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Power System Economics notes : Optimal power flow, economic load dispatch, Hydro thermal Coordination

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Cost of electrical energy - Expressions for cost of electrical energy Capital-interest Depreciation Different methods - Factors affecting cost of operation - Number and size of generating units - Importance

of high load factor - Importance of power factor improvement- Most economical power factor - Meeting the

KW demand on power stations Power system tariffs Regions and structure of Indian Power System.

UNIT II: ECONOMIC DISPATCH

Modeling of Cost Rate Curves Economic Dispatch Calculation - Losses neglected, with generator Real

and Reactive power limits; Losses included - Losses of economy in incremental cost data - Problems Generator Capability Curve Effect of Ramping rates Prohibited Operating Zones - Automatic Load

dispatch in Power Systems.

UNIT III: ECONOMIC OPERATION

General loss formula - Evolution of incremental transmission loss rate - Method of calculation of loss

coefficients Systematic development of transmission loss formula -Transmission loss as a function of

plant generation Participation Factor - Non Smooth Fuel Functions (Quadratic, Valve point loading,

CCCP, Multiple Fuel) Problems -Introduction to Artificial Intelligence Techniques for solving ELD

problems.

UNIT IV: INTERCONNECTED SYSTEMS

Interconnected operation - Economic operation of hydro thermal power plants Iteration scheme Gradient approach Newtons method - Modeling and solution approach to short term and long term

Hydro-Thermal scheduling problem using Dynamic Programming.

UNIT V: OPTIMAL POWER FLOW AND FUNDAMENTALS OF MARKETS

Problem formulation - Cost minimization - Loss minimization - Solution using NLP and successive LP

methods Constraints - DC and AC OPF (Real and Reactive Power Dispatch) Effect of Contingencies Voltage and Phase angle - Transient Voltage Dip/Sag Criteria. Fundamentals of Markets Introduction to

Efficiency and Equilibrium - Modeling of consumers and producers Single and Double Auction

mechanism - Global welfare Dead Loss Spot and Forward Markets.

TEXT BOOKS

1. Allen J Wood and B F Wollenberg, "Power Generation, Operation and Control", John Wiley & Sons,

New York, 2004.

2. D. P. Kothari and I. J. Nagrath ," Modern Power System Analysis ", Tata McGraw Hill Publishing

Company, New Delhi, 2006.

REFERENCE BOOKS

3. Kirchmayer. L.K,"Economic operation of power system, John Wiley & Sons, 1953.

4. Steven Stoft, Power System Economics, John Wiley & Sons, 2000.

5. Daniel S. Kirschen and Goran Strbac, Power System Economics, John Wiley & Sons, Ltd, 2004.

6. Hadi Saadat, Power System Analysis, Second Edition, McGraw Hill Publishers, ScholarlyTransaction

Papers, 2002.

CONTENTS

UNIT NO.

1

TITLE

1.1 Economics of Power Generation

10

14

SOLUTION BY ITERATION

2.3 CO-ORDINATION EQUATION WITH LOSS OR EXACT COORDINATION EQUATION

2.4 SOLUTION OF COORDINATION EQUATION USING BMN

COEFFICIENT BY ITERATION METHOD

17

25

2.6 Economic

28

29

30

3.1 INTRODUCTION

31

31

34

losses)

3.5 Base point and participation factor

36

39

40

42

42

42

PROBLEM

44

operating zones

PAGENO.

21

22

37

47

49

4.7

DYNAMIC-PROGRAMMING

SOLUTION

HYDROTHERMAL SCHEDULING PROBLEM

5.1 Optimal power flow

50

TO

THE

53

55

60

61

65

66

67

68

69

73

76

77

77

78

79

79

5.3 Linear sensitivity analysis

1.1 Economics of Power Generation

The art of determining the per unit (i.e., one kWh)cost of production of electrical energy is known as

economics of power generation. A consumer will use electric power only if it is supplied at reasonable

rate. Therefore, power engineers have to find convenient methods to produce electric power as cheap as

possible so that consumers are tempted to use electrical methods.

Terms much used in the economics of power generation :

Interest:

The cost of use of money is known as interest.

Depreciation:

The decrease in the value of the power plant equipment and building due to constant use is known as

depreciation. If the power station equipment were to last forever, then interest on the capital investment

would have been the only charge to be made.

Annual depreciation

Every power station has a useful life ranging from fifty to sixty years. From the time the power station is

installed, its equipment steadily deteriorates due to wear and tear so that there is a gradual reduction in

the value of the plant. This reduction in the value of plant every year is known as annual depreciation.

1.2 Cost of Electrical Energy

The total cost of electrical energy generated can be divided into three parts, namely

Fixed cost

It is the cost which is independent of maximum demand and units generated.

Semi-fixed cost

It is the cost which depends upon maximum demand but is independent of units generated.

Running cost

It is the cost which depends only upon the number of units generated.

1.3 Expressions for Cost of Electrical Energy

The overall annual cost of electrical energy generated by a power station can be expressed in two

forms viz three part form and two part form.

Three part form:

In this method, the overall annual cost of electrical energy generated is divided into three parts viz fixed

cost, semi-fixed cost and running cost (i.e.)

Total annual cost of energy = Fixed cost + Semi-fixed cost + Running cost

= Constant + Proportional to max. demand + Proportional to kWh generated.

=Rs (a+ b kW + c kWh)

where

a = annual fixed cost independent of maximum demand and energy output.

b = constant which when multiplied by maximum kW demand on the station gives the annual semi-fixed

cost.

c = a constant which when multiplied by kWh output per annum gives the annual running cost.

Two part form.

It is sometimes convenient to give the annual cost of energy in two part form. In this case, the annual cost

of energy is divided into two parts viz., a fixed sum per kW of maximum demand plus a running charge

per unit of energy.

Total annual cost of energy = Rs. (A kW + B kWh)

where

A = a constant which when multiplied by maximum kW demand on the station gives the annual cost of the

first part.

B = a constant which when multiplied by the annual kWh generated gives the annual running cost.

1.4 Methods of Determining Depreciation

There is reduction in the value of the equipment and other property of the plant every year due to

depreciation. Therefore, a suitable amount (known as depreciation charge) must be set aside annually so

that by the time the life span of the plant is over, the collected amount equals the cost of replacement of

the plant. The following are the commonly used methods for determining the annual depreciation charge .

Straight line method.

In this method, a constant depreciation charge is made every year on the basis of total depreciation and

the useful life of the property. Obviously, annual depreciation charge will be equal to the total depreciation

divided by the useful life of the property. Thus, if the initial cost of equipment is Rs 1,00,000 and its scrap

value is Rs 10,000 after a useful life of 20 years, then,

In general, the annual depreciation charge on the straight line method may be expressed as :

Fig. 1.1

The straight line method is extremely simple and is easy to apply as the annual depreciation charge can

be readily calculated from the total depreciation and useful life of the equipment. Fig. 1.1 shows the

graphical representation of the method. It is clear that initial value P of the equipment reduces uniformly,

through depreciation, to the scrap value Sin the useful life of the equipment. The depreciation curve (PA)

follows a straight line path, indicating constant annual depreciation charge.

DRAWBACKS:

Firstly, the assumption of constant depreciation charge every year is not correct. Secondly, it does not

account for the interest which may be drawn during accumulation.

Diminishing value method.

In this method, depreciation charge is made every year at a fixed rate on the diminished value of the

equipment. In other words, depreciation charge is first applied to the initial cost of equipment and then to

its diminished value.

