2004 IEEE International Conference on Electric Utility Deregulation, Restructuring and Power Technologies (DRPT2004) April 2004 Hong
Kong
Impact of Emission Compliance Program on
Competitive Power Market
Yuan Liao, Member, IEEE, Xiaoming Feng, Member, IEEE, Jiuping Pan, Member, IEEE
Abstruct- This paper discusses the impact analysis of
enforcing emission compliance program on competitive power
market operation using an electricity market simulation
program, Gridview. Various emission constraints have been
imposed by certain environmental acts and programs on
electricity generating units. To comply with the required limits,
the commitment and dispatch of individual units may need to be
adjusted based on the certain parameters, possibly by favoring
utilization of low emission rate units. As a result, the effects on
system operation conditions and the energy prices could be very
drastic and difficult to predict or quantify without the use of a
market simulation tool that can make emission compliance an
integral part of the market simulation process. This paper
discusses the implementation of an iterative emission
constraints modeling in a power market simulation program,
which leads to an economic equilibrium between various
opposing factors. Case studies using the market simulator
illustrate the presented approach, and demonstrated the impact
of enforcing emission compliance on generation cost, revenue
and prices.
Index Terms-Emission Compliance Analysis, Power Market
Simulation, Competitive Power Market, Locational Marginal
Price, Security Constrained Unit Commitment, Economic
Dispatch, Economic Equilibrium.
I. INTRODUCTION
0 satisfy the energy demand and reserve requirements of
T the power markets reliably and economically, a process
called Security Constrained Unit Commitment (SCUC) and
Economic Dispatch (ED) can be used to schedule the startup
and shutdown and utilization of generating units [ 11-[Z].
Certain types of fossil fueled thermal units are likely to
generate compounds such as sulfur dioxide ( S 0 2 ) , nitrogen
oxides (NOx), and carbon dioxide (C02), which can lead to acid
rain, ozone pollutant and greenhouse effects [3]-[6]. The
amount of emissions is affected by various factors such as unit
emission rate, the generation output, etc. Different units can
have different emission rate determined by unit inherent
characteristics and specific emission control devices imposed
Yuan Liao (vuan.liuo(i4'us.abb.com), Xiaoming
(xiaoming.feng@;us.abb.com), and Jiuping Pan Ciiuping.pnni~~us.abb.com)
are with ABB Corporate Research, Raleigh, NC 27606, USA.
0-7803-8237-4104/$17.0002004IEEE
on the unit. Emission rate can be treated as a constant for a
certain period of time.
To improve air quality and reduce these emissions, various
governmental acts and compliance programs such as Clean Air
Market Program and Clear Skies program have been developed
[3]-[5]. The system works through a capping and trading
program [4]-[5].
In a system, units may be grouped to unit groups according
to load areas, regions, systems, or grouped in other ways for
specific purposes. Normally a certain amount of emission
allowances are obtained for specific unit groups for a specific
time horizon through allocation, purchasing or banking
deposit. The total emission output in the unit group is limited
to the emission allowance. There is an open emission trading
market, where one can buy or sell emission allowances. If the
emission output of a unit group exceeds the allowance,
additional emission allowance can be purchased from the open
emission trading market at certain cost. Using emission control
devices can also be an alternative to reduce emission output,
which will incur additional cost too. Another way is to
constrain the emission output by limiting the utilization of dirty
units and favoring cleaner units in the unit commitment and
dispatch process [7]. Our work focuses on using short term
scheduling approach to reduce emission output. However our
tool enables evaluation of the benefits of long term emission
reduction approach such as using emission control devices.
This paper will discuss how to make a sound decision on the
amount of allowance purchase by incorporating emission
constraints in the unit commitment and dispatch optimization
process.
An approach for emission compliance analysis is presented
and implemented in the power market simulator - GridView [l]-
[2]. The presented approach adjusts the commitment and
dispatch of units to maximize compliance of emission limits
within the study horizon. The resulted solution falls within an
economic equilibrium neighborhood where incentive of further
reduction of emission output diminishes. The simulator
provides the ability of insights into analyzing the impact of
enforcing emission compliance on power market operations.
In the following paper, the market simulation program
GridView is described first. Then the methodology for emission
compliance modeling is presented, followed by case studies
Feng and analysis. Conclusions are given in the end.
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2004 E E E International Conference on Electric Utility Deregulation, Restructuring and Power Technologies (DRPT2004) April 2004 Hong Kong

