11-Effect of Transmission Network

Effects of the Transmission Network
on Electricity Markets
2011 D. Kirschen and the University of Washington
1
Introduction
No longer assume that all generators and loads are
connected to the same bus
Need to consider:
Congestion, constraints on flows
Losses
Two forms of trading
Bilateral or decentralized trading
Pool or centralized trading
2011 D. Kirschen and the University of Washington 2

Bilateral or decentralized trading
Transactions involves only buyer and seller

Agree on price, quantity and other conditions
System operator
Does not get involved directly in trading
Maintains balance and security of the system
Buys or sells limited amounts of energy to keep load and
generation in balance
Limits the amount of power that generators can inject at
some nodes if security cannot be ensured by other means

Example of bilateral trading
Bus A Bus B
G1 L1
G2 L2
G3
G1 sold 300 MW to L1
Prices are a private matter
Quantities must be reported to system operator so it can check
security

Example of bilateral trading
Bus A Bus B
G1 L1
G2 L2
G3
If capacity of corridor 500 MW No problem
If capacity of corridor < 500 MW some of these transactions
may have to be curtailed

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
Better to let the participants themselves decide what makes
sense
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 link
Physical transmission rights
Bus A Bus B
G1 L1
G2 L2
G3
G1 sold 300 MW to L1 at 30 $/MWh
G2 sold 200 MW to L2 at 32 $/MWh
G3 selling energy at 35 $/MWh
L2 should not pay more than 3 $/MWh for transmission rights
L1 should not pay more than 5 $/MWh for transmission rights

Problems with physical rights
Parallel paths
Market power

Parallel paths
xA
P 1
FA 2 P
FB
xB
xB B
xA
F
A
= P F = P
xA + xB xA + xB

Parallel paths
A C
B
Branch Reactance Capacity
Z
[p.u.] [MW]
1 2
1-2 0.2 126
1-3 0.2 250
3
2-3 0.1 130
Y
D

Parallel paths
A C
B
I
Z 1 II 2
3
Y
D
400 MW transaction between B and Y

Need to buy transmission rights on all lines

Parallel paths
A C Branch Reactance Capacity
[p.u.] [MW]
B
1-2 0.2 126
I
Z
1-3 0.2 250
1 II 2
2-3 0.1 130
3
Y
D 400 MW transaction between B and Y
I 0.2 II 0.3
F = 400 = 160 MW F = 400 = 240 MW
0.2 + 0.3 0.2 + 0.3
Not possible because exceeds capacities of lines 1-2 and 2-3

Counter-flows
A C
B
200 MW transaction
III
between D and Z
Z 1 IV 2
III 0.2
F = 200 = 80 MW
0.2 + 0.3
3
Y
D IV 0.3
F = 200 = 120 MW
0.2 + 0.3

Resultant flows
[p.u.] [MW]
B
1-2 0.2 126
Z
1-3 0.2 250
1 2
2-3 0.1 130
3
Y I III
D F12 = F23 = F - F = 160 - 80 = 80 MW
II IV
F13 = F -F = 240 - 120 = 120 MW
The resultant flows are within the limits

Physical rights and parallel paths
Counter-flows create additional physical transmission

rights
Economic efficiency requires that these rights be
considered
Decentralized trading:
System operator only checks overall feasibility
Participants trade physical rights bilaterally
Theory:
Enough participants market discovers optimum
Practice:
Complexity and amount of information involved are such that it is
unlikely that this optimum can be found in time

Physical rights and market power
Bus A Bus B
G1 L1
G2 L2
G3
G3 only generator at bus B
G3 purchases transmission rights from A to B
G3 does not use or resell these rights
Effectively reduces capacity from A to B
Allows G3 to increase price at B
Use them or loose them provision for transmission rights:
difficult to enforce in a timely manner
Centralized or Pool Trading
Producers and consumers submit bids and offers
to a central market
Independent system operator selects the winning
bids and offers in a way that:
Optimally clears the market
Respects security constraints imposed by the network
No congestion and no losses: uniform price
Congestion or losses: price depend on location
where generator or load is connected

Borduria-Syldavia Interconnection
Borduria Syldavia
DB= 500MW DS= 1500 MW
Perfect competition within each country

No congestion or losses within each country
Single price for electrical energy for each country
Price = marginal cost of production

Borduria Syldavia
DB= 500MW DS= 1500 MW
p B = MC B = 10 + 0.01PB [$ / MWh] p S = MC S = 13 + 0.02 P S [$ / MWh]

$/MWh $/MWh
43
15 13
10
500 1500 MW
MW
p B = MC B = 10 + 0.01 500 = 15 $ / MWh p S = MC S = 13 + 0.02 1500 = 43 $ / MWh

Borduria Syldavia
DB= 500MW DS= 1500 MW
Economic effect of an interconnection?