As an example, suppose the initial cost of equipment is Rs 10,000 and its scrap value after the useful life

is zero. If the annual rate of depreciation is 10%, then depreciation charge for the first year will be 01

10,000 = Rs 1,000. The value of the equipment is diminished by Rs 1,000 and becomes Rs 9,000. For

the second year, the depreciation charge will be made on the diminished value (i.e.Rs 9,000) and

becomes 01 9,000 = Rs 900. The value of the equipment now becomes 9000 900 = Rs 8100. For the

third year, the depreciation charge will be 01 8100 = Rs 810 and so on.

Mathematical treatment

Let

P = Capital cost of equipment

n = Useful life of equipment in years

S = Scrap value after useful life

Suppose the annual unit depreciation is x. It is desired to find the value of x in terms of P, n and S.

But the value of equipment after nyears (i.e.,useful life) is equal to the scrap value S.

From exp. (i), the annual depreciation can be easily found. Thus depreciation to be made for thefirst year

is given by :

Fig. 1.2

Similarly, annual depreciation charge for the subsequent years can be calculated. This method is more

rational than the straight line method. Fig. 1.2 shows the graphical representation of diminishing value

method. The initial value P of the equipment reduces, through depreciation, to the scrap value S over the

useful life of the equipment. The depreciation curve follows the path PA. It is clear from the curve that

depreciation charges are heavy in the early years but decrease to a low value in the later years.

DRAWBACKS:

Firstly, low depreciation charges are made in the late years when the maintenance and repair charges

are quite heavy. Secondly, the depreciation charge is independent of the rate of interest which it may

draw during accumulation. Such interest moneys, if earned, are to be treated as income.

Sinking fund method.

In this method, a fixed depreciation charge is made every year and interest compounded on it annually.

The constant depreciation charge is such that total of annual installments plus the interest accumulations

equal to the cost of replacement of equipment after its useful life.

Let

P = Initial value of equipment

n = Useful life of equipment in years

S = Scrap value after useful life

r = Annual rate of interest expressed as a decimal

Cost of replacement =P S

Let us suppose that an amount of q is set aside as depreciation charge every year and interest

compounded on it so that an amount of P S is available after n years. An amount q at annual interest

rate of r will become

at the end of n years. Now, the amount q deposited at the end of first

year will earn compound interest for n 1 years and shall become

the end of first year becomes

Amount q deposited at

Load factor:

The ratio of average load to the maximum demand during a given period is known as load factor i.e.,

The load factor plays a vital role in determining the cost of energy. Some important advantages of high

load factor are listed below :

(i) Reduces cost per unit generated :A high load factor reduces the overall cost per unit generated. The

higher the load factor, the lower is the generation cost. It is because higher load factor means that for a

given maximum demand, the number of units generated is more. This reduces the cost of generation.

(ii) Reduces variable load problems: A high load factor reduces the variable load problems on the power

station. A higher load factor means comparatively less variations in the load demands at various times.

This avoids the frequent use of regulating devices installed to meet the variable load on the station.

1.6 Number and size of generating units

While making the selection of number and sizes of the generating units, the following points should

be kept in view :

(i) The number and sizes of the units should be so selected that they approximately fit the annual load

curve of the station.

(ii) The units should be preferably of different capacities to meet the load requirements. Although use of

identical units (i.e., having same capacity) ensures saving* in cost, they often do not meet the load

requirement.

(iii) The capacity of the plant should be made 15% to 20% more than the maximum demand to meet the

future load requirements.

(iv) There should be a spare generating unit so that repairs and overhauling of the working units can be

carried out.

(v) The tendency to select a large number of units of smaller capacity in order to fit the load curve very

accurately should be avoided. It is because the investment cost per kW of capacity increases as the size

of the units decreases.

1.7 Importance of Power Factor Improvement

The improvement of power factor is very important for both consumers and generating stations as

discussed below :

(i) For consumers: A consumer*has to pay electricity charges for his maximum demand in kVA plus the

units consumed. If the consumer imporves the power factor, then there is a reduction in his maximum

kVA demand and consequently there will be annual saving due to maximum demand charges. Although

power factor improvement involves extra annual expenditure on account of p.f. correction equipment, yet

improvement of p.f. to a proper value results in the net annual saving for the consumer.

(ii) For generating stations: A generating station is as much concerned with power factor improvement

as the consumer. The generators in a power station are rated in kVA but the useful output depends upon

kW output. As station output is kW = kVA cos , therefore, number of units supplied by it depends upon

the power factor. The greater the power factor of the generating station, the higher is the kWh it delivers

to the system. This leads to the conclusion that improved power factor increases the earning capacity of

the power station.

1.8 Most Economical Power Factor

If a consumer improves the power factor, there is reduction in his maximum kVA demand and hence

there will be annual saving over the maximum demand charges. However, when power factor is

improved, it involves capital investment on the power factor correction equipment. The consumer will

incur expenditure every year in the shape of annual interest and depreciation on the investment made

over the p.f. correction equipment. Therefore, the net annual saving will be equal to the annual saving in

maximum demand charges minus annual expenditure incurred on p.f. correction equipment. The value to

which the power factor should be improved so as to have maximum net annual saving is known as the

most economical power factor. Consider a consumer taking a peak load of P kW at a power factor of cos

1and charged at a rate of Rs x per kVA of maximum demand per annum. Suppose the consumer

improves the power factor to cos 2 by installing p.f. correction equipment. Let expenditure incurred on

the p.f. correction equipment be Rs y per kVAR per annum. The power triangle at the original p.f. cos 1is

OAB and for the improved p.f. cos 2, it is OAC[See Fig. 1.3].

Fig. 1.3

In this expression, only 2is variable while all other quantities are fixed. Therefore, the netannual saving

will be maximum if differentiation of above expression w.r.t. 2 is zero

i.e.

It may be noted that the most economical power factor (cos 2) depends upon the relative costs of supply

and p.f. correction equipment but is independent of the original p.f. cos 1

1.9 Meeting the Increased kW Demand on Power Stations

The useful output of a power station is the kW output delivered by it to the supply system. Sometimes, a

power station is required to deliver more kW to meet the increase in power demand. This can be

achieved by either of the following two methods :(i) By increasing the kVA capacity of the power station at

the same power factor (say cos 1).Obviously, extra cost will be incurred to increase the kVA capacity of

the station.(ii) By improving the power factor of the station from cos 1to cos 2without increasing the

kVA capacity of the station. This will also involve extra cost on account of power facto correction

equipment. Economical comparison of two methods. It is clear that each method of increasing kW

capacity of the station involves extra cost. It is, therefore, desirable to make economical comparison of

the two methods. Suppose a power station of rating P kVA is supplying load at p.f. of cos 1 . Let us

suppose that the new power demand can be met either by increasing the p.f. to cos 2 at P kVA orby

increasing the kVA rating of the station at the original p.f. cos 1. The power*triangles for the whole

situation are shown in Fig. 6.14.

Cost of increasing kVA capacity of station.

Referring to Fig. 6.14, the increase in kVA capacity of the station at cos 1 to meet the new demand is

given by:

Fig 1.4

Referring to Fig.1.4, the new demand in kW can be met by increasing the p.f. from cos 1 to cos 2 at

the original kVA of the station. The leading kVAR to be taken by the p.f. correction equipment is given by

ED i.e.

The rate at which electrical energy is supplied to a consumer is known as tariff.

Objectives of tariff.

Like other commodities, electrical energy is also sold at such a rate so that it not only returns the cost but

also earns reasonable profit. Therefore, a tariff should include the following items :

(i) Recovery of cost of producing electrical energy at the power station.

(ii) Recovery of cost on the capital investment in transmission and distribution systems.

(iii) Recovery of cost of operation and maintenance of supply of electrical energy e.g., metering

equipment, billing etc.

