Power System Operation in

Competitive Environment

By
Saikrishna Dasari
Dept. of EEE
PVKKIT
Power System Restructuring:
Process of Disassembling the power
industry and reassembling it into modified
functional organization
Brings better results in terms of
performance and efficiency
It is achieved by deregulating the
electrical utilities
Regulated and Deregulated power
systems
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Major Factors Motivating the
Restructuring

High Tariff

Encouragements for innovations

Improvement in managerial efficiencies

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High Tariff:

The Price of electricity is expansive on

account of regulated Power system
With deregulation, the tariff is most likely
to reduce
Restructuring Leads to a number of
competitors in the market
Consumers enjoy an improved & quality
power at less tariff
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 Encouragement of Innovations:

Innovations leads to upgradation of

technologies & business practices
In deregulated power system, because of
competitive power industry, the risk
takers are rewarded and encouraged
Regulated system never cared for
innovative approach.

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 Improved Managerial
Efficiencies

Restructuring, improved the quality in the

managerial economics of the power sector

The Govt. owned electricity industries

encouraged privatization, even
privatization is not a part of restructuring
process

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Models of Electricity Markets

PoolCo model

Bilateral Contracts model

Hybrid Model

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PoolCo Model:

A centralized market place, where electric

power sellers/buyers submit the prices
and bids into the pool for the energy that
they are agreeable to sell/buy is known as
“PoolCo model”
It does not contain any generation or
transmission components & within service
authority of the pool it transmits all
generating units
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Bilatral Contracts model:

Also known as direct access models

Consumers can contract directly with the
generating companies
Consumers transmits required power by
forming suitable approach & pricing
standards as conformed to the power
transmission and distribution over utility
wires
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Hybrid Model:

This model is the combination of different

characteristics of above two models
It differs form PoolCo model, the use of
power exchange is not necessary
Consumers are permitted to sing bilatral
contracts & choose suppliers from the
pool

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ISO:

Independent System Operation

Main responsibility is to manage the

security of power system

It does not support or penalize one

market participant over other in a
competitive environment
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Power Exchange (PX)

A market place where different

participants buy/sell electricity and can do
other services in a competitive manner by
accepting certain terms such as pricing,
availability and quantity of products is
known as “Power Exchange”

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Market Power:
Ability of a firm to increase or control the
market price over a competitive level
Spot Market:
It is a market where the buyers and
sellers interact & agree either mutually or
through an exchange on transmission for
immediate delivery

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Market Clearing Price:

The market place at

which the quantity of
energy supplied matches
the quantity of energy
demand & the buyers
and sellers can agree on
that price is known as
“Market Clearing Price
(MCP)”
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Market Operations:

There are two types of market operations

Day-ahead & Hour-ahead Markets

Elastic & Inelastic Markets

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 Day-ahead & Hour-ahead
Markets

These are combinely called as forward

markets

Here MCPs and electric quantities are

determined independently for every hour
of the day depending upon the participant
bids

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 Elastic & Inelastic Markets:

A market in which a small change in price

may lead to a greater change in demand
is known as “Elastic Market” and demand
is said to be elastic
The market in which a drastic change in
price may not cause any change in
demand is known as “Inelastic Market”
and the demand is said to be inelastic
demand
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Congestion Pricing methods:

By employing suitable approaches all

restructuring schemes are considering
congestion cost into account in order to
calculate the congestion costs and assign
these costs to the users of transmission
system
Based on the following three basic
methods these approaches are evolved as
follows
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(i) Cost of Out-of-merit dispatch:

This is suitable for a system having

invaluable problems of transmission
problems

In this approach, based on the load ratio

share of transmission system congestion
costs are assigned to each load

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(ii) Locational Marginal Prices

This technique depends on the supplying

energy cost to the succeeding load at a
particular location on the transmission
grid
It evaluates the price paid for energy by
buyers in a competitive market at
particular locations & by observing the
variations in LMPs between two locations
congestion costs are measured
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 (iii) Usage Charges of Inter-
zonal lines
Based on the historical performance of the
constrained transmission paths, the ISO
region is classified into congestion zones,
inter-zonal lines
All transmission users pay usage charges
for using the inter-zone lines
In order to increase or decrease generation
the usage charges will be calculated from
bids submitted by the market participants
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 Forward Pricing Curves:
Construction

The construction of forward pricing curves

mainly depends on,
Time frame for price curves
Types of forward price curves

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Time frame for price curve

Construction of forward curve mainly

depends on a time frame which can be for
a short-term, medium term or for a long
term
In short-term, the electricity price varies
with the fluctuations in weather
conditions, interregional power flows &
supply outages
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Time frame for price curve

Medium term price alterations would be

determined by the factors such as load
growth, changes in fuel price & consumer
response to change in retail power
The construction of forward curves for
long-term prices mainly depends on the
probabilistic system modeling, retirement
analysis & asset investment
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 Types of forward price curves:
The forward electricity price plays a major
role for pricing retail & wholesale electricity
The use of these curves by knowing the
information such as consumer characteristics
& supply/demand conditions, gives rise to
hedging strategies for various participants of
market like marketers, suppliers &
independent power suppliers
The curve includes three variations
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(i) Backwardation:

It is a market condition in which the spot

price exceeds the future prices
It also known as inverted market
It gives the relation between forward and
spot market in which the shorter dated
constracts deals with higher price & the
longer dated constracts deals market with
lower price
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(ii) Contango:

It is opposite to the backwardation

It gives the relation between forward and
spot market in which the forward price
exceeds the spot price
Usually the forward price is more than the
spot price by nearly the net cost carry (or)
finance the spot electricity/security until
the forward constracts settlement date
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(iii) Combination:
The combination of backwardation &
contango is shown
This is an example of a condition in which
the forward curves takes form of
backwardation in the short-term part of
the curve it is o combination of two
The curve behavior on expectations with
respect to the supply or demand balance
in the market besides the other seasonal
factors that manage prices 28
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