Can Borduria supply all the demand?
Borduria Syldavia
DB= 500MW DS= 1500 MW
PB = 2000MW MC B = 30$ / MWh

PS = 0MW
MC S = 13$ / MWh
Generators in Syldavia can sell at a lower price than generators
in Borduria
Situation is not tenable
Not a market equilibrium
Market equilibrium
Borduria Syldavia
DB= 500MW DS= 1500 MW
p =pB =p S
PB + PS = D B + D S = 500 + 1500 = 2000MW
p B = MC B = 10 + 0.01PB [$ / MWh] p S = MC S = 13 + 0.02 P S [$ / MWh]
p = p B = p S = 24.30$ / MWh
PB = 1433MW
PS = 567MW
Flow at the market equilibrium
Borduria Syldavia
DB= 500MW DS= 1500 MW
PB = 1433MW
PS = 567MW
FBS = PB - D B = DS - PS = 933MW

Graphical representation
p B = MC B p S = MC S
Supply curve for Syldavia
Supply curve for Borduria
24.3 $/MWh 24.3 $/MWh
PB= 1433 MW PS = 567 MW
FBS= 933 MW
D B = 500 MW D S = 1500 MW
D B + D S = 2000 MW

Constrained transmission
What if the interconnection can carry only 400
MW?
PB = 500 MW + 400 MW = 900 MW
PS = 1500 MW - 400 MW = 1100 MW
p B = MC B = 10 + 0.01 900 = 19 $ / MWh

p S = MC S = 13 + 0.02 1100 = 35 $ / MWh
Price difference between the two locations

Locational marginal pricing or nodal pricing

Graphical representation
p B = MC B p S = MC S
35 $/MWh
16 $/MWh
PB= 900 MW PS= 1100 MW
FBS= 400 MW
D B= 500 MW D S = 1500 MW
D B + D S = 2000 MW

Summary
Separate markets Single market Single market
with congestion
PB [MW] 500 1,433 900
p B [$/MWh] 15 24.33 19
R B [$/h] 7,500 34,865 17,100
E B [$/h] 7,500 12,165 9,500
PS [MW] 1500 567 1100
p S [$/MWh] 43 24.33 35
R S [$/h] 64,500 13,795 38,500
E S [$/h] 64,500 36,495 52,500
F BS [MW] 0 933 400
R TOTAL = R B + R S 72,000 48,660 55,600
E TOTAL = E B + E S 72,000 48,660 62,000
Winners and Losers
Winners:
Bordurian generators
Syldavian consumers
Losers
Bordurian consumers
Syldavian generators
Congestion in the interconnection reduces these
benefits

Congestion surplus
Consumer payments:
E TOTAL = p B DB + p S D S
Producers revenues:
RTOTAL = p B PB + p S PS = p B ( D B + FBS ) + p S ( D S - F BS )
Congestion or merchandising surplus:
E TOTAL - R TOTAL = p S D S + p B DB - p S P S - p B PB
= p S ( D S - P S ) + p B ( DB - P B )
= p S F BS + p B ( - F BS )
= ( p S - p B ) F BS
Congestion surplus

Congestion surplus
Collected by the market operator in pool trading

Should not be kept by market operator in pool
trading because it gives a perverse incentive
Should not be returned directly to network users
because that would blunt the economic incentive
provided by nodal pricing

Pool trading in a three-bus example
[p.u.] [MW]
B
1-2 0.2 126
1-3 0.2 250
1 2
50 MW
2-3 0.1 130
60 MW
3 Generator Capacity Marginal Cost

D [MW] [$/MWh]
300 MW
A 140 7.5
B 285 6
C 90 14
D 85 10

Economic dispatch
A 125 MW C
0 MW
B 285 MW
F12
1 2
F13 F 23
50 MW 60 MW
3
0 MW
D
300 MW
Superposition
360 MW 60 MW
1 2
3
300 MW
300 MW
1 2
3
300 MW
60 MW 60 MW
1 2