(iv)A suitable profit on the capital investment

Desirable Characteristics of a Tariff

A tariff must have the following desirable characteristics :

(i) Proper return :The tariff should be such that it ensures the proper return from each consumer. In other

words, the total receipts from the consumers must be equal to the cost of producing and supplying

electrical energy plus reasonable profit. This will enable the electric supply company to ensure continuous

and reliable service to the consumers.

(ii) Fairness : The tariff must be fair so that different types of consumers are satisfied with the rate of

charge of electrical energy. Thus a big consumer should be charged at a lower rate than a small

consumer. It is because increased energy consumption spreads the fixed charges over a greater number

of units, thus reducing the overall cost of producing electrical energy. Similarly, a consumer whose load

conditions do not deviate much from the ideal (i.e., non variable) should be charged at a lower*rate than

the one whose load conditions change appreciably from the ideal.

(iii) Simplicity: The tariff should be simple so that an ordinary consumer can easily understand it. A

complicated tariff may cause an opposition from the public which is generally distrustful of supply

companies.

(iv) Reasonable profit : The profit element in the tariff should be reasonable. An electric supply company

is a public utility company and generally enjoys the benefits of monopoly. Therefore, the investment is

relatively safe due to non-competition in the market. This calls for the profit to be restricted to 8% or so

per annum.

10

(v) Attractive: The tariff should be attractive so that a large number of consumers are encouraged to use

electrical energy. Efforts should be made to fix the tariff in such a way so that consumers can pay easily.

Types of Tariff

There are several types of tariff. However, the following are the commonly used types of tariff :

Simple tariff.

When there is a fixed rate per unit of energy consumed, it is called a simple tariff or uniform rate tariff.

Disadvantages

(i) There is no discrimination between different types of consumers since every consumer has to pay

equitably for the fixed*charges.

(ii) The cost per unit delivered is high.

(iii) It does not encourage the use of electricity.

Flat rate tariff.

When different types of consumers are charged at different uniform per unit rates, it is called a flat rate

tariff. In this type of tariff, the consumers are grouped into different classes and each class of consumers

is charged at a different uniform rate. For instance, the flat rate per kWh for lighting load may be 60 paise,

whereas it may be slightly less (say 55 paise per kWh) for power load. The different classes of consumers

are made taking into account their diversity and load factors. The advantage of such a tariff is that it is

more fair to different types of consumers and is quite simple in calculations.

Disadvantages

(i) Since the flat rate tariff varies according to the way the supply is used, separate meters are required for

lighting load, power load etc. This makes the application of such a tariff expensive and complicated.

(ii) A particular class of consumers is charged at the same rate irrespective of the magnitude of energy

consumed. However, a big consumer should be charged at a lower rate as in his case the fixed charges

per unit are reduced.

Block rate tariff.

When a given block of energy is charged at a specified rate and the succeeding blocks of energy are

charged at progressively reduced rates, it is called a block rate tariff. In block rate tariff, the energy

consumption is divided into blocks and the price per unit is fixed in each block. The price per unit in the

first block is the highest and it is progressively reduced for the succeeding blocks of energy. For example,

the first 30 units may be charged at the rate of 60 paise per unit ; the next 25 units at the rate of 55 paise

per unit and the remaining additional units may be charged at the rate of 30 paise per unit.

Advantages

The consumer gets an incentive to consume more electrical energy. This increases the load factor of the

system and hence the cost of generation is reduced.

Disadvantages

it lacks a measure of the consumers demand. This type of tariff is being used for majority of residential

and small commercial consumers.

Two-part tariff

When the rate of electrical energy is charged on the basis of maximum demand of the consumer and the

units consumed, it is called a two-part tariff. In two-part tariff, the total charge to be made from the

consumer is split into two components viz., fixed charges and running charges. The fixed charges depend

upon the maximum demand of the consumer while the running charges depend upon the number of units

consumed by the consumer. Thus, the consumer is charged at a certain amount per kW of

maximumdemand plus a certain amount per kWh of energy consumed i.e.,

11

This type of tariff is mostly applicable to industrial consumers who have appreciable maximum demand.

Advantages

(i) It is easily understood by the consumers.

(ii) It recovers the fixed charges which depend upon the maximum demand of the consumer but are

independent of the units consumed.

Disadvantages

(i) The consumer has to pay the fixed charges irrespective of the fact whether he has consumed or not

consumed the electrical energy.

(ii) There is always error in assessing the maximum demand of the consumer.

Maximum demand tariff.

It is similar to two-part tariff with the only difference that the maximum demand is actually measured by

installing maximum demand meter in the premises of the consumer. This removes the objection of twopart tariff where the maximum demand is assessed merely on the basis of the rate able value. This type

of tariff is mostly applied to big consumers. However, it is not suitable for a small consumer (e.g.,

residential consumer) as a separate maximum demand meter is required.

Power factor tariff

The tariff in which power factor of the consumers load is taken into consideration is known as power

factor tariff. In an a.c. system, power factor plays an important role. A low*power factor increases the

rating of station equipment and line losses. Therefore, a consumer having low power factor must be

penalised. The following are the important types of power factor tariff :

(i)k VA maximum demand tariff :

It is a modified form of two-part tariff. In this case, the fixed charges are made on the basis of maximum

demand in kVA and not in kW. As kVA is inversely proportional to power factor, therefore, a consumer

having low power factor has to contribute more towards the fixed charges. This type of tariff has the

advantage that it encourages the consumers to operate their appliances and machinery at improved

power factor.

(ii) Sliding scale tariff :

This is also know as average power factor tariff. In this case, an average power factor, say 08 lagging, is

taken as the reference. If the power factor of the consumer falls below this factor, suitable additional

charges are made. On the other hand, if the power factor is above the reference, a discount is allowed to

the consumer.

(iii) kW and kVAR tariff :

In this type, both active power (kW) and reactive power (kVAR) supplied are charged separately. A

consumer having low power factor will draw more reactive power and hence shall have to pay more

charges.

Three-part tariff:

When the total charge to be made from the consumer is split into three parts viz., fixed charge, semi-fixed

charge and running charge, it is known as a three-part tariff. i.e.,

12

13

2.1 INCREMENTAL COST CURVE

The input/output curve of generating units of a plant is important to describe the efficiency of the

plant. Such a curve for thermal power plant is shown. The input/output curve for a hydro plant is also

similar except that the input will correspond to water discharge.

Where,

Where,

Incremental fuel cost

Incremental cost is the slope of cost curve. Incremental cost curve for a typical thermal plant is

shown.

14

Figure 2.2 Incremental cost curve for the thermal power plant

The following assumptions are made for incremental rate theory

1. Input output curves are continuous

2. First derivations of the input-output curves are linear

3. The value of Incremental rate increase with the increase in output

The Input-output curve and Incremental cost curve for a hydro power plant is shown.

The incremental fuel cost of all the generating units must be the same. The common value of

incremental fuel cost is called the system Incremental cost. In same case, some of the units operate at

their upper or lower limits. The IC of all other machines which have not hit their limit must be equal to

called as system or Incremental cost of received power.

The fuel cost curve and the Incremental cost curve may have a number of discontinuous as shown.

15

is

The discontinuous occur when the output power has to be extended by using additional boilers,

steam condenser or other equipments.

Discontinuous also appear is the cost represent the operation of an entire power station. So that

cost has discontinuous on paralleling of generators.

Real power generation as

The discontinuous of fuel cost curve may be approximated as straight line as shown.