n. MARKETSIMULATION MODELS for transmission limit violations. The cost term for unserved
loads provides cost account for emergency load shedding in
GridView is a market simulation program that is able to case of supply shortage or import transmission limitations.
GridView Database for US regional power market is utilized to
perform transmissionkecurity constrained unit commitment
build the market model for the study system.
and economic dispatch. Detailed transmission network model
Gridview’s unit commitment and economic dispatch process
is included to ensure physical feasibility of power flows [ 11-[2]. is capable of modeling emission constraints and adequate in
The simulation program requires data from the following maximizing the emission compliance.
major categories:
0 Supply - generating capacity location, heat rates, fuel m.
METHODOLOGY DESCRIPTION
cost, operation constraints, and bidding information
0 Demand - spatial load distribution over time A . Problem description
0 Ancillary service requirements
Each group of units are assigned a certain amount of
0 Transmission - load flow model, interface limitations,
emission allowance within one year or in a specified season
transmission nomogram, and security constraints
such as from June to September. The emission types include
Other data categories may include market scenarios, market
rules, reliability performance data, and environmental S02, NOx, C02, etc. Additional emission allowances can be
constraint data. purchased from open emission markets at the market credit
The simulation program mimics the operation of open price [3]-[SI.
electricity markets by performing transmission security Without emission constraints, the system can be operated
constrained unit commitment and economic dispatch. This is at an optimal point with the lowest production cost determined
done sequentially in chronological order for a period from a by the unit commitment and economic dispatch process.
week to a few years, depending on the objective of the However, some cheaper units may be dirty, and discharge
application. Typical outputs include: undesirable emission output. If the total emission outputs
Locational market clearing prices exceed the available allowance, costs will be incurred due to
0 Generation utilization - dispatch hours, total generation, purchasing additional allowance from open market. The
production cost, and revenues problem is how to consider emission constraints in the unit
0 Environmental impacts commitment and economic dispatch process to economically
0 Transmission utilization - maximum loading, loading maximize the emission compliance, such that the production
factor cost plus emission allowance purchase cost is minimized when
0 Transmission bottlenecks - hours of congestion,
the economic equilibrium is reached.
economic value of expansion
The data related to emission analysis that can be used as
Reliability indices and other market performance
inputs include:
measures
Emission rate for each type of emission for each unit
A salient feature of GridView is the transmission security
Emission allowance for each type of emission for each
constrained unit commitment. This procedure determines the
group of units
startup, shutdown schedules and dispatch levels of generators
Market trading price for each type of emission
to minimize the total system cost while satisfying the various
generation and transmission constraints. The unit commitment allowance
is performed using the following information: Main output related to emission analysis include:
Day-ahead (or week-ahead) load forecast Emission output for each unit and unit group
0 Emission constraint 0 Marginal emission rate for specified horizon
Maintenance scheduling
0 Average full load production cost Emission output is a function of generation level that is
0 Generation operation constraint determined by energy demand and other market requirements
Start-up cost such as reserves. Change in energy demand is likely to lead to
Load plus various reserve requirements such as change in emission output. Marginal Emission Rate (MER) is a
regulation down, regulation up, spinning reserve, non- value measuring how the total emission output changes as a
spinning reserve and replacement reserve result of an infinitesimal increment in energy demand [6].
0 Transmission constraint and contingencies

The economic dispatch with transmission security B. Methodology

constraint, also known as security constrained optimal power
flow (SCOPF), solves an optimization problem subject to
various transmission related constraints. Here the objective is
to minimize a generalized cost function that, in addition to the
cost (or generation bid) of serving the demand, also includes
costs for un-served load, transmission tariffs, and penalty cost
The presented approach contains an iterative process,
during which the emission output is gradually reduced by
penalizing utilization of dirty and cheaper units and favoring
utilization of cleaner units that may be more expensive [7]. As a
result, the unit commitment and dispatch process may not yield