Flows with economic dispatch
A 125 MW C
0 MW
B 285 MW
156 MW
1 2
204 MW 96 MW
50 MW 60 MW
3
0 MW
D
300 MW
Overload!
A 125 MW C
0 MW
FMAX = 126 MW
B 285 MW
156 MW
1 2
204 MW 96 MW
50 MW 60 MW
3
0 MW
D
300 MW
Correcting the economic dispatch
Additional generation at bus 2
0.6 MW
1 MW 1 MW
1 2
0.4 MW

Superposition
1 2
360 MW 60 MW
156 MW
204 MW 96 MW
3
300 MW
50 MW 50 MW
30 MW
1 2
20MW
3 1 2
310 MW 10 MW
126 MW
184 MW 116 MW
3
300 MW
Correcting the economic dispatch
Additional generation at bus 3
1 MW
0.4 MW
1 2
0.6 MW
1 MW

Superposition
1 2
360 MW 60 MW
156 MW
204 MW 96 MW
3
300 MW
75 MW
30 MW
1 45 MW 2
1 2
3
285 MW 60 MW
75 MW 126 MW
159 MW 66 MW
3
225 MW
Cost of the dispatches
Economic dispatch: 2,647.50 $/h

Redispatch generator 2: 2,972.50 $/h
Redispatch generator 3: 2,835.00 $/h
Cost of security: 187.50 $/h

Security constrained dispatch
A 50 MW C
0 MW
B 285 MW
126 MW
1 2
159 MW 66 MW
50 MW 60 MW
3
75 MW
D
300 MW
Nodal prices
Cost of supplying an additional MW of load at a

particular node without violating the security
constraints
Start from the security constrained dispatch

Nodal prices
A 50 MW C
0 MW
B 285 MW
126
MW
1 159 MW 2
66 MW
50 MW 60 MW
3
Node 1:
75 MW
D
A is cheapest
300 MW generator
p 1 = MC A = 7.50 $ / MWh
Nodal prices
A 50 MW C
0 MW
B 285 MW
126
MW
1 159 MW 2 60 MW
66 MW
50 MW
Node 3
A is cheaper than D
3
Increasing A would overload
75 MW
D
line 1-2
300 MW D is cheaper than C
Increase D by 1 MW
p 3 = MC D = 10 $ / MWh 45
Nodal prices
A 50 MW C
0 MW
B 285 MW
126
MW
1 159 MW 2
66 MW
50 MW 60 MW
Node 2
3 C is very expensive
75 MW Increasing A or D would
D overload line 1-2
300 MW
?

Nodal price at node 2
0.6 MW
1 MW 1 MW
1 0.4 MW
2
1 MW
0.2 MW
1 0.8 MW 2
3
1
MW

Nodal price at node 2
Increase generation at node 3 AND decrease

generation at node 1
DF12 =0
DP1 DP2 = 1 MW
1 2
DP3
Nodal price using superposition
0.6 MW
DP1 + DP 3 = DP2 = 1 MW
1 MW 1 MW
0.4 MW
0.6 DP1 + 0.2 DP3 = DF12 = 0 MW
1 2
3
DP1 = -0.5 MW
DP3 = 1.5 MW
1 MW
0.2 MW
1 0.8 MW 2
1 MW p 2 = 1.5 MC D - 0.5 MC A = 11.25 $ / MWh

Observations
Generators A and D are marginal generators
because they supply the next MW of load at the
bus where they are located
Generators B and C are not marginal
Unconstrained system: 1 marginal generator
m constraints: m+1 marginal generators
Prices at nodes where there is no marginal
generator are set by a linear combination of the
prices at the other nodes

Summary for three-bus system
Bus 1 Bus 2 Bus 3 System

Consumption [MW] 50 60 300 410
Production [MW] 335 0 75 410
Nodal marginal price [$/MWh] 7.50 11.25 10.00 -
Consumer payments [$/h] 375.00 675.00 3,000.00 4,050.00
Producer revenues [$/h] 2,512.50 0.00 750.00 3,262.50
Merchandising surplus [$/h] 787.50
(= congestion surplus)

Counter-intuitive flows
A 50 MW C
1=7.50 $/MWh 0 MW
B 285 MW
126 MW 2=11.25 $/MWh
1 2
159 MW 66 MW
50 MW 60 MW
Power flows from

3=10.00 $/MWh 3 high price to low
75 MW
price!
D
300 MW
Counter-intuitive prices
Prices at nodes without a marginal generator can

be higher or lower than prices at the other nodes
Nodal prices can even be negative!
Predicting nodal prices requires calculations
Strategically placed generators can control prices
Network congestion helps generators exert market
power

