Transmission Pricing for Power Trading in Restructured Power System: A Glimpse

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Laxmikant Nagar, 1, Kumar Prabhakar, 1, Akshay Sharma, 2, A. S. Walkey

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Scholar M.E., Department of Electrical and Electronics Engineering, NITTTR, Bhopal, India. Associate Professor, Department of Electrical and Electronics Engineering, NITTTR, Bhopal, India
lk.nagar063@gmail.com

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ABSTRACT This paper deals with the growth of transmission sector and basic concept of allocation of tariffs in the power sector. Different phases of transmission pricing reforms have been discussed. In the restructured power market, it is necessary to develop an appropriate pricing scheme that can provide the useful economic information to market participants, such as generation, transmission companies and customers. Proper pricing method is needed for transmission network to ensure reliability and secure operation of power system. Accurately estimating and allocating the transmission cost in the transmission pricing scheme still remains challenging task. Several concepts are being discussed, whereas three main categories can be distinguished: Rolled-in (embedded) transmission pricing, Marginal transmission pricing, Composite transmission pricing. Key Words: Transmission Pricing, Power Wheeling, Independent System Operator (ISO), Power Exchange (PX), MW-Mile, Postage Stamp, Price Elasticity.

In recent times, as a primary step toward reforms, generation and transmission businesses have been separated from each other in many countries and hence, transmission prices are used to charge the transaction. [3] One important fact about transmission pricing issue is that it is a technical issue rather than a engineering problem. II. POWER WHEELING

I.

INTRODUCTION

Wheeling is the transmission of electrical energy from a buyer to a seller, through transmission or distribution lines owned by a third party. Call a selling utility as utility-S, the buying utility as utility-B. Suppose they are non-contiguous and they are connected by several parallel paths through different utilities in between. One of the utility is connecting them is utility-K. In the context of term wheeling, the obvious question to be asked is, what does it mean to say that utility-S is wheeling to utility-B? The answer to this question is not straightforward where every other entity in the business has its own perception and thats why the issue of wheeling and its pricing becomes highly debatable. [5] III. SCHEMES OF TRANSMISSION PRICING

The transmission system plays a pivotal role in the efficient delivery of electric power to the consumers. Strong transmission system forms the backbone of any successful deregulated power industry. Transmission Company (TRANSCO) has monopoly n transmission activities, so that it has all the rights to transmit electrical energy. Pricing of transmission services plays an important role in determining whether providing transmission open access and allied services is economically beneficial to both the wheeling utility and wheeling customer.

Almost all existing and proposed transmission pricing models are cost based. That means, they

allocate all or part of the existing and new transmission system to wheeling customers. Based on this, transmission pricing paradigms can be defined which convert the transmission costs into transmission charges. Three basic paradigms are: Rolled-in (embedded) transmission pricing Marginal transmission pricing Composite transmission pricing

(bilateral transaction). On the other hand, nontransaction based schemes refer to the power exchange (PX) trades, where it is not possible to identify source-sink pair. Figure shows the broad characterization of various schemes of transmission pricing.

The power markets throughout the world are classified based on two dispatch philosophies: Centralized dispatch and de-centralized dispatch.[9] The de-centralized dispatch markets are the ones in which rolled-in paradigms of transmission pricing is commonly employed. On the other hand, the centralized dispatch markets employ the marginal or the composite pricing paradigms. An alternate way of classifying transmission pricing schemes is based on when they are calculated. Ex-ante transmission pricing Ex-post transmission pricing

Figure (3.1): Classification of Transmission Pricing Schemes There are also several other transmission pricing methods that are listed below: 1. Flat Fee: In this scheme, every entity has to pay same amount. For example if the cost is one lakh rupees and if there are 1000 users, then everyone is charged 100 rupees. 2. Postage Stamp Method: Postage stamp transmission tariff set a price on use of grid that depends only on the amount of power moved and the duration of use. 3. Pro-Forma Transmission Tariffs: In this method, each user must pay a capacity fee, based on the installed cost of the transmission system as a whole, allocated on a per kW basis. 4. MW-Mile Method: This is the pricing that simply sets a wholesale wheeling price proportional to both amount and distance. For example, rupees 1 MWMile/hr. anywhere, any time or different

In Ex-ante transmission pricing schemes, the entity taking part into the power market activities know the transmission prices a priory. While, in Ex-post transmission pricing schemes, the transmission charges are calculated only after the real time has elapsed and power flow snapshot is available.[2],[5] These transmission pricing schemes can be further categorized into: Transaction based transmission pricing Non-transaction based transmission pricing

The transaction based schemes essentially should have a defined source and sink point

rates can be charged for different routes or time. 5. Contract Path Method: Contract path pricing calls for the price of transmission from one point to another to be based on cost of a single identified path. 6. Rated System Path: This method bases the cost on a computed set of parallel path for a particular route.