33
2004 IEEE Intemational Conference on Electric Utility Deregulation, Restructuring and Power Technologies (DRPT2004) April 2004 Hong Kong

an operating point with optimal production cost, and the
generation production cost may go up due to out-of-merit
operations. On the other hand, the cost for purchasing
additional emission allowances is reduced, and the reduction
goes faster than the increase in production cost before an
equilibrium point is reached. And thus the production cost
plus the allowance purchase cost is reduced in the process.
The process iterates until an economic equilibrium or its
proximity is reached that results in the lowest total cost.
The following notations will be used:
current unit generation output by using (1) and ( 2 ) . If stopping
criteria are met, the program stops and otherwise continues as
follows. Based on the shortfall of emission allowance, obtained
as difference between actual emission output Eaclual-~
and
allowance EallOw
-
ki , the emission cost adjustment for unit
groups can be calculated. This cost adjustment will be
accumulated in each iteration. The larger the shortfall of
allowance, the larger the cost adjustment will be. When the
shortfall approaches zero, the cost adjustment will also
approach zero. These characteristics are conducive to a fast

N : total number of simulation hours

and smooth convergence. cy' can be limited by an upper
bound equal to the market credit cost, which will be further
Z : total number of generators in unit group k
illustrated in case studies.
ai : total cost adjustment ($/MWh) for generator i in unit
group k Initial unit commitment and dispatch
aV: cost adjustment ($/MWh) for generator i in unit group k scheduling
for emission type j
e, : emission rate (IbMWh) for generator i for emission type Calculate emission outputs for units and unit
j groups
6
T,,: energy output (MW) for generator i for simulation hour If stopping criteria met, stop here; otherwise
n continue
J.
EaCtual-,
: total emission output (lbs) for unit i for emission
Calculate cumulative emission cost
type J adjustment for unit groups
*
C y ' : cumulative emission cost adjustment for unit group k
for emission type j at m" iteration I Calculate cumulative emission cost
adjustment for units
+
I
EaI,,, : emission allowance (lbs) for unit group k for Adjust commitment and dispatch cost for units
emission type j
1-
~~ ~ ~~

Eaclual-~ : actual total emission output (lbs) for unit group k Commit and dispatch units I
for emission type j I
~~

The emission output for unit i for emission type j for all Calculate marginal emission rate
simulation hours is calculated as:
N

Fig. 1. Emission compliance modeling flowchart

n=l
Total emission output for unit group k for emission type j Then, the cumulative emission cost adjustment for unit i for
for all simulation hours is calculated as: emission type j is calculated as:

aij = c:." eij (3)

i =I The total cumulative emission cost adjustment, or cost
adder, for unit i is calculated as:
The flowchart for modeling emission compliance in the ai=Ca, (4)
market simulation program is presented in Fig. 1. J

In the figure, Initial unit commitment and dispatch
scheduling obtains the generator commitment status and
energy output without considering the emission constraints
for the simulation horizon. The approach proceeds as follows
in the emission iteration loop. The program calculates the
emission outputs for units and unit groups based on the
Then, unit commitment and dispatch cost is adjusted by
using the calculated unit cumulative emission cost adjustment,
and the process of unit commitment and dispatch is carried out
to obtain the generation outputs. Next the emission outputs
can be calculated again and checked with given allowance
limit. The above process is iterated until convergence criteria

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2004 WEE International Conference on Electric Utility Deregulation, Restructuring and Power Technologies (DRPT2004) April 2004 Hong Kong

are met. The marginal emission rate is calculated using

sensitivity analysis as follows: The program adjusts the unit commitment and dispatch
schedules to maximize compliance of emission limits by
(5) penalizing utilization of those dirty units using cost adder
approach. The cost adder is calculated based on the allowance
where, emer is the marginal emission rate, shortfall and unit emission rate. In an iterative process, the
E represents the total emission output, emission cost is reduced resulting in reduction of allowance
purchase cost. The energy production cost however goes up
L represents the energy demand. due to out-of-merit operation. The total cost however went
The convergence criteria of the iteration process are to down until the most economical operation point is reached.
check whether the emission limits fall within specified To illustrate this process, the simulation results at end of
tolerance, or whether the cumulative emission cost for all each iteration are summarized in table I1 and I11 for SO2 and
groups and for all emission types reach the market credit cost, NOx respectively. In the table, the allowance credit cost is the
or the maximum number of iterations is reached. When the cost of purchasing emission allowance shortage from the
cumulative emission cost reaches the market credit cost, the trading market, which is determined by amount of allowance
solution reaches the neighborhood of an economic equilibrium shortage and allowance trading price.
at which there is no economic incentive to further reduce the
emission output. TABLE I1
If seasonal emission allowance is specified, then the EMISSION RESULTS FOR SO2 AFTER EACH ITERATION
emission output will be accumulated in the specified season,
and emission cost adjustment will be used only in that
specified season.