When the economical load distribution between a number of generator units is considered. The

optimum generating schedule is effected when an Incremental cost increase at one of the units replace a

compensating decrease at every other unit in turn at the same Incremental cost. The economic optimum

load distribution is obtained when all the generator units operate at the equal Incremental rate.

When two areas are operating at different Incremental costs, there is a possibility to improve the

overall economy. Consider the two area system shown.

16

Three possible cases are

1. The area A is generating power at a lower Incremental cost than area B and possesses extra

spinning reserve.

2. Area B will save money simply by purchasing extra MW from area A which is generating

power at a lower cost than area B.

3. Area A would benefit economically from selling power to area B as long as area B is selling in

pay a price.

2.2 CO-ORDINATION EQUATIONS WITH LOSSES NEGLECTED. SOLUTION BY ITERATION

Let

Ft -Total fuel input of the system

Fn -Fuel input to the nth unit

Pd -Total load demand

Pn -Generation of n unit

The economic dispatch problem is defined as

Subjected to

Use of lagrangian multiplier the auxiliary function is obtained as

Where,

Differentiating F w.r.t generation Pn and equating to zero gives the condition for optimal operation of the

system.

Where,

17

Cost function C =

Using incremental cost

=

18

19

Step 1: compute using the equation

Step 2: compute

Step 3: if the computed PGi satisfy the operating limits

Then the optimum solution is obtained, otherwise go to next step

Step 4: if PGi violates the operating limit, then fix the generation at the respective limit

Step 6: compute new using PD new and compute the remaining generations using

Step 7: check whether the optimality condition is satisfied

If the condition is satisfied, then stop. Otherwise release the generation schedule fixed at

Of these units not satisfying optimality condition. Include these units in the remaining

units and modify the new power demand PDnew

And go to step 6.

20

Let

Ft-Total fuel input of the system

Fn-Fuel input to n unit

Pd-Total load demand

Pn-Generation of n unit

PL -Total system loss

The optimal load dispatch problem including transmission losses is defined as

Subjected to

system

Where,

Where,

Equation (5) is called an exact coordination equation when transmission losses are considered or

modified Incremental cost.

21

Consider a two bus system

Transmission loss

Since

matrix is symmetrical

Incremental transmission loss

Incremental transmission loss

For optimum operating conditions, coordination equation is

22

For N bus system,

Equality constraint is

We have N non-linear equation, the solution of which gives the optimum generations

23

24

Step 1: Choose lagrange multiplier

Compute

Step 3: Solve for PGi using

Where,

C=

Step 7:

25

Problem 1

26

Problem 2

27

2.6 Economic dispatch with ramp rate limits and prohibited operating zones

(I)Prohibited operating zone (POZ) :

It gives the performance of a thermal unit can be due to vibrations in a shaft bearing caused by a steam

value or can be due to faults in the machines themselves or the associated auxiliary equipments such as

boilers, feed pumps etc.

For the units with POZ, constraints on the operating range are given by,operating cost characteristics with

POZ,

min

L

(i=1,2,.n)

Pi Pi Pi,1

U

L

Pi,J-1 Pi Pi,J

(J=2,3,..NZi) (i=1,2,.n)

U

max

(i=1,2,.n)

Pi,NZI Pi Pi

Where,

28

th

th

th

L

Pi,J = Lower bound of j POZ of i generator.

U

th

th

Pi,J-1 = Upper bound of j POZ of i generator.

(II) Ramp rate limit:

The operating range of all online units restricted by their ramp rate limits for forcing the units operation

continually between two adjacent specific operating operation periods.

Inequality constraints due to ramp rate limits that can be imposed one described below.

(a) Generation increases

0

Pi - Pi URi

Where,

th

URi = Upper ramp limit of i generator (MW/h)

th

Pi = Previous output power of i generator.

(b) Generation decreases

0

Pi - Pi DRi

Where,

th

DRi = Down ramp limit of i generator (MW/h)

Generator ramp rate inequality constraints is given by,

min

max

max(Pi , Pi-DRi) Pi min (Pi , Pi+URi) i=1,2,.N

Mathematically the economic dispatch problem considering ramp rate limits and POZ is defined as,

2

Minimize operating cost F(Pi) = (ai Pi +bi Pi+ci)

Subjected to:

(i) Economic dispatch problem

2

F(Pi) = (ai Pi +bi Pi+ci)

(ii) Generator ramp rate inequality constraint is undertaken as constant.

(iii) POZ constraints.

2.7 Automatic load dispatch of power system

Economic load dispatching is that aspect of power system operation where it is required to distribute the

load among the generating units actually parallel with the system in such manner as to minimize the cost.

In a large interconnected system it is impossible to calculate and adjust such generations manually and

hence the help of digital computer system along with analoguse device is carried out automatically. The

chosen control system is based on digital computer.

Computer:

It predicts the load and suggests economic loading. It transmits information to machine controllers.

Data input:

Computer receives a lot of essential data from the telemetering system.

Console:

The console has the facilities of security checking and load flows for network calculations.

Machine controllers:

The computer sends instructions regarding the optimal generation to the machine controller at regular

intervals. Control on each machine is applied by a closed loop system.

In the power frequency loop an error signal proportional to the difference between derived and actual

frequency and power is developed. The pulses are applied as raise or lower command to the speeder

29

motor in accordance with the error signal and thus output of the generator is increased or decreased

accordingly.

2.8 Generator capability curve

The continuous reactive power capability is limited by 3 considerations

(i) Armature current limit.

(ii) Field current limit.

(iii) End region heating limit.

These limitations are explained with the help of the generator capability curve.

30

3.1 INTRODUCTION

One of the earliest applications of on-line centralized control was to provide a central facility, to operate

economically, several generating plants supplying the loads of the system. Modern integrated systems

have different types of generating plants, such as coal fired thermal plants, hydel plants, nuclear plants,

oil and natural gas units etc. The capital investment, operation and maintenance costs are different for

different types of plants. The operation economics can again be subdivided into two parts.

i) Problem of economic dispatch, which deals with determining the power output of each plant to meet the

specified load, such that the overall fuel cost is minimized.

ii) Problem of optimal power flow, which deals with minimum loss delivery, where in the power flow, is

optimized to minimize losses in the system. In this chapter we consider the problem of economic

dispatch.

During operation of the plant, a generator may be in one of the following states:

i) Base supply without regulation: the output is a constant.

ii) Base supply with regulation: output power is regulated based on system load.

iii) Automatic non-economic regulation: output level changes around a base setting as area control error

changes.

iv) Automatic economic regulation: output level is adjusted, with the area load and area control error,

while tracking an economic setting.

Regardless of the units operating state, it has a contribution to the economic operation, even though its

output is changed for different reasons. The factors influencing the cost of generation are the generator

efficiency, fuel cost and transmission losses. The most efficient generator may not give minimum cost,

since it may be located in a place where fuel cost is high. Further, if the plant is located far from the load

centers, transmission losses may be high and running the plant may become uneconomical. The

economic dispatch problem basically determines the generation of different plants to minimize total

operating cost.

3.2 Optimum generation scheduling

The objective is to minimize the overall cost of generation

at any time under equality constraint of meeting the load demand with transmission loss, i.e.

31

It will be shown later in this section that, if the power factor of load at each bus is assumed to remain

constant, the system loss P, can be shown to be a function of active power generation at each plant,

Rearranging equation and recognizing that changing the output of only oneplant can affect the cost at

only that plant, we have

The Lagrangian multiplier is in rupees per megawatt-hour, when fuel cost is in rupees per hour. Equation

impiies that minimum fuel cost is obtained, when the incremental fuel cost of each plant multiplied by its

penalty factor is the same for all the plants. The partial derivative is referred to as the incremental

transmission loss associated with the generating plant.

