List of Contributors...XVII

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1 Preface World-wide unprecedented reform and restructuring of the electric power industry has imposed tremendous challenges on the operation of power systems under this new environment. Regardless of the market structures that may emerge in various parts of the world, system security, reliability and quality of supply must be maintained. Faced by an increasingly complicated co-existence of technical and economical considerations, new computational tools and software systems are in great demand by generators, system operators, retailers, and other market participants to meet operating, scheduling, planning, and financial requirements. In recent years there have been many books published on deregulation of the power industry but most of them placed emphasis on the market structure and policy issues. From an engineering point of view, how to develop effective computational tools for efficiently operating restructured power systems is still a big challenge. During the past several years, with funding from both research council and industry, we have been working on different computational models and methods for operation and control of market-oriented power systems. This book, resulting from these successful projects, covers all the major operational issues, such as scheduling and dispatch, congestion management, available transfer capability calculation, price forecasting and optimal bidding strategies. In addition, a comprehensive review of international research and world-wide industry practice is presented in each chapter before describing our methods, so as to give readers a broader state-of-the-art in this exciting field. Thus this book should be a useful reference for professional managers and engineers involved in the operation and control of market-oriented power systems. It would also be of considerable value to postgraduate researchers. We are very grateful to various sponsors for their generous funding of our research. We thank our former/current PhD students, research follows and colleagues for their cooperation and contributions. We wish to thank Oliver Jackson of Springer for his assistance in the preparation of the book. We would also like to thank Angelo Centonza for re-setting the style of the whole book by overcoming incompatible word processing formats. Yong-Hua Song, Brunel University, UK Xi-Fan Wang, Xi an Jiaotong University, China

2 Table of Contents List of Contributors...XVII 1. Operation of Restructured Power Systems Y.H. Song, X. Wang and J.Z. Liu System Operation in a Competitive Environment Reliability-related Functions Market-related Functions Effects of Industry Restructuring on System Reliability New Requirement for Computation Tools and Software Systems in Electricity Markets Outline of the Book References Modelling and Analysis of Electricity Markets A. Maiorano, Y.H. Song and M. Trovato Types of Markets Fundamental Market Structure and Mechanism Commodity Markets Cash Market Futures Market Options Market Swap Market Planning Market Perfect Competition and Oligopolistic Market Market Equilibrium: The Law of Supply and Demand Elasticities of Supply and Demand Perfect Competition Classical Theories of Oligopoly The Cournot Model Isoprofit Curves and Reaction Functions The Bertrand Model The Stackelberg Equilibrium Oligopolistic Electricity Market... 31

3 VIII Contents Modelling of the Load Demand Evaluation of Company Marginal Cost Functions Presence of Transmission Losses Proposed Model Presence of Bilateral Contracts Case Studies and Results Analysis Conclusions References Location-based Marginal Pricing of Electricity and its Decomposition K. Xie and Y.H. Song Introduction Spot Pricing Models Review of Some Existing Spot Pricing Models The Decomposition Model Lagrangian Multipliers, Marginal Cost and Spot Price Integrated Sensitivity Calculation Loss Sensitivity Sensitivity Coefficients of an AC Network Model Decomposition Model of Spot Pricing Framework Optimal Spot Pricing Spot Price Decomposition Implementation Features of the Proposed IOSP Model Comparison with Existing Models The Inner Connection with Economic Dispatching (ED) Numerical Studies Case Study 1: Insight View of a 5-bus System Case Sudy 2: IEEE 30-bus System Case Study 3: 118-bus System Summary List of Principal Symbols References Coordinated Real-time Dispatch of Unbundled Electricity Markets X. Wang, Y.H. Song and M. Tan Power System Operation Operation in Vertically Integrated Utilities Operation in Competitive Electricity Markets Coordinated Real-time Dispatch through Balancing Mechanism Bilateral Contract Market Pool Day-ahead Energy Auction Market Pool Ancillary Services Auction Market Real-time Balancing Market and Coordinated Dispatch Mathematical Model of the Proposed Framework P Sub-problem... 91

4 Contents IX Objective Equality Constraints Inequality Constraints Pricing for Real-time Active Power Dispatch Meeting Real-time Imbalance of Market under Normal Operating Condition Replacement of Operating Reserves Curtailment of Bilateral Contracts Q Sub-problem Imbalance Settlement Methodologies Implementation Test Results Coordinated Dispatch without Network Congestion Coordinated Dispatch with Network Congestion Comparison Between the RSLP and PDIPLP Conclusions References Appendix A: Primal-dual Interior Point Linear Programming Method Available Transfer Capability Evaluation Y. Xiao, Y.H. Song and Y.Z. Sun Definition and Application of ATC Definition of ATC Industrial Applications of ATC Criteria for ATC Evaluation Accuracy Dependability High Efficiency Review of Existing Methodologies for ATC Evaluation Existing Methodologies Sensitivity Analysis Continuation Power Flow Optimal Power Flow ATC Evaluation in Industry EPRI [19] ECAR [20] PJM [7] NYISO [21] Proposed Stochastic Model for ATC Evaluation Overview of Proposed Approach Modelling Uncertainties Formulated ATC Evaluation Model Objective Function Operating Constraints Proposed Hybrid Stochastic Approach Application of SPR to Deal with Discrete Variables Application of CCP to Deal with Continuous Variables