Iv.CASE STUDIES AND ANALYSIS

The tested case used for emission analysis is built on a
power market located in the East Interconnect of US. The
GridView simulation program is utilized in carrying out the
studies. SO2 and NOx are modeled in the studies. Although the
system model is comparable to the real system in scope and
complexity, the simulation results and analysis are presented
for illustration purpose in discussing the issues and
procedures in emission analysis, and do not necessarily
represent the actual system operation conditions for the time
indicated. The data used in the study are obtained from
commercially available software. The study horizon is one
month in the Year 2003. The system has about 550 generating 121 39,597.04 9.991 0.084q
plants, including 450 thermal units, 80 hydro plants and 20
pumped storage plants. The system consists of about 16 load TABLE 111
areas. EMISSION RESULTS FOR NOx AFTER EACH ITERATION
In the following studies, the iterative process of the
algorithm is illustrated by analyzing results after each iteration.
How enforcing emission constraints impact generation cost,
emission cost, generation revenue, and locational marginal
price (LMP) is analyzed. Results with emission compliance
enforcement and without enforcement are compared where
appropriate.
The emission allowance and market cost of allowance credit
are shown in table I.

TABLE I
EMISSION ALLOWANCE AND MARKET PRICE OF ALLOWANCE
CREDIT

so2 NOx
Allowance (Ton) 36,000.00 35,000.0C
Allowance Trading Price
:%Lb) 0.0635 0.4

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2004 E E E International Conference on Electric Utility Deregulation,Restructuringand Power Technologies (DRPT2004) April 2004 Hong Kong

It is clearly shown in Fig. 2 that after each iteration, the

It is seen from Table I1 and 111, that with iteration production cost goes up and credit cost goes down. This is a
progressing, the emission output and allowance shortage falls result of favoring utilization of cleaner yet more expensive
down because more clean units are committed and dispatched units, while the credit cost goes down since allowance
and less dirty units are utilized, which is driven by the increase shortage is reduced due to less emission output.
of the cumulative cost adder. The emission cost adder Fig. 3 presents more insights into the results. The total cost
approaches the emission allowance market trading price, as drops initially and reaches the minimum value around the ?'
shown in Table I, at around 8" iteration. and 8* iteration. After that, the total cost increases again. It is
The generation production cost, allowance purchase cost, clear that an economic equilibrium or its proximity is reached at
and total cost, sum of generation production cost and around the 8" iteration. From Table I1 and 111, we see that the
allowance purchase cost, after each iteration are shown in emission cost adder approaches the emission allowance market
Table IV. The production cost and total allowance credit cost trading price at around 81h iteration. Therefore, when the cost
for SO2 and NOx are depicted in Fig. 2 . The total cost is plotted adder approaches allowance trading price, the economic
in Fig. 3. For sole purpose of easier visualization, the equilibrium or its neighborhood is reached, and iteration
production cost and credit cost are offset by appropriate process can be stopped. Once the economic equilibrium is
constant values, when plotted in Fig. 2. reached, there is no incentive to further reduce the emission
output, since doing so will incur increased production cost and
TABLE IV increased total cost.
GENERATION PRODUCTION COST, ALLOWANCE PURCHASE
COST AND TOTAL COST AFTER EACH ITERATION I
240900000
240800000
- 240700000
? 240600000
240500000
0
240400000
% 240300000
I-
240200000
240100000
240000000
1 2 3 4 5 6 7 8 9 I01112
Iteration
I

Fig. 3. Total generation and emission allowance credit cost

The impact of emission compliance enforcement on

generation level, generation cost and generation revenue for
selected areas is shown in Table V.