Thus it is clear that to solve the optimum lead scheduling problem; it is necessary to compute ITL for each

plant, and therefore we must determine the functional dependence of transmission loss on real powers of

generating plants. There are several methods, approximate and exact, for developing a transmission loss

model. A full treatment of these is beyond the scope of this book. One of the most important, simple but

approximate, methods of expressing transmission loss as a function of generator powers is through Bcoefficients. This method is reasonably adequate for treatment of loss coordination in economic

scheduling of load between plants. The general form of the loss formula using B-coefficients is

32

For a three plant system, we can write the expression for loss as

33

34

35

36

The economic dispatch problem has to be solved repeatedly by moving the generators from one

economically schedule to another as the load changes by a reasonably small amount we start from a

schedule obtained from equal Incremental cost as base point. Next, the scheduler assumes a load

change and investigates how much each generating unit needs to be moved. i.e. participate in the load

change in order that the new load be served at the most economic operating cost. Assume that both the

1

11

first and second derivatives in the cost versus power output function are available. i.e. both Fi and Fi

th

exist. The incremental cost curve for the i unit is given in figure

th

As the unit load is changed by an amount Pi the system Incremental cost moves from

For a small change in power output on the single unit

The total change in generation=change in total system demand

37

to

Divide (1) by (2)

Suppose

increases to

The new value of generation is calculated

Where,

Advantages of using participation factor

1. Computer implementation of economic dispatch is straight forward

2. Execution time for the economic dispatch is short

3. It will always give consistent answers when units reach limits.

4. It gives linear incremental cost functions or have non- convex cost curves.

38

(i)Valve point loading:

Economic dispatch with smooth cost function can be represented as,

39

C = Fi (PGi)

I = 1,2N

2

Fi (PGi) = Ci + bi PGi + ai PGi

Where,

C = Total generation cost.

Fi = Cost function of generator i.

Ci ,bi, ai = Cost coefficients of generator i.

PGi = Electrical output of generator.

i = set for all generators.

In reality the objective functions of an ED problem has non differentiable points according to valve point

effects and change of fuels. Therefore the objective function should be composed of a set of non smooth

cost functions. So the objective function is described as the superposition of sinusoidal functions and

quadratic functions.

The generator with multivalve steam turbines has very different input output curves compared with

smooth cost function. Typically the valve point results in, as each steam valve starts to open, the ripples

are produced. To take into account for the valve point effects sinusoidal functions are added to the

quadratic cost functions as follows.

2

Fi (PGi) = Ci + bi PGi + ai PGi +| eisin(fi (PGimin - PGi )|

Where ei , fi are the coefficients of generator I reflecting valve point effects.

(ii) Multiple fuels:

Because of the change in fuels, with the multiple fuel problem where the objective function is expressed

as the piecewise quadratic cost function.

The piecewise quadratic cost function is described as

2

Fi (PGi) = Ci1 + bi1 PG1 + ai1 PG1 if PGimin PGi PG1

2

Ci2 + bi2 PG2 + ai PG2 if PG1 PGi PG2

2

Cin + bin PGn + ain PGn if PG (n-1) PGi PGimax

(iii) Combined cycle cogeneration plants (CCCP):

CCCP are defined as simultaneous generation of combined heat and power by sequential use of energy

from one source of fuel.

All thermal power plants emit a certain amount of heat during electricity generation. This can be released

into the natural environment through cooling towers or by other means. By contrast combined heat and

power or cogeneration) captures some or all of the byproduct heat for heating purposes.

Recently it have shown their importance in both developing and developed countries in order to improve

the efficiency of generation. The fuel cost characteristics of CCCP is non-smooth and non-differentiable.

Thus non-linearity in the problem is further increased.

3.7 Artificial intelligence techniques for ELP problems

The objective of the ELP problem is to calculate the output power of every generating unit so that all

demands are satisfied at minimum cost, while satisfying different technical constraints of the network and

generators.

40

In this problem the generation cost are represented as curves and the overall calculation minimizes the

operating cost by finding the point where the total output of generators equals the total power that must

be delivered.

Several optimization techniques have been applied to solve ED problem. To obtain accurate dispatch

results, the approaches without restriction on the shape of fuel functions are necessary. AI techniques are

finding popularity these include tabu search, particle swam etc. Recently GA particle swarm optimization

(PSO) techniques appeared as promising algorithm for handling optimization problems.

GA maintains a set of candidate solutions called population and repeatedly modifies them. At each step,

the GA select individuals from the current population to be parents and uses them to produce the children

for the next generation. In general the fittest individuals of any population tend to reproduce and survive

to the next generation, thus improving successive generations. GA is well suited to and has been

extensively applied to solve complex design problem because it can handle both discrete and continuous

variables, non linear objective and constraint functions.

In PSO technique a set of randomly generated solutions propogates in the design space towards the

optimal solution over a number of iterations based on large amount of information about the design

space. Both PSO and GA techniques can be used for optimization problems giving almost similar results.

41

4.1 Long-Range Hydro-Scheduling

The long-range hydro-scheduling problem involves the long-range forecasting of water availability

and the scheduling of reservoir water releases (i.e., drawdown) for an interval of time that depends on

the reservoir capacities. Typical long-range scheduling goes anywhere from 1 wk to 1 yr or several

years. Long-range scheduling involves optimization of statistical variables. Useful techniques include:

I. Dynamic programming, where the entire long-range operation time

2. Composite hydraulic simulation models, which can represent several reservoirs.

3. Statistical production cost models.

4.2 Short-Range Hydro-Scheduling

Short-range hydro-scheduling (1 day to I wk) involves the hour-by-hour scheduling of all generation

on a system to achieve minimum production cost for the given time period. In such a scheduling

problem, the load, hydraulic inflows, and unit availabilities are assumed known. A set of starting

conditions (e.g., reservoir levels) is given, and the optimal hourly schedule that minimizes a desired

objective, while meeting hydraulic steam, and electric system constraints, is sought.

4.3. Scheduling Energy

Suppose, as in Figure 7.3, we have two sources of electrical energy to supply a load, one hydro

and another steam. The hydro plant can supply the load FIG. 1 Two-unit hydrothermal system.

FIG. 1

by itself for a limited time. That is, for any time period j,

However, the energy available from the hydro plant is insufficient to meet the load.

We would like to use up the entire amount of energy from the hydro plant in such a way that the

cost of running the steam plant is minimized. The steam-plant energy required is

42

We will not require the steam unit to run for the entire interval of T

max

hours. Therefore.

subject to

This means that the steam plant should be run at constant incremental cost for the entire period it

is on. Let this optimum value of steam-generated power be P:, which is the same for all time

intervals the steam unit is on. This type of schedule is shown in Figure 2 .The total cost over the

interval is

where

then

43

FIG. 2

Then

and

Basic short-term hydrothermal scheduling problem requires that a given amount of water be used in

such a way as to minimize the cost of running the thermal units. We assume that the hydro plant is not

sufficient to supply all the load demands during the period and that there is a maximum total volume of

water that may be discharged throughout the period of Tmax hours. In setting up this problem and

the examples that follow, we assume all spillages, sj, are zero. The only other hydraulic constraint

we will impose initially is that the total volume of water discharged must be exactly as

44

FIG. 3

Problem:

Subject to:

where

and the loads are constant in each interval. Other constraints could be imposed, such as:

Assume constant head operation and assume a q versus P characteristic is available, as shown in

Figure 4, so that

45

FIG. 4

We now have a similar problem to the take-or-pay fuel problem. The Lagrange function is

Suppose we add the network losses to the problem. Then at each hour,

46

FIG. 5

4.5 SHORT-TERM HYDRO-SCHEDULING:

A GRADIENT APPROACH

We assume a single equivalent thermal unit with a convex input-output curve and a single

hydroplant. Let:

47

Next, we let the discharge from the hydroplant be a function of the hydro-power output only. That

is, a constant head characteristic is assumed.