Where,

= Price elasticity of demand = Price q = Quantity A curve which shows the relative variations between price and quantity of a specific commodity is called demand curve. Demand curve for price and quantity of electricity is shown below:

IV.

RESPONSIBILITIES OF ISO FOR TRANSMISSION PRICING

System operator must determine and post the prices for transmission usage, offers to reserve or sell usage, track bill and settle with users and pass on revenues to the transmission owners. The overall operations of independent system operator should obey economic efficiency and also it should have fairness in its dealing and should not benefit only some players in the system.[2] The system operator faces many challenges during performing them. But it has many resources, including a large staff of experienced power system operators and engineers, a fully computerized control centre and a massive data collection system to monitor, analyze and control the power system. V. PRICE ELASTICITY OF DEMAND:

Price

Quantity

Fig (5.1): Demand Function If more quantity of electricity is available than there will be less unit cost otherwise if less quantity is available, there will be more price for its usage. Therefore, in between price and quantity of commodity there will be a inverse relationship. [4]- [7] Downward sloping of demand curve in figure and demand function equation (1) shows that the price elasticity of demand will be a negative number. Many times, elasticity is presented as an absolute value by dropping a minus sign. If the elasticity is higher, higher is the demand responsiveness.

The price elasticity of demand can be defined as a measure of how much the quantity demanded of a good response to a change in the price of that commodity. It is computed as the ratio of percentage change in quantity demanded to the percentage change in price. Mathematically

Table 5.1: Price Elasticity Versus Response S. No. 1. 2. 3. 4. 5. Elasticity =0 -1 < < 0 = -1 - < < -1 = - Response Perfectly in-elastic In-elastic Unit elastic Elastic Perfectly elastic

In case of unit elasticity, curve is rectangular hyperbola and in case of perfectly in-elastic, demand curve takes the form of vertical line parallel to Y-axis. VI. CONCLUSION

The competitive market for electricity has developed at two ends, the generation end and the retail supply end, while the transmission sector remains a monopoly business and therefore regulated. The TRANSCO facilitates the trading between parties and therefore played a vital role in the restructuring of the power industry in all countries. The objective of transmission pricing is to recover all or part of the existing and new cost of transmission system. Pricing of transmission services plays a crucial role in determining whether providing transmission services is economically beneficial to both the wheeling utility and the wheeling customers. Engineering analysis which deals mainly with determining the feasibility and the cost of providing transmission services is only one of many considerations in the overall process of pricing transmission services. VII. REFERENCES

[1] P.S. Kulkarni, O.P. Yadav, SRMC based Transmission Pricing for Wheeling Transactions under Deregulated Environment of Power Sector, IE (I) Journal-EL, May 2008.

[2] Mohammad Shahidehpour, Hatim Yamin, Zuyi Li, Market operations in Electric Power Systems, New York: Wiley, 2002. [3] D. Shirmohammadi, V. Filho, B. Gorenstin, and M. V. P. Pereira, Some fundamental technical concepts about cost based transmission pricing, IEEE Trans. Power Syst., vol. 11, pp. 1002 1008, May 1996. [4] R. Green, "Electricity transmission pricing: an international comparisons," Utilities Policy, vol. 6, pp. 177-184, 3 1997. [5] Bhattacharya K., M.H.J. Bollen, J. E. Dalder, Operation of Restructured Power System, Kluwer Academic Publishers, Boston, 2001 [6] Abhyankar, A.R.; Soman, S.A.; Khaparde, S.A.;, Optimization approach to real power tracing: an application to transmission fixed cost allocation. IEEE Trans. Power Syst., 21(3), Aug. 2006. [7] Stoft Steven, Power System Economics: Designing Markets for Electricity, IEEE Press & WilleyInterscience Publications, 2002. [8] Lorrin Philipson, H. Lee Willis, Understanding Electric Utilities and Deregulation, Marcel Dekker Inc., New York, 1998 [9] L. Chen, H. Suzuki, T. Wachi, and Y. Shimura, Components of nodal prices for electric power systems, IEEE Transactions on Power Systems , vol. 17, no. 1, pp. 41-49, February 2002. [10] J. Rubio-Oderiz and I. J. PerezArriaga. Marginal pricing of transmission services: a comparative analysis of network cost allocation methods. IEEE Trans. Power Syst., 15(1)