Effect of losses on prices
1 2
G
variable S 2
P2 +Q2 R
=I R R= R P = K P
2 2 2
L
V V 2
V 2
G( D) = D + L = D + K D
2
DG = G( D + DD) - G( D) = DD + 2 DD DK = (1+ 2 D K ) DD
DC = c (1 + 2D K ) DD
p1 = c
DC
DD
= c (1 + 2D K ) p 2 = p 1 (1 + 2 DK )
Losses between Borduria & Syldavia
PS = D S - FBS PB = D B + FBS + K FBS

2
Minimization of the total cost

37500
With losses
No losses
37000
36500
Generation Cost [$/h]
36000
35500
35000
34500
34000
00
20
40
60
80
0
0
70
72
74
76
78
80
82
84
86
88
90
92
94
96
98
10
10
10
10
10
Power Transfer [MW]

Mathematical Formulation
of Nodal Pricing
56
Introduction
Independent System Operator needs systematic

method to calculate prices
Constrained optimization problem
Maximization of global welfare
Assume perfect competition

One-bus network
D Total demand of the consumers
P Total production of the generators
B(D) Consumers benefit function
C(P) Producers cost function
B(D) - C(P) Global welfare
Maximize B(D) - C(P)
Subject to: P-D= 0

One-bus network
Lagrangian: (D, P, p ) = B(D) - C(P) + p (P - D)
Optimality conditions:
dB
-p = 0
D dD dB dC
dC = =p
- +p = 0 dD dP
P dP

P-D=0
p
Consumption and production increase
up to the point where marginal value =
marginal cost = price
Network of infinite capacity with losses
I k = Pk - Dk : net injection at bus k

Network creates economic welfare by allowing trades between
nodes with positive injections and nodes with negative injections
Ik < 0 Benefits of consumers at node k

Wk (I k )
Ik > 0 - Cost of producers at node k
n
W = Wk (I k ) : Global welfare
k=1

n
Welfare maximization: max (W ) = max Wk (I k )
Ik Ik
k=1
Alternative formulations:
n n
min ( -W ) = min [ -Wk (I k )] = min Ck (I k )
Ik Ik
k=1 I k k=1
Assumes that:
Demands are insensitive to prices
Loads are constant
Hence consumers benefits are constant
Equivalent to Optimal Power Flow problem
n
min Ck (I k )
Ik
k=1
Constraints:
No constraints on network flows because infinite capacity
Total generation = total load + losses
or
Net injection = total losses in the branches of the network
I k = L(I1 , I 2 , .. I n-1 )
k=1
(Bus n is the slack bus)

n
n
= Ck (I k ) + p L ( I1 , I 2 , .. , I n-1 ) - I k
k=1 k=1
dCk L
+p -1 = 0
I k dI k I k dCk dCn L L
= 1- = p 1-
dI k dI n I k I k
dCn
-p = 0
I n dI n k = 1, .. n - 1
n
L ( I1 , I 2 , .. , I n-1 ) - I k = 0
p k=1
dCk dCn L L
= 1- = p 1- k = 1, .. n -1
dI k dI n I k I k
Nodal price at bus k is related to the nodal price at the slack bus
L dCk dCn
>0 <
I k dI k dI n
If the injection at a bus increases the losses, the price at that node
will be less than the price at the slack bus
Penalizes the generators at that bus
Encourages consumers at that bus

Network of finite capacity
Limits on line flows: Fl ( I1, I 2 , .. I n-1 ) Fl max

l = 1, .. m
n
n
= Ck (I k ) + p L ( I1 , I 2 , .. , I n-1 ) - I k
k=1 k=1
m
+ ml Fl max
- Fl ( I1 , I 2 , .. , I n-1 )
l=1

Network of finite capacity
n
n
m
= Ck (I k ) + p L ( I1 , I 2 , .. , I n-1 ) - I k + ml Fl max - Fl ( I1 , I 2 , .. , I n-1 )
k=1 k=1 l=1
dCk L m Fl
+p - 1 - ml =0 k = 1, .. n - 1
I k dI k I k l=1 I k
dCn
-p = 0
I n dI n
n
L ( I1 , I 2 , .. , I n-1 ) - I k = 0
p k=1