The total cost for fuel over the j = 1, 2, 3,. . . , jmax intervals is

This may be expanded in a Taylor series to give the change in fuel cost for a change in steamplant schedule.

48

The variables are the incremental water values in the various intervals and give an indication of

how to make the moves in the application of the first-order technique. That is, the steepest

descent to reach minimum fuel cost (or the best period to release a unit of water) is the period with the

maximum value of variable.

4.6 HYDRO-UNITS IN SERIES (HYDRAULICALLY COUPLED)

Consider now, a hydraulically coupled system consisting of three reservoirs in series (see Figure 6).

The discharge from any upstream reservoir is assumed to flow directly into the succeeding downstream

FIG. 6

plant with no time lag. The hydraulic continuity equations are

49

in either case, convergence to the optimal solution can be slow. For these reasons, hydroscheduling for such systems is often done with dynamic programming or linear programming.

Dynamic programming may be applied to the solution of the hydrothermal scheduling problem.

The multiplant, hydraulically coupled systems offer computational difficulties that make it difficult to use

that type of system to illustrate the benefits of applying DP to this problem. Instead we will illustrate

the application with a single hydroplant operated in conjunction with a thermal system. Figure 7

shows a single, equivalent steam plant, Ps, and a hydroplant with storage, PH, serving a single series of

loads, PL. Time intervals are denoted by j, where j runs between 1 and jmax.

50

Both starting and ending storage volumes, V0 and Vjmax, are given, as are the period loads. The

steam plant is assumed to be on for the entire period. Its input-output characteristic is

Fig: 7

The coefficients a through h are constants. We will take the units of water flow rate as acre-ft/h. If

each interval, j, is nj hours long, the volume in storage changes as

51

where qj must be nonnegative and is limited to some maximum flow rate, qmax, which corresponds to

the maximum power output of the hydro-unit. The scheduling problem involves finding the

minimum cost trajectory (i.e., the volume at each stage). As indicated in Figure 8, numerous feasible

trajectories may exist.

The DP algorithm is quite simple. Let:

We must be given the loads and natural inflows. The discharge rate through the hydro-unit is, of

course, fixed by the initial and ending storage levels and this, in turn, establishes the values of PH

and Ps. The computation of the thermal production cost follows directly. There may well be volume

states in the set Vk, that are unreachable from

52

Fig: 8

some of the initial volume states 6 because of the operating limits on the hydroplants. There are

many variations on the hydraulic constraints that may be incorporated in the DP computation. For

example, the discharge rates may be fixed during certain intervals to allow fish ladders to operate or

to provide water for irrigation.

Using the volume levels as state variables restricts the number of hydro- power output levels that

are considered at each stage, since the discharge rate fixes the value of power. If a variable-head

plant is considered, it complicates the calculation of the power level as an average head must be

used to establish the value of PH. This is relatively easy to handle.

53

5.1 Optimal power flow

1. If the entire set of power flow equations are solved simultaneously with the generation cost

minimization, the representation of incremental losses is exact. Further, with an objective function that

minimizes the losses themselves, the power flow equations are quite necessary.

2. The economic dispatch solutions observed the generation limits

With all of the

power flow constraints included in the formulation, many more of the power system limits can be included.

These include limits on the generator reactive power,

at generation and load buses,

, and flows on transmission lines or transformers

expressed in either MW, amperes or MVA

constraints now allows the user to guarantee that the dispatch of generation does not, in fact, force the

transmission system into violating a limit, which might put it in danger of being damaged.

3. The OPF can also include constraints that represent operation of the system after contingency

outages. These security constraints allow the OPF to dispatch the system in a defensive manner. That

is, the OPF now forces the system to be operated so that if a contingency happened, the resulting

voltages and flows would still be within limit. Thus, constraints such as the following might be

incorporated:

which implies that the OPF would prevent the post-contingency voltage on bus k or the post-contingency

flow on line ij from exceeding their limits for an outage of line nm. This special type of OPF is called a

security-constrained OPF, or SCOPF.

4. In the dispatch calculation developed in Chapter 3, the only adjustable variables were the generator

M W outputs themselves. In the OPF, there are many more adjustable or control variables that be be

specified. A partial list of such variables would include:

a. Generator voltage.

b. LTC transformer tap position.

c. Phase shift transformer tap position.

d. Switched capacitor settings.

e. Reactive injection for a static VAR compensator.

f. Load shedding.

g. DC line flow.

Thus, the OPF gives us a framework to have many control variables adjusted

in the effort to optimize the operation of the transmission system.

5. The ability to use different objective functions provides a very flexible analytical tool.

Applications of opf

1. The calculation of the optimum generation pattern, as well as all control variables, to achieve the

minimum cost of generation together with meeting the transmission system limitations.

54

2. Using either the current state of the power system or a short-term load forecast, the OPF can be set

up to provide a preventative dispatch if security constraints are incorporated.

3. In an emergency, that is when some component of the system is overloaded or a bus is

experiencing a voltage violation, the OPF can provide a corrective dispatch which tells the operators

of the system what adjustments to make to relieve the overload or voltage violation.

4. The OPF can be used periodically to find the optimum setting for generation voltages, transformer

taps and switched capacitors or static VAR compensators

5. The OPF is routinely used in planning studies to determine the maximum stress that a planned

transmission system can withstand. For example, the OPF can calculate the maximum power that can

safely be transferred from one area of the network to another.

6. The OPF can be used in economic analyses of the power system by providing bus incremental costs

(BICs). The BICs are useful to determine the marginal cost of power at any bus in the system. Similarly,

the OPF can be used to calculate the incremental or marginal cost of transmitting power from one

outside company-through its system-to another outside company.

5.2 Solution of the optimal power flow

The optimal power flow is a very large and very difficult mathematical programming problem. Almost

every mathematical programming approach that can be applied to this problem has been attempted and

it has taken developers many decades to develop computer codes that will solve the OPF problem

reliably. We shall review all of these here and introduce two new techniques, the linear programming

(LP) method and the interior point method. The attributes of these methods are summarized next.

Lambda iteration method :

Losses may be represented by a [B] matrix, or the penalty factors may be calculated outside by a power

flow. This forms the basis of many standard on-line economic dispatch programs.

Gradient methods:

Gradient methods are slow in convergence and are difficult to solve in the presence of inequality

constraints.

Newtons method:

Very fast convergence, but may give problems with inequality constraints.

Linear programming method (LPOPF):

One of the fully developed methods now in common use. Easily handles inequality constraints.

Nonlinear objective functions and constraints handled by linearization.

Interior point method:

Another of the fully developed and widely used methods for OPF. Easily handles inequality constraints.

The objective function in the OPF is usually minimized. In some cases, such as power transfers, it may

be maximized. We shall designate the objective function as f. The equations that guarantee that the

power flow constraints are met will be designated as

Note that here we shall only be concerned with a variable vector z. This vector contains the adjustable

controls, the bus voltage magnitudes, and phase angles, as well as the fixed parameters of the system,

Later, we shall break the variables up into sets of state variables, control variables, and fixed parameters.

The OPF can also solve for an optimal solution with inequality constraints on dependent variables, such

In addition, limits may be placed

directly on state variables or control variables:

55

The OPF problem then consists of minimizing (or maximizing) the objective function, subject to the

equality constraints, the inequality constraints, and the state and control variable limits.

