Vaishya, Shri Ram and Sarkar, Vaskar
(2018)
Designing Advanced Locational Marginal
Pricing Schemes and FTR Instruments for
the Power Market.
PhD thesis, Indian Institute of Technology hyderabad.
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Abstract
The deregulation in the electricity market was introduced to alleviate the monopoly
in the market. It introduces competition among market participants. As a result, the
market e�ciency improves. However, deregulation causes the operational concerns
for the allocation of the scare transmission capacity. The problem of transmission allocation,
in principle, can be solved by locational marginal pricing (LMP). Although
the LMP is an e�cient way of the pricing and congestion management, it causes
the inherent price risk for the forward contract in terms of the uncertain congestion
charges. The price risk caused by LMP can be alleviated by the introducing the
�nancial transmission right (FTR) in the electricity market. The establishment and
maintenance costs of the transmission lines are recovered through separate transmission
pricing mechanism. In addition, reactive power costs are also recovered from
the load entities as uplift charges. Transmission and reactive power pricing are still
performed by a regulatory procedure.
The motivation of this thesis is to design the advanced LMP schemes and FTR
instruments to improve the economical and technical e�ciencies of the electricity
market. In this regard, the objective of the thesis is three-fold. The �rst objective
is to develop a reactive power constrained LMP framework by considering di�erent
types of loads and di�erent types of reactive power compensators. The second objective
is to develop an integrated mechanism to price energy and transmission (to
recover establishment and maintenance costs), simultaneously. The third objective is
to develop an advanced FTR instrument which can hedge the risk posed by both loss
and congestion components of the LMP di�erentials. The developed FTR is named
as lossy FTR. The lossy version of the option FTR is also proposed. Rules, procedures,
and practical implementation of the aforementioned works are established in
this thesis. The earlier works on the optimal power
ow, locational marginal pricing,
transmission pricing, and FTRs are thoroughly investigated. The speci�c contributions
of the thesis are summarized as follows.
An enhanced 2-D LMP scheme is proposed to price the active and reactive power
consumptions, simultaneously. Di�erent types of loads and reactive power compensators,
namely, synchronous generator, FACTS devices are considered. Di�erent LMP
vectors are obtained for di�erent entities. The LMP vectors are functions of the voltage
magnitudes so as to bene�t an entity if it supports the grid for the de�cient
reactive power at its location.
The concept of transmission side bidding for availing power transmission services
through a market mechanism is introduced. The transmission side bidding, in essence,
vi
refers to the direct market participation of transmission line owners for selling their
line capacities with appropriate price o�ers. The transmission o�ers are submitted in
a centralized auction conducted by the independent system operator for carrying out
dispatch scheduling or for the issuance of transmission rights. Transmission o�ers are
jointly cleared along with other bids and o�ers, and bid-consistent prices are established
by means of marginal pricing. The uncertainty that is involved in revenues and
payments of market players in conventional transmission pricing is thus eliminated.
By recognizing the criticality of power
ow interactions between di�erent transmission
lines, the auction participation of transmission line owners is suitably regulated.
The issuance of FTRs is supplemented by assigning counter
ow
owgate rights to the
transmission line owners so as to ensure revenue adequate FTR settlement.
A loss compensated DC optimal power
ow (OPF) framework is developed for
the integrated AC and multi-terminal HVDC system. The losses in the AC and
HVDC lines are represented as a piecewise linear function of the terminal-averaged
power
ow. The piecewise linear representation, eventually, transforms the nonlinear
constraints into linear constraints in the OPF formulation. This, in e�ect, reduces
the computational complexities involved in OPF calculation. The piecewise linear
loss modeling exhibits a typical advantage over the marginal loss modeling in terms
of the risk hedging capability of �nancial transmission rights. In addition to the
uncontrolled AC transmission lines, the controlled AC transmission lines are also
considered. Further, a better curve �tting technique is explored that can improve the
power
ow accuracy of the piecewise linear loss modeling in the DCOPF calculation.
Unlike the available curve �tting technique for the piecewise loss linearization, the
proposed curve �tting technique is linked to the loading condition of the transmission
line. Detailed mathematical procedure is developed to obtain the solution of the
proposed curve �tting optimization problem. The power
ow accuracies of di�erent
linear and piecewise linear loss modeling approaches are assessed and compared on a
realistic ground.
A market framework is proposed for the practical implementation of the lossy
FTRs. The advantage of lossy FTRs over conventional FTRs is that the lossy FTRs
can be settled directly according to locational marginal prices without any decomposition.
Therefore, the price risk for a forward contract can be perfectly hedged if the
power transaction involved matches the corresponding FTR perfectly. The lossy FTR
has not been successful in entering the market because of the prejudices involved in
market complexity and ine�ciency. The principal aim of this work is, therefore, to
create the necessary environment so as to make those �ne risk-hedging tools available
vii
in the market. First of all, a suitable format for forward contracts is prescribed to
enable proper utilization of lossy FTRs. The detailed lossy FTR auction model is
prepared based on a suitable OPF formulation. In addition, the implementation of
lossy FTRs is shown for an AC-DC system by appropriately modeling the DC-line
power
ow behavior according to the chosen OPF framework. The lossy FTR auction
model is thoroughly veri�ed for the FTR issuance as per the market expectations.
The option version of the lossy FTR is also introduced in this thesis to improve the
market e�ciency. The existing lossy FTR theory is based only on obligation FTRs.
Although obligation FTRs are the primary risk hedging instruments under any FTR
mechanism, option FTRs can improve market competition by allowing
exible hedge
positions. Therefore, an investigation is carried out to explore a lossy version of
option FTRs. The con�guration template and the settlement rule for lossy option
FTRs are established. A suitable auction model is prepared for the issuance of lossy
option FTRs. The lossy FTR auction formulation is carried out based on a novel
representation of power
ow equations. Detailed case studies are presented to show
the practical utility of the proposed lossy FTR instrument.
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