Fl max - Fl ( I1 , I 2 , .. I n-1 ) 0 l = 1, .. m
ml
ml Fl max - Fl ( I1, I 2 , .. I n-1 ) = 0 ; ml 0 l = 1, .. m
Assume that only line i is congested
mi 0; m j = 0 for j i
dCk L Fi
= p 1- + mi k = 1, .. n -1
dI k I k I k
dCn
=p
dI n Price at all buses (except
n slack bus) is affected by
I k = L ( I1 , I 2 , .. , I n-1 ) the congestion on one line.
k=1
Fi ( I1, I 2 , .. I n-1 ) = Fi max

; mi > 0

Network of finite capacity: DC model
n
DC power flow:
j=1
(
I i = yij q i - q j ) i = 1, .. n
Line flows: (
Fij = yij q i - q j ) i, j = 1, .. n
Line flow constraints: (

yij q i - q j F ) max
ij i, j = 1, .. n
Lagrangian function
n
n n
n n
= Ci (I i ) + p i yij (q i - q j ) - I i + mij Fijmax - yij (q i - q j )
i=1 i=1 j=1 i=1 j=1
Network of finite capacity: DC model
n
n n
n n
= Ci (I i ) + p i yij (q i - q j ) - I i + mij Fij - yij (q i - q j )
max
i=1 i=1 j=1 i=1 j=1

dCi
- p i = 0 i = 1, .. n
I i dI i
n
( )
yij p i - p j + mij - m ji = 0 i = 1, .. n -1 (Slack at bus n)
q i j=1
n
(
yij q i - q j - I i = 0 i = 1, .. n
p i j=1
)

Fijmax - yij (q i - q j ) 0 i, j = 1, .. n
mij
mij Fijmax - yij (q i - q j ) = 0 ; mij 0 i, j = 1, .. n
Implementation
m binding constraints m+1 marginal generators

Price at these buses determined using dCi
- pi = 0
dIi
m+1 known prices
n-m-1 unknown prices
m unknown Lagrange multipliers mij
Use the second optimality condition to determine
these prices and shadow prices:
n
(
yij p i - p j + mij - m ji = 0
q i j=1
) i = 1, .. n -1 (Slack at bus n)

Implementation
n
y (p ij i - p j + mij - m ji = 0 ) i = 1, .. n -1
j=1
K: set of buses where the price is known

U: set of buses where the price is unknown
n
Yiip i - yijp j + yij ( mij - m ji ) = yijp j i U; i slack bus
jU j=1 jK
n
- yijp j + yij ( mij - m ji ) = -Yiip i + yijp j i K; i slack bus
jU j=1 jK

Example
A C
1 2
3
dC A
p1 = = 7.5$/MWh
D
dPA
Marginal generators at buses 1 & 3
dC D
p3 = = 10.0 $/MWh
Price at bus 2 is unknown dPD
m12 is also unknown K = {1, 3}
U = {2}
Example
Choose bus 3 as the slack bus
n
Yiip i - yijp j + yij ( mij - m ji ) = yijp j i U; i slack bus
jU j=1 jK
K = {1, 3}
i = 2 : Y22p 2 - y12 m12 = y21p 1 + y23p 3
U = {2}
n
- yijp j + yij ( mij - m ji ) = -Yiip i + yijp j i K; i slack bus
jU j=1 jK
i = 1: - y12p 2 + y12 m12 = -Y11p 1 + y13p 3

Pool trading in a three-bus example
B
[p.u.] [MW]
1-2 0.2 126
1 2 1-3 0.2 250
2-3 0.1 130
3
D
-10 5 5
Y = 5 -15 10

5 10 -15

Example
Y22p 2 - y12 m12 = y21p 1 + y23p 3 -10 5 5
Y = 5 -15 10
-y12p 2 + y12 m12 = -Y11p 1 + y13p 3
5 10 -15

5p 2 - 5 m12 = 25

-15p 2 + 5 m12 = -137.5
p 2 = 11.25 $/MWh

m12 = 6.25 $/MWh

Financial Transmission Rights
76
Managing transmission risks
Congestion and losses affect nodal prices

Additional source of uncertainty and risk
Market participants seek ways of avoiding risks
Need financial instruments to deal with nodal
price risk

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

Example of contract for difference
Borduria Syldavia
Syldavia
Steel
400 MW
Borduria 400 MW
Power
Contract between Borduria Power and Syldavia Steel

Quantity: 400 MW
Strike price: 30 $/MWh
Other participants also trade across the
interconnection
No congestion market price is uniform
Borduria Syldavia
Syldavia
Steel
400 MW
Borduria 400 MW
Power
B = 24.30 $/MWh S = 24.30 $/MWh

Borduria Power sells 400 at 24.30 gets $9,720
Syldavia Steel buys 400 at 24.30 pays $9,720
Syldavia Steel pays 400 (30 - 24.30) = $2,280 to Borduria Power
Syldavia Steels net cost is $12,000
Borduria Powers net revenue is $12,000
They have effectively traded 400 MW at 30 $/MWh
Congestion Locational price differences
Borduria Syldavia
Syldavia
Steel
400 MW
Borduria 400 MW
Power
B = 19 $/MWh S = 35 $/MWh

Borduria Power expects 400 (30 -19) = $4,400 from Syldavia Steel
Syldavia Steel expects 400 (35 -30) = $2,000 from Borduria Power
Shortfall of $6,400
Basic contracts for difference break down with nodal pricing!
Financial Transmission Rights (FTR)
Observations:
Shortfall in contracts for difference is equal to congestion
surplus
Congestion surplus is collected by the system operator
Concept:
System operator sells financial transmission rights to users
FTR contract for F MW between Borduria and Syldavia entitles
the owner to receive: F ( p S - p B )
Holders of FTRs are indifferent about where they trade energy

System operator collects exactly enough money in congestion
surplus to cover the payments to holders of FTRs

Example of Financial Transmission Rights
Borduria Syldavia
Syldavia
Steel
400 MW
Borduria 400 MW
Power
Contract between Borduria Power and Syldavia Steel

Quantity: 400 MW
For delivery in Syldavia
Strike price: 30 $/MWh
To cover itself against location price risk, Borduria Power
purchases 400 MW of financial transmission rights from the
System Operator
Example of Financial Transmission Rights
Borduria Syldavia
Syldavia
Steel
400 MW
Borduria 400 MW 400 MW
Power
B = 19 $/MWh S = 35 $/MWh

The system operator collects 400 (35 -19) = $ 6,400 in congestion surplus
Borduria Power collects 400 (35 -19) = $6,400 from the system operator
Borduria Power pays Syldavia Steel 400 (35 -30) = $2,000
Syldavia Steel net cost is $12,000
Borduria power net revenue is $12,000 The books balance!
Financial transmission rights (FTR)
FTRs provide a perfect hedge against variations in nodal
prices
Auction transmission rights for the maximum
transmission capacity of the network
The system operator cannot sell more transmission rights than
the amount of power that it can deliver
If it does, it will lose money!
Proceeds of the auction help cover the investment costs
of the transmission network
Users of FTRs must estimate the value of the rights they
buy at auction

Financial transmission rights
FTRs are defined from point-to-point
No need for a direct branch connecting directly the points
between which the FTRs are defined
FTRs automatically factor in the effect of Kirchoffs
voltage law
Problem:
There are many possible point-to-point transmission rights
Difficult to assess the value of all possible rights
Difficult to set up a market for point-to-point transmission rights

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

11-Effect of Transmission Network

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11-Effect of Transmission Network

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Effects of the Transmission Network

2011 D. Kirschen and the University of Washington

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Transactions involves only buyer and seller

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400 MW transaction between B and Y

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Not possible because exceeds capacities of lines 1-2 and 2-3

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The resultant flows are within the limits

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Counter-flows create additional physical transmission

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DB= 500MW DS= 1500 MW

Perfect competition within each country

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DB= 500MW DS= 1500 MW

p B = MC B = 10 + 0.01PB [$ / MWh] p S = MC S = 13 + 0.02 P S [$ / MWh]

p B = MC B = 10 + 0.01 500 = 15 $ / MWh p S = MC S = 13 + 0.02 1500 = 43 $ / MWh

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DB= 500MW DS= 1500 MW

Economic effect of an interconnection?

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DB= 500MW DS= 1500 MW

PB = 2000MW MC B = 30$ / MWh

DB= 500MW DS= 1500 MW

DB= 500MW DS= 1500 MW

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Supply curve for Borduria

24.3 $/MWh 24.3 $/MWh

PB= 1433 MW PS = 567 MW

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p B = MC B = 10 + 0.01 900 = 19 $ / MWh

Price difference between the two locations

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PB= 900 MW PS= 1100 MW

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Collected by the market operator in pool trading

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3 Generator Capacity Marginal Cost

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Economic dispatch: 2,647.50 $/h

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Cost of supplying an additional MW of load at a

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Increase generation at node 3 AND decrease

1 MW p 2 = 1.5 MC D - 0.5 MC A = 11.25 $ / MWh

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