The Gradient Method

In this section, we shall consider the objective function to be total cost of generation (later examples will

demonstrate how other objectives can be used). The objective function to be minimized is:

where the sum extends to all generators on the power system, including the generator at the reference

bus. We shall start out defining the unknown or state vector x as:

Note that the vector y is made up of all of the parameters that must be specified. Some of these

parameters are adjustable (for example, the generator output, and the generator bus voltage). Some of

the parameters are fixed, as far as the OPF calculation is concerned, such as the P and Q at each load

bus.

To make this distinction, we shall divide the y vector up into two parts, u and p:

where u represents the vector of control or adjustable variables, and p represents the fixed or constant

variables. Note also that we are only representing equality constraints at this point.

Finally, we shall define a set of m equations that govern the power flow:

We must recognize that the reference-bus power generation is not an independent variable. That is,

the reference-bus generation always changes to balance the power flow; we cannot specify it at the

56

beginning of the calculation. We wish to express the cost or objective function as a function of the control

variables and of the state variables. We do this by dividing the cost functionas follows:

where the first summation does not include the reference bus, The Pi are all independent, controlled

variables whereas Cref is a dependent variable. We say that the pi are in the vector u and the Pref is a

function of the network voltages and angles:

We can now set up the Lagrange equation for the OPF as follows:

We now have a Lagrange function that has a single objective function and m Lagrange multipliers, one

for each of the m power flow equations. To minimize the cost function, subject to the constraints, we set

the gradient of the Lagrange function to zero:

To do this, we break up the gradient vector into three parts corresponding to the variables :

57

Some discussion of the three gradient equations above is in order. First, Equation consists of a vector

of derivatives of the objective function with respect to the state variables, x. Since the objective function

itself is not a function of the state variable except for the reference bus, this becomes:

The [dg/ax] term in Equation actually is the Jacobian matrix for the Newton power flow

58

The vector

variables:

1. Given a set of fixed parameters p, assume a starting set of control

2. Solve a power flow.

3. Solve for lambda;

4. Substitute

into equation to get the gradient of

with respect to the control variables.

The gradient will give the direction of maximum increase in the cost function as a function of the

adjustments in each of the u variables. Since we wish to decrease the objective function, we shall move

in the direction of the negative of the gradient. The gradient method gives no indication how far along

the negative gradient direction we should move. Assuming that a distance is picked that reduces the

objective, one must start at step 2 above, and repeat steps 2,3, and 4 over and over until the gradient

itself becomes sufficiently close to the zero vector, indicating that all conditions for the optimum have

been reached.

Newton's Method

The problems with the gradient method lie mainly in the fact that the direction of the gradient must be

changed quite often and this leads to a very slow convergence. To speed up this convergence, we can

use Newtons method, where we take the optimal solution becomes:

59

This matrix equation is a very formidable undertaking to compute and manipulate. It is extremely sparse

and requires special sparsity logic. Handling inequality constraints is very difficult in either gradient or

newton approaches. The usual method is to form a constraint penalty function as follows. Suppose the

voltage at a bus must meet limits:

It is possible to enforce this constraint by inventing the following exterior penalty functions:

FIG. 1

When there are few limits to be concerned with and the objective function is shallow, that is, the

variability off with adjustments in the control variables is very low, Newtons method is the best method to

use.

5.3 Linear sensitivity analysis

Before continuing with the discussion of the linear programming and interior OPF methods, we shall

develop the concept of linear sensitivity analysis. Linear sensitivity coefficients give an indication of the

change in one system quantity (e.g., MW flow, MVA flow, bus voltage, etc.) as another quantity is varied

(e.g., generator MW output, transformer tap position, etc.) These linear relationships are essential for the

application of linear programming. Note that as the adjustable variable is changed, we assume that the

power system reacts so as to keep all of the power flow equations solved. As such, linear sensitivity

coefficients can be expressed as partial derivatives for example:

60

shows the sensitivity of the flow (MVA) on line (i toj) with respect to the power generated at bus k.

Some sensitivity coefficients may change rapidly as the adjustment is made and the power flow

conditions are updated. This is because some system quantities vary in a nonlinear relationship with the

adjustment and resolution of the power flow equations. This is especially true for quantities that have to

do with voltage and MVAR flows. Sensitivities such as the variation of MW flow with respect to a change

in generator MW output are rather linear across a wide range of adjustments and lead to the usefulness

of the DC power flow equations .For this reason, the value represented by a sensitivty coefficient is only

good for small adjustments and the sensitivities must be recalculated often.

5.4 LINEAR PROGRAMMING METHODS

The gradient and Newton methods of solving an OPF suffer from the difficulty in handling inequality

constraints. Linear programming, however, is very adept at handling inequality constraints, as long as the

problem to be solved is such that it can be linearized without loss of accuracy. Figure 2 shows the type

of strategy used to create an OPF using linear programming. The power flow equations could be for the

DC representation, the decoupled set of AC equations, or the full AC power flow equations. The choice

will affect the difficulty of obtaining the linearized sensitivity coefficients and the convergence test used.

In the formulation below, we show how the OPF can be structured as an LP. First, we tackle the

problem of expressing the nonlinear input-output or cost functions as a set of linear functions. Let the

cost function be Fi(Pi) as shown in Figure 3. We can approximate this nonlinear function as a series of

straight-line segments as shown in Figure 4. The three segments shown will be represented as

, and each segment will have a slope designated:

The cost function is now made up of a linear expression in the Pik values. In the formulation of the OPF

using linear programming, we only have the control variables in the problem. We do not attempt to place

the state variables into the LP, nor all the power flow equations. Rather, constraints are set up

in the LP that reflect the influence of changes in the control variables only. In the examples we present

here, the control variables will be limited to generator real power, generator voltage magnitude, and

transformer taps. The control variables will be designated as the u variables (see earlier in this chapter).

The next constraint to consider in an LPOPF are the constraints that represent the power balance

between real and reactive power generated, and that consumed in the loads and losses. The real

power balance equation is:

61

then, the power balance equation becomes

62

losses in the transmission lines and transformers. We can

take derivatives with respect to the control variables, u, and this results in

, as above, can also be done here. The LP formulation, so

far, would need to restrict control variables to move only within their respective limits, but it does not yet

constrain the OPF to optimize cost within the limits of transmission flows and load bus voltages. To add

the latter type constraints, we must add a new constraint to the LP. For example, say we wish to constrain

the MVA flow on line nm to fall within an upper limit:

We model this constraint by forming a Taylor's series expansion of this flow and only retaining the linear

terms:

Other constraints such as voltage magnitude limits, branch MW limits, etc., can be added in a similar

manner. We add as many constraints as necessary to constrain the power system to remain within its

prescribed limits. Note, of course, that the derivatives of

linear sensitivity coefficient calculations presented in the previous section.

63

FIG. 3

FIG. 4

Linear Programming Method with Only Real Power Variables

As an introduction to the LPOPF, we will set up and solve a power system example which only has

generator real powers as control variables. Further, the model for the power system power balance

constraint will assume that load is constant and that the losses are constant. Finally, since the entire

model used in the LP is based on a MW-only formulation, we shall use the a and d factors to model

the effect of changes in controls on the constraints. As indicated in Figure 2, we shall solve the LP and

then make the adjustments to the control variables and solve a power flow in each main iteration. This

guarantees that the total generation equals load plus losses, and that the MW flows are updated

properly. The cost functions can be treated as before using multiple segmented piecewise linear

approximations.

