.
25

There are many situations which can facilitate the exercise of market power. One
important situation arises in the presence of congestion. To illustrate how congestion facilitates
market power exercise, we consider two examples. These examples provide conceptual
illustrations of the role congestion can play in facilitating the exercise of market power.

Figure 5.5 Different supply curves with inelastic demand.

CHAPTER 6
SOFTWARE DESCRIPTION
6.1 POWER WORLD SIMULATOR
It is a power simulation package designed from ground upto user-friendly and highly
interactive. Simulator has the power for engineering analysis and is interactive and graphical
that can be used to explain the power system operation to tech. and non-technical audiences.
Simulator is actually a number of integrated products:
As its core is a comprehensive, robust power flow solution engine capable of
efficiently solving systems upto 60000 buses.
Stand alone package for power flow.
Simulator allows the users to visualize the system through the use of full color
animated one line diagrams with full zooming and panning facility.

26

 System models can be modified or built from scratch using simulator full featured
graphical case editor.
Transmission lines may switched in and out of service, new transmission or generation
may be added, and new transactions may be added.
Simulator extensive use o graphics and animation greatly increase the user
understanding of system characteristics, problems and constraints as well as how to remedy
them. Simulator also provides a convenient medium for simulating the evolution of power
system over time. Load, generation, and interchange schedule over time may be prescribed
and the resulting change in the system can be visualized. The functionality may be useful for
illustrating the many issues associated with industry restructuring. In addition to these,
simulation boasts economic dispatch, power transfer distribution factors (PTDF) computation,
contingency analysis, and ATC determination all accessible through consistent and colorful
visual interface.

6.2 CONFIGURATION OF POWER WORLD SIMULATOR

It has two distinct modes:
Edit mode
Run mode
Edit mode is used to construct new simulation cases or to modify existing cases. Run
mode is used to perform the actual power system simulation. We can switch between the two
modes at any time using edit mode and run mode buttons on the Program Palette. Each modes
have its own set of menu command. Simulator makes extensive use of toolbars for easy access
to its many features. We can move and size these toolbars according to our preferences.
Toolbars house several palettes of controls each of which may be activated Toolbars
palettes are identified as:
Program Palette: It gives the ability to switch between programs run and edit mode and to
control the various aspects of power flow solution.
27

 Edit mode/Run mode

Single solution-using simulator as a stand alone power flow
Log-It shows what is going on with the power flow solution process
Abort
File Palette: Provides access to operating system activities such as saving one line diagram or
case model to disk, printing a one line display to printer, loading a case and also access to one
line help and case validation tool.
Edit Palette: It links to several case edit tools. You can cut and paste single objects on the one
line diagram and can paste them on the same or another diagram.
Insert Palette: Contains no. of buttons that allow us to add drawing objects to the current one
line diagram.
Format palette: It allows us to control display objects attributes as font, color, line styles,
zoom dependent visibility, and display layer level.
Zoom Palette: To display large detailed power systems simulators one line possess zooming
and panning facility
Zoom palette enables us to prescribe a zoom value or by selecting a
rectangular region of the diagram on which to focus.
This toolbar enables us to save a view location, or to recall previously saved
view location.
Pan/zoom palette offers additional zooming and panning control. Use four
arrow clusters to display horizontally and vertically.
Option/Info Palette: It provides quick access to simulators many information display and
option settings like single power flow solution, generate quick power flow list, bus view
details, and switch to another one line diagrams.
Run mode Palette: It provides access to run mode facilities. It features VCR like controls for
starting, resetting and pausing simulation.
28

Message Log: Displays detailed results of each power flow solution chronicling the process
iteration by iteration. It also reports messages raised by simulator in performing various
operations like opening and validating a case.
Web Publishing: Simulator provides tools for creating presentation of data and diagrams
using the application for display on the world wide web.
This tool includes:
The ability to save the case information display contents as HTML code.
The ability to save oneline diagram as jpeg files
A basic HTML editor that can import HTML code

6.3. CREATING A NEW CASE

To begin with, double click on the power world simulator icon. The simulator is used to
create new cases, modify the existing cases and simulate power systems. To create new case,
select a file, New Case from the main menu or click open simulation case button on the file
palette.
6.3.1 INSERTING A BUS
Select insert bus from the main menu or select the bus button on the insert palette. This
prepares the simulator to insert a bus. Click on the on-line background at the location where
we want to place the new bus. This invokes the bus option dialog. Use the bus option dialog
box to specify the name, size, orientation, area, zone, and nominal voltage of the bus as well as
load and shunt components connected to it. Click ok on the bus option dialog box to finish
creating the bus and to close the dialog box.
6.3.2 INSERTING TEXT, BUS AND LINE FIELDS
29

To add fields to display of a particular bus, follow the following procedure. Right click
on the bus to bring up local menu. Select add new fields around bus from the local menu. This
open the:
Insert Bus fields dialog.
Use the insert bus field dialog to designate the fields to add 8 fields per bus.
Click OK, the specified bus fields will be added to the on-line diagram.