TABLE V
GENERATION LEVEL, COST, REVENUE FOR SELECTED
AREAS

1 2 3 4 5 6 7 8 9101112
lteration

Generation
Fig. 2. Generation production cost and emission credit cost Revenue($) 158,998,432.0 48,096,408.0 27,519.010.0 10.950.563.ONo
Generation
Revenue ($) 164,301,776.0 58,916.416.0 19,232,356.0 11,677,182.OYes

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2004 IEEE Intemational Conference on Electric Utility Deregulation, Restructuring and Power Technologies (DWT2004) April 2004 Hong Kong
It is seen that modeling emission constraints has brought
about differences in generation level, cost and revenue. This is
a result of utilization of unit cost adjustment in the unit
commitment and dispatch process. Some areas such as Area 3
reduced its generation level due to emission compliance
program, and as a result it may need to import more power from
other areas, which can affect transmission line and interface
flows.
Average LMP for generators with and without modeling
emission constraints is plotted in Fig. 4. In the legend of the
figure, “EM’ represents “emission modeling”. It is seen that
the LMP is increased when modeling emission constraints due
to favoring utilization of cleaner but more expensive units.
50 - I-- - - - - - Without EM1
45
40
35 ..
30
25 1
n 20
f 15
10
i
t
~ ~~
Fig. 4 Average LMP with and without emission compliance
enforcement
The emission allowance shortage obtained at the equilibrium
and t h a t obtained without emission compliance enforcement
are summarized in Table VI. It is clearly shown that the
allowance shortage is reduced by the emission compliance
enforcement program. The allowance shortage at equilibrium
can serve as a basis for making a sound decision on how much
emission allowance should be purchased from the emission
allowance market.
TABLE VI
EMISSION ALLOWANCE SHORTAGE WITH AND WITHOUT
EMISSION MODELING
v. CONCLUSIONS
An emission compliance approach is described in this
paper, which was implemented in a power market simulation
program GridView. This approach maximizes the emission
compliance by iteratively adjusting the unit commitment and
dispatch cost of units based on the shortage of allowance,
which leads to economic equilibrium or its proximity. Enforcing
emission compliance may have significant impacts on power
market operations. Case study results using a real world East
Interconnect power market system are presented to illustrate
the algorithm and perform emission analysis.
VI. DISCLAIMER
This paper does not necessarily reflect the viewpoints of
ABB Inc. Any errors or omissions are the sole responsibility of
the authors.
W. REFERENCES
[ I ] X. Feng, L. Tang, Z. Wang, J. Yang, W. Wong, H. Chao, and R.
Mukerji, “An integrated electrical power system and market
analysis tool for asset utilization assessment”, IEEE PES Summer
Meeting, Chicago, July 2002.
[2] X. Feng, J. Pan, L. Tang, H. Chao. and J. Yang, “Economic
I I
evaluation of transmission congestion relief based on power market
simulations”, IEEE PES General Meeting, 2002.U.S.
131 Environmental Protection Agency, “EPA Acid Rain Program,
I t 2001 Progress Report”, November 2002.
[4] U.S. Environmental Protection Agency, Ozone Transport
I I
i l
Commission NOx Budget Program,
http:!iwww .epa.gov:airmarkets:otc/index.li tml.
web site:
[5] U.S. Environmental Protection Agency, SIP Call/NOx Budget
Trading Program, web site:
Iittp:~~www.epa.go~~!ail.lnarkets~otciindex.ht~nl.
[6] IS0 New England Inc., “2001 NEPOOL Marginal Emission Rate
Analysis”, December 2002.
[7] Assef A. Zobian, “Market implications of emerging air quality
regulations”, Northeast Energy and Commerce Association
(NECA) and the Connecticut Power and Energy Society (CPES)
Spring Conference, May 21-22, 2002.
m.BIOGRAPHIES
Yuan Liao (M’ZOOO) is with ABB Corporate Research USA. He
currently works on projects related to developing algorithms and
software for power market modeling and simulation, and large-scale
resource scheduling optimization.
Xiaoming Feng (M’87) is an executive consulting R&D engineer with
ABB Corporate Research in USA. He has over a dozen years of industry
experience working as management consultant, R&D engineer, software
developer and software product manager. His research interests include
simulation, analysis, planning and optimization of electric power
delivery and control systems using advanced simulation, optimization,
probabilistic techniques, and information technology. In recent years,
he was the principal investigator in research in high performance
decompositionhelaxation techniques and general heuristics for large-
scale resource scheduling, multi-step recursive techniques for short-term
electricity price forecast, and simulation methodology for competitive
electricity markets.
Jiuping Pan (M’97) received his B.S.E.E and M.S.E.E. from Shandong
University of Technology, China, and then his Ph.D. in electrical
engineering from Virginia Tech, USA. He is currently a principal
consulting R&D engineer at ABB Corporate Research US. His main
working experiences and research interests include generation and
transmission planning, power system reliability assessment, network
assessment management, and competitive market simulation studies.
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