The power balance equation for this case is as follows:

To constrain the power system, we need the expansion of the constraints, such as MW flows, bus

voltages, etc., as linear functions of the control variables. In this case, the linear control variables will be

represented as a vector u:

This is done with the linear sensitivity approach, as derived in the previous section. The result is a set of

constraints:

which is written as

64

can be replaced with thea sensitivity

coefficients.Thus, for a MW flow constraint on line rs we have:

Similar constraints are added for any power system network quantity that is to held within its limit.

5.5 Security-constrained optimal power flow

FIG. 5

security constraints or contingency constraints allow the OPF to meet pre-contingency limits as well

as post-contingency limits. There is a price to pay, however, and that is the fact as we iterate the OPF

with an AC power flow, we must also run power flows for all the contingency cases being observed. The

SCOPF shown in Figure 5 starts by solving an OPF with (n - 0) constraints only. Only when it has solved

for the optimal, constrained conditions is the contingency analysis executed. In Figure 5, the

contingency analysis starts by screening the power system and identifying the potential worstcontingency cases new contingency constraints being added to the OPF. We assume here that only the

M worst cases screened by the screening algorithm are added. It is possible to make M = 1, in which

case only the worst potential contingency is added.

65

Next, all the (n - 1) contingency cases that are under consideration must be solved by running a power

flow with that contingency reflected in alterations to the power flow model. When the power flow results in

a security violation, the power system model is used to create a contingency constraint. In fact, what is

done is to run a network sensitivity calculation on the model with the contingency outage and save the

resulting constraint sensitivities.

When all contingency power flows are complete, all the contingency constraints are added to the OPF

model and it is solved. Note, in Figure 5, there are two main loops to be executed. The loop labeled OPF

Iteration requires the OPF and each of the contingency power flows to be re-executed until the OPF

has solved with all contingency constraints met. Next, the outer loop labeled Contingency Screening

Iteration is tried. If the contingency screening algorithm does not pick up any new contingencies the

SCOPF can end; if new contingencies are found, it must add them to the list and continue.

The optimum operation conditions for a power system will often result in violation of system security.

This is especially true when a large amount of interchange power is available at a favorable price. In this

instance, the selling power system can be modeled in the OPF with its price of production set

accordingly, and the OPF will then raise the interchange up to the point where transmission system

components are limiting. Now, when the contingency analysis is run, there may be many cases which

result in contingency violations and the OPF, with contingency constraints added, will have to back off the

interchange power in order to meet the contingency limits.

It should also be noted that when some contingency constraints are added to the OPF, it will re -dispatch

generation, and adjust voltages and transformers to meet these constraints. The process of adjustments

may result in many new contingency violations when the screening algorithm and the power flows are

run. The need to iterate between the OPF and the contingency screening represents an effort to find the

most constraining contingencies.

5.6 Interior point algorithm

In 1984, Karmarkar presented a new solution algorithm for linear programming problems that did not

solve for the optimal solution by following a series of points that were on the constraint boundary but,

rather, followed a path through the interior of the constraints directly toward the optimal solution on the

constraint boundary. This solution was much faster than conventional LP algorithms.

In 1986, Gill et al. showed the relationship between Karmarkars algorithm and the so-called

logarithmic barrier function algorithm. This algorithm has become the basis for many OPF solution

algorithms . In this derivation, no distinction is made between the control variables and the state

variables; rather, all variables are considered in the x vector. The objective function will be f(x). The

constraints will be broken into equality constraints and inequality constraints. The equality constraints are

g(x) = 0 and the inequality constraints are

where the

and

vectors are the lower and upper limits on the inequality constraints, respectively.

Finally, we restrict the variables themselves to be within lower and upper bounds

The first step in transforming this problem is to add slack variables so that all the equations become

equality constraints. We then obtain the following set of equations

66

Note that we now have a set of equations with all equality constraints except the final consisting of

nonnegativity conditions on

and the slack variables. These nonnegativity conditions are handled

by adding what is called a logarithmic barrier function to the objective. Basically, this is a form of

penalty function which becomes very large as the function or variable gets close to zero. The new

objective function then looks like:

The parameter, , is called the barrier parameter and is a positive number that is forced to go to zero

as the algorithm converges to the optimum. This then presents us with the Lagrange equation:

The solution to this Lagrangian equation is obtained by setting its gradient to zero:

These nonlinear equations are then solved iteratively by Newtons method, and the value of p is adjusted

toward zero. The solution produces the values of the dual variables, some of which are the marginal

costs for the real and reactive power at the buses.

5.7 Voltage Dip / Sag Criteria

Voltage sags are brief reductions in voltage, typically lasting from a cycle to a second. These are caused

by abrupt increases in load such as short circuits or faults, motor starting or electric heaters turning on,

typically caused by loose connection.

67

In most cases the majority of sags are generated inside a building. At a industrial site, it is not unusual to

see several sags per year at the service entrance. Normally it occur between two conductors. For

example if we consider a sag on phase A it must be lie between the phase A and phase B or sag

between the phase A and neutral.

5.8 Various Entities Involved in Deregulation:

The introduction of deregulation has introduced several new entities in the electricity market place and

has simultaneously redefined the scope of activities of many of the existing players. Variations exist

across market structures over how each entity is particularly defined and over what role it plays in the

system. However, on a broad level, the following entities can be identified:

1. Genco (Generating Company): Genco is an owner-operator of one or more generators that runs

them and bids the power into the competitive marketplace. Genco sells energy at its sites in the

same manner that a coal mining company might sell coal in bulk at its mine.

2. Transco (Transmission Company): Transco moves power in bulk quantities from where it is

produced to where it is consumed. The Transco owns and maintains the transmission facilities,

and may perform many of the management and engineering functions required to ensure the

smooth running of the system. In some deregulated industries, the Transco owns and maintains

the transmission lines under the monopoly, but does not operate them. That is done by

Independent System Operator (ISO). The Transco is paid for the use of its lines.

3. Discom (Distribution Company): It is the owner-operator of the local power delivery system,

which delivers power to individual businesses and homeowners. In some places, the local

distribution function is combined with retail function, i.e. to buy wholesale electricity either through

the spot market or through direct contracts with Gencos and supply electricity to the end use

customers. In many other cases, however, the Discom does not sell the power. It only owns and

operates the local distribution system, and obtains its revenue by wheeling electric power through

its network.

4. Resco (Retail Energy Service Company): It is the retailer of electric power. Many of these will

be the retail departments of the former vertically integrated utilities. A Resco buys power from

Gencos and sells it directly to the consumers. Resco does not own any electricity network

physical assets.

5. Market Operator: Market operator provides a platform for the buyers and sellers to sell and buy

the electricity. It runs a computer program that matches bids and offers of sellers and buyers. The

market settlement process is the responsibility of the market operator. The market operator

typically runs a day-ahead market. The near-real-time market, if any, is administered by the

system operator.

6. System Operator (SO): The SO is an entity entrusted with the responsibility of ensuring the

reliability and security of the entire system. It is an independent authority and does not participate

in the electricity market trades. It usually does not own generating resources, except for some

reserve capacity in certain cases. In order to maintain the system security and reliability, the SO

procures various services such as supply of emergency reserves, or reactive power from other

entities in the system. In some countries, SO also owns the transmission network. The SO in

these systems is generally called as Transmission System Operator (TSO). In the case of a SO

being completely neutral of every other activity except coordinate, control and monitor the

system, it is generally called as Independent System Operator (ISO).

68

where retail sector is also open for competition, the end customer has several options for buying

electricity. It may choose to buy electricity from the spot market by bidding for purchase, or may

buy directly from a Genco or even from the local retailing service company. On the other hand, in

the markets where competition exists only at the wholesale level, only the large customers have

privilege of choosing their supplier.

5.9 Consumer Behaviour