CHAPTER 7
RESULT AND DISSCUSSION
7.1 OPTIMAL POWER FLOW DIAGRAM

30

Figure 7.1 OPF Diagram for IEEE 6 bus system

The above Figure 7.1 shows a optimal power flow diagram of a IEEE 6 bus system
with using of power world simulator. The locational marginal price of the real power flow is
determined. This power flow is very economic with given line constraints. Table 7.1 shows the
MW Marginal Cost at optimal power flow.
Table 7.1 MW Marginal Cost

7.2 LINE OUTAGES

7.2.1 LINE 1-4 OUTAGE

31

Figure 7.2 OPF Diagram for Line 1-4 Outage.

From the figure 7.2 shows the line between first bus to fourth bus is outage. Due to this
line outage overload condition occurs in the line 2 to line 4. In that line the range of current
flow is 169% of the original MVA rate of the line 2 to line 4. According to this congestion the
LMP value are calculated for each bus it shows in the table 7.2.
Table 7.2 MW Marginal Cost at Line 1-4 Outage Condition

7.2.2 LINE 2-4 OUTAGE

32

Figure 7.3 OPF Diagram Line for 2-4 Outage

From the figure 7.3 shows the line between second bus to fourth bus is outage. Due to
this line outage overload condition occurs in the line 1 to line 4, line 2 to line 5 and line 4 to
line 5. The ranges of current flows in these lines are 119%, 109% and 111% with respectively
of the original MVA rate of the lines. According to this congestion the LMP value are
calculated for each bus it shows in the table 7.3.
Table 7.3 MW Marginal Cost at Line 2-4 Outage Condition

7.2.3 LINE 3-6 OUTAGE

33

Figure 7.4 OPF Diagram Line 3-6 Outage Diagram

From the figure 7.4 shows the line between third bus to sixth bus is outage. Due to this
line outage overload condition occurs in the line 2 to line 5 and line 2 to line 6. The ranges of
current flows in these lines are 103% and 101% with respectively of the original MVA rate of
the lines. According to this congestion the LMP value are calculated for each buses it shows in
the table 7.4.
Table 7.4 MW Marginal Cost at Line 3-6 Outage Condition

7.3 COMPARATIVE STUDY OF DIFFERENT LINE OUTAGES

Table 7.5 Comparative Study of Different Line Outages
34

LINE OUTAGES
S.NO

FINAL TOTAL COST

($/MWh)

AVERAGE BUS
MARGINAL COST
($/MWh)

FROM BUS

TO BUS

2904.43

12.58

2940.42

13.15

2947.27

13.63

2972.78

13.70

3002.88

13.19

3126.99

26.03

4811.42

55.80

5416.01

28.16

6728.67

44.39

10

21163.76

194.91

11

41401.13

138.35

According to the different line outages the final total cost and average bus
marginal cost are calculated for IEEE 6 bus system. This cost comparison is shows in the
above table 7.5.

CHAPTER 8
CONCLUSION AND FUTURE WORK
CONCLUSION

35

In this project, a new software tool named power world simulator is used to determine
the locational marginal pricing for congestion management in electricity market in IEEE 6 bus
system. Analysis has been made on locational marginal pricing value at each buses under
various line outages cases. It is observed finally that the congestion occurs during line outages.
Thus, the sensitivity of each line is observed and thereby stability and economic operation of
the power system is maintained. Also it is found that marginal cost satisfies both power
producers and consumers.
FUTURE WORK
In future, this work can be extended such that the locational marginal pricing value can
be calculated for different line outages and congestion lines under the various market models.
Also, locational marginal pricing value can be found using real time data of power system.

APPENDICES
IEEE 6BUS SYSTEM

36

The above diagram is a schematic diagram of a IEE 6 BUS system. This system consist
three generators in bus number 1, 2 and 3 respectively. And the load are connected in the bus
number 4, 5 and 6. There are 11 lines presented in this system every lines have separate
constraints.

LINE DATA
From Bus

To Bus

Resistance
37

Reactance

Susceptance

(pu )

(pu)

(pu)

0.1

0.2

0.04

0.05

0.2

0.04

0.08

0.3

0.06

0.05

0.025

0.06

0.05

0.1

0.02

0.1

0.3

0.04

0.07

0.2

0.05

0.12

0.26

0.05

0.02

0.1

0.02

0.2

0.4

0.08

0.1

0.3

0.06

This table shows the line data we using in this paper.

REFERENCES
1) Tao Huang, Ettore Bompardp, Zheng Yana Congestion management impacts on
bilateral electricity market under strategic negotiation 4 Feb 2011.
2) S.M.HNabav, Shahram Jadid, M.A.S. Masoum, A. Kazemi Congestion Management
in Nodal Pricing With Genetic Algorithm IEEE Trans on power system 2006 vol
13, No:4,pp.1401-1409.

38

3) Ming-Tong Tsay, Member, IEEE and Hong-Jey Gow Congestion Influence on

Bidding Strategies in an Electricity Market IEEE Trans on power system Aug-2005
(1054-1061).
4) H. He, Z. Xu, Member, IEEE, and G.H. Cheng Impacts of Transmission Congestion
on Market Power in Electricity Market in proc.2004 IEEE power engineering
society summer meeting, pp.2217-2222.
5) Tengshun Peng and Kevin Tomsovic, senior member, IEEECongestion Influence on
Bidding Strategies in an Electricity Market IEEE Trans on power system,
vol.18,no.3, Aug2003.
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Trans. PowerSyst., vol. 22, no. 3, pp. 11631173, Aug.2007.
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39