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Bilateral or decentralized trading
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Example of bilateral trading
• G1 sold 300 MW to L1
• G2 sold 200 MW to L2
• Prices are a private matter
• Quantities must be reported to system operator so it can check security
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Example of bilateral trading
• G1 sold 300 MW to L1
• G2 sold 200 MW to L2
• If capacity of corridor ≥ 500 MW → No problem
• If capacity of corridor < 500 MW → some of these
transactions may have to be curtailed
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But curtail which one?
• Could use administrative procedures
– These procedures consider:
• Firm vs. non-firm transactions
• Order in which they were registered
• Historical considerations
– Do not consider relative economic benefits
– Economically inefficient
– Let the participants themselves decide
• Participants should purchase right to use the
network when arranging a trade in energy
– Physical transmission rights
– Support actual transmission of power over a given link6
Physical transmission rights
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Problems with physical rights
• Parallel paths
• Market power
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Parallel paths
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Parallel paths
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Parallel paths
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Parallel paths: 400 MW transaction between B and Y
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Resultant flows
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Borduria - Syldavia Interconnection
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Can Borduria supply all the demand?
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Flow at the market equilibrium
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Graphical representation
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Constrained transmission
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Summary
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Winners and Losers
• Winners:
– Economies of both countries
– Bordurian generators
– Syldavian consumers
• Losers
– Bordurian consumers
– Syldavian generators
• Congestion in the interconnection reduces these
benefits.
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Congestion surplus
• Consumer payments:
• Producers revenues:
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Congestion surplus
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Congestion surplus
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Pool trading in a three-bus example
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Superposition
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Flow with simple economic dispatch
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Overload!
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Correcting the economic dispatch
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Superposition
Suppose 50 MW of power is
injected at Bus 2 and
withdrawn at Bus 1: Solve by
Superposition
NOTE: 50 x 0.6 = 30
50 x 0.4 = 20
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Correcting the economic dispatch
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Superposition
Suppose an additional 75 MW of
power is injected at Bus 3 and
withdrawn at Bus 1: Solve by
Superposition
NOTE: 75 x 0.4 = 30
75 x 0.6 = 45
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Compare the Total Avoidable Costs Resulting from
Each of the Two Feasible Solutions:
Cost of security
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Security constrained dispatch
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Locational Marginal Prices -LMP- (Nodal prices)
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Nodal prices
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Nodal prices
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Nodal prices
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Nodal price at node 2
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Nodal price at node 2
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Nodal price using superposition
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Observations
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Counter-intuitive flows
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Counter-intuitive prices
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Method for computing prices
• Optimization problem:
– Objective: maximization of welfare
– Constraints: power flow equations
– Lagrange multipliers give the nodal prices
– Usually dc power flow approximation
• Optimization carried out ex-post on the basis
of the actual operation of the system
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Effect of losses on prices
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Losses between Borduria & Syldavia
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Financial Transmission Rights -FTR-
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Managing transmission risks
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Contracts for difference
• Centralized market
– Producers must sell at their nodal price
– Consumers must buy at their nodal price
• Producers and consumers are allowed to enter
into bilateral financial contracts
– Contracts for difference
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Example of contract for difference
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No congestion market price is uniform
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Financial transmission rights
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Flowgate rights
• Observation:
– Typically, only a small number of branches are congested
• Concept:
– Buy transmission rights only on those lines that are
congested
– Theoretically equivalent to point-to-point rights
• Advantage:
– Fewer rights need to be traded
– More liquid market
• Difficulty:
– Identify the branches that are likely to be congested
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