1. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Market Overview in Electric Power Systems Mohammad Shahidehpour Department of Electrical and Computer Engineering Illinois Institute of Technology March 2002

2. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Introduction Restructuring: Decomposition of the three components of the electric power industry Separation of transmission ownership from transmission control Creation of a competitive electricity market

3. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Introduction Electricity Market Objectives: Ensure a secure operation Facilitate an economical operation. Regulated environment: cost-based central dispatch Restructuring: priced-based market

4. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Introduction Source: PA consulting

5. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Introduction Source: PA Consulting

6. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Introduction Source: PA Consulting

7. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Introduction Schedules ISO Schedules Bids GENCOs Market Forecasting Market Operation Market Monitoring Forward Market: SCUC Ancillary Services Auction Transmission Pricing Market Power Forecasting Load Forecasting Price Forecasting Bidding Strategy Risk Management PBUC Arbitrage Market Power & Gaming Asset Valuation & Risk Analysis Markets  Energy  Ancillary Services  Transmission Load Forecasting Price Forecasting Congestion Management

8. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Introduction Restructuring:

9. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Introduction Markets Strategies: Reduce the cost of electricity utilization (primary motive for restructuring) Enhance the security of power system through economical means

10. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Market Structure and Operation PoolCo Model Bilateral Contracts Model Hybrid Model Electricity Market Models

11. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Market Structure and Operation Market Operators: ISO, PX Market Participants: Genco, Transco, Disco, Retailco, Aggregator, Marketer, Broker, Customer Market Structure

12. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Energy market Ancillary services market Transmission market Market Structure and Operation Forward market: (day-ahead, hour-ahead) Real-time market Market Types

13. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview The ISO: Must forecast the system load accurately Market Structure and Operation Must be equipped with powerful tools Must monitor the market power to protect the benefits of market participants. Key Components in Market Operation

14. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview GENCOs Market Structure and Operation Objective: maximize profit. Accurate forecasts of the system information, including load and price. Good bidding strategy based on the forecasted system information. PBUC will be the basis for bidding strategy.

15. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Two sets of forecasted information: Load Electricity price Market Overview Overview of the Market Information Forecasting

16. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Basis for price forecasting Most important price driver Load forecasting applications: Unit Commitment, Power System Security, Generation Reserve Allocation, Market Behavior. Market Overview Load Forecasting

17. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Load Forecasting

18. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Load Forecasting

19. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Load Forecasting

20. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Price forecasting is of utmost importance to GENCOs. The price signal reflects the market situation and would lead every action that GENCOs may take. Market Overview Price Forecasting

21. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Price Forecasting

22. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Price Forecasting

23. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Price Forecasting Simulation of the actual system dispatch with system operating requirements and constraints can provide insight on price. Potential price drivers such as line limits, line outages, generator outages, load patterns and bidding patterns can be identified through sensitivity analysis.

24. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview In California and New England, GENCOs will run the unit commitment, which is called price based unit commitment. Market Overview Unit Commitment in Markets In PJM and New York, ISO runs the transmission security and voltage constrained unit commitment, which is called security constrained unit commitment.

25. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Unit Commitment in Markets PBUC

26. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Unit Commitment in Markets Impact of Reliability Generation Scheduling violations Voltage Subproblem Transmission Subproblem Master Problem (Unit Commitment) Contingency Subproblem j Transmission Subproblem Voltage Subproblem Steady State Subproblems

27. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview The usage of arbitrage includes any activity that attempts to buy a relatively under-priced commodity and to sell a similar and relatively overpriced commodity for profit. Market Overview Arbitrage in Electricity Markets

28. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Market Power and Monitoring Identify non-competitive situations in restructured energy marketplaces Provide support for minimizing risks involved in price decisions in restructured energy marketplaces Uncertainty and the competitiveness of the market: gaming strategy is an indispensable tool for GENCOs.

29. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Asset Valuation / Risk Management Asset valuation and risk management requires PBUC, arbitrage and gaming.

30. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Asset Valuation / Risk Management

31. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Ancillary Services Auction Objective Social cost minimization Procurement cost minimization Settlement rule Uniform pricing Pay-as-bid pricing Substitution pricing Marginal Pricing Supply substitution pricing Demand substitution pricing Regulation Spinning Reserve Non-Spinning Reserve Replacement Reserve

32. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Ancillary Services Auction

33. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview meet revenue expectations, Market Overview Transmission Pricing promote an efficient operation of electricity markets, encourage investment in generation and transmission, reimburse owners of transmission assets adequately.

34. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Transmission congestion and losses: based on LMPs. Market Overview Flow-based tracing method: allocation of transmission charges. Hedging volatility risks: FTRs credits: based on flow calculations and LMPs. Contracts for Differences Transmission Congestion Contracts

35. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Introduction Source: EIA

36. Market Overview in Electric Power Systems Market Structure and Operation Introduction Market Overview Thank You Mohammad Shahidehpour