5 X Contents 5.7 Implementation Case Studies and Interpretation of Results Conclusions References Appendix A: Stochastic Programming with Recourse (SPR) Appendix B: Chance-constrained Programming Appendix C: Line Thermal Limits of IEEE 118-bus System Transmission Congestion Management X. Wang, Y.H. Song and Q. Lu General Methodologies for Congestion Management Transaction Curtailment Transmission Capacity Reservation System Redispatch Overall Congestion Management Process International Comparison of Congestion Management Approaches UK Market Congestion Management in Previous Energy-trading Arrangement Congestion Management in NETA PJM Market in the US California Market in the US [3, 15] Norway and Sweden Market [8 15] New Zealand Market [15 17] Real-time Congestion Management across Interconnected Regions Proposed Method for Regional Decomposition OPF Application of the Proposed Method to Congestion Management across Interconnected Regions Mathematical Model Sequential Solution versus Parallel Solution Global Congestion Management versus Two-level Congestion Management Test Results Case 1: Inter-regional Congestion Management Case 2: Intra-regional Congestion Management Parameters Selection and Discussion Conclusions References Appendix A: Lagrangian Relaxation Decomposition Approach Dynamic Congestion Management J. Ma, Q. Lu and Y.H. Song Stability Analysis and Control of Power Systems Stability-constrained Optimal Power Flow Market-based Dynamic Congestion Management [14 16] Case Studies and Analysis Conclusions and Future Work

6 Contents XI 7.6 References Financial Instruments and Their Role in Market Dispatch and Congestion Management X. Wang, Y.H. Song and M. Eremia CfDs and FTRs CfDs FTRs How CfDs and FTRs Hedge Price Risks Spot Market Dispatch and Congestion Management with Individual Revenue Adequacy Constraints Impact of Operating Limits on Locational Marginal Prices Formulation of Individual Revenue Adequacy Constraints Implementation Test Results System I: 5-bus System System II: IEEE 30-bus System Conclusions References Ancillary Services I: Pricing and Procurement of Reserves M. Rashidinejad, Y.H. Song and M.H. Javidi Ancillary Services in the Electricity Industry Types of Ancillary Services Market for Ancillary Services General Considerations in England and Wales Ancillary Services Markets Reserve Provision and Pricing in Power Markets Contingency Reserves Reserve Procurement Mechanism Reserve Markets in Several Power Markets Reserve Markets in England and Wales Mandatory Frequency Response Commercial Ancillary Services Reserve Markets in the USA California Markets New York Markets New England Markets Pennsylvania New Jersey Maryland PJM Markets Research into Reserve Procurement and Pricing Joint Dispatch for Reserve Provision and Pricing Application of JEROD to Deal with Reserve Provision and Pricing Physical Constraints Operational Security Constraints Numerical Case Study

7 XII Contents Six-unit Test System Contingency Reserve Settlements Development of Option Pricing Mechanism for Reserve Markets Derivative Securities and Financial Contracts What Is a Derivative? Forward Contracts Futures Contracts Option Contracts Why Option Contracts are Needed for Electricity and Ancillary Services Option Stucture and Option Evaluation Application of Standard Options for Reserve Procurement and Pricing Case Study and Results Analysis Reference Ancillary Services II: Voltage Security and Reactive Power Management G.A. Taylor, S. Phichaisawat, M.R. Irving and Y.H. Song Introduction Reactive Power and Voltage Control Monitoring and Assessment of Voltage Security Transition-optimised Reactive Power and Voltage Control Voltage Security and Congestion Management Reactive Power Markets and Pricing Mechanisms Examples of Reactive Power Markets England and Wales (UK) New York (USA) Australia Analysis of Reactive Power Markets Transition-optimised Reactive Power Control Introduction Algorithmic Procedure Objective Function Transition Constraints Solution Algorithm Case Studies Case Study I Case Study II Concluding Remarks Congestion Management and Voltage Security Introduction Nomenclature Algorithmic Procedure Mathematical Model Computational Procedures Computational Case Studies

8 Contents XIII Concluding Remarks Acknowledgement References Load and Price Forecasting via Wavelet Transform and Neural Networks I.K. Yu and Y.H. Song Load Forecasting and Conventional Techniques Time-series Models Auto-regressive (AR) Moving Averages (MA) Mixed Auto-regressive and Moving Average (ARMA) Regression Model Novel Methods for Short-term Load Forecasting Wavelet Transform Applications Wavelet Transform Analysis Load Forecasting Process by the Wavelet Transform Kohonen-neural-network-based Approach Architecture of the Kohonen Neural Network Unsupervised Learning STLF by a Composite Model Case Studies and Analysis Case Study by Wavelet-transform-based Model Classification of the Daily Load Patterns Numerical Results Electricity Price and Modelling Characteristics of the SMP SMP Models Forecasting the SMP Neural-network-based Model Wavelet-transform-based Model Combined Model Decomposing the SMP Data Predicting the Approximation Estimating the Detail Summing the Approximation and the Details Prediction Results and Analysis Predictions Results by Neural-network-based Model Predictions Results by Wavelet-transform-based Model Predictions Results by Combined Model Summary References

9 XIV Contents 12. Analysis of Generating Companies Strategic Behavour A. Maiorano, Y.H. Song and M. Trovato The Electricity Marketplace Auction Structures Bundling of Demand into Lots Sequencing of Auctions Pricing Rule Strategic Supply Functions Supply Constraints Linear Strategic Supply Functions Proposed Model Inverse Demand Function Evaluation Presence of Private Contracts Final Formulation of the Model Case Studies and Results Analysis Conclusions References Bidding Problems in Electricity Generation Markets Y. He, Y.H. Song and X.F. Wang Generation Auction Markets in Electricity Markets Auction Mechanism Standard Auction Formats Single-round Bidding and Multi-round Bidding Simple Bids and Multi-part Bids Existing Auction Mechanism: Trading Arrangement and Pricing Mechanism UK Market PETA [6][7] NETA [8][9] California [10] PJM [11] Nord Pool [13] Australia National Electricity Market (NEM) [14] New Zealand [3] Ontario Electricity Market in Canada [2] Summary Market Power in Generation Auction Markets Getting to Know Market Power Measuring Market Power Mitigating Market Power Uncertainties and Risk Mitigation Uncertainties in Electricity Markets Risk Mitigation Decision-making and Strategies in Generation Auction Markets Overview of Decision-making Decision-making, Model and Algorithm

10 Contents XV Decision-making in Electricity Markets Decision-making in Electricity Generation Market Game Theory Applications in Generation Auction Market Basic Concept of Game Theory and Its Application in Electricity Markets Game-theory-based Bidding Strategies Optimisation-based Approaches to making Bidding strategies making Bidding decision-making by Optimisationbased Market Simulator Optimal Bidding Based on Formulation of Market Prices with Generators Behaviours Embedded Application of Markov Decision Process (MDP) in Bidding Strategies Other Methodologies for Decision-making Study of Bidding Strategies Based on Bid Sensitivities in Pool-based Spot Markets Introduction Analysis of Bid Sensitivities Based on the IPOPF Model Bidding Strategies Based on Bid Sensitivities Description of the Proposed Model Optimal Bids Nash Equilibrium Process Bidding Strategies when Considering Coalitions Combinations of Potential Coalitions The Bidding Process Considering Coalitions Optimal Bids of Sub-Groups Case Studies and Conclusions Bid Sensitivities Bidding Processes and Optimal Bids without Coalition Results When Bidding under Coalition Conclusions Integrated Bidding Strategies with Optimal Response to the Probabilistic Local Marginal Prices Introduction The Proposed GencoBDS Three Main Modules of GencoBDS Security-constrained Probabilistic LMP Simulation Model Self-scheduling Unit Commitment Model MCDM Method for Optimal Offers Bidding Decision-making Process Test Results and Conclusions Test Results Conclusions References

11 XVI Contents Appendix A: Notation Used in the Self-scheduling Unit Commitment Model Module Transmission Services Improvement by FACTS Control Y. Xiao, X. Wang, Y.H. Song and Y.Z. Sun FACTS Solutions to Power Flow Control Concept of FACTS Technology Models of FACTS Devices Power Injection Model (PIM) of FACTS Devices for ATC Enhancement PIM of Shunt Controller for Voltage Control PIM of Series Controller for Line Flow Control PIM of the Unified Controller for Power Flow Control DC Model of TCSC and TCPS for FTR Auction ATC Enhancement by FACTS Control Formulated ATC Enhancement Model Control Variables Objective Function Operating and Control Constraints Implementation Case Studies Case 1: ATC Evaluation without FACTS Device Case 2: ATC Enhancement with Control of SVC Case 3: ATC Enhancement with Control of SVC+TCPS Case 4: ATC Enhancement with Control of SVC+UPFC Remarks FTR Auction Improvement by FACTS Control Proposed Optimal FTR Auction Model Case Studies System I: 8-bus Test System System II: 30-bus Test System Discussion Remarks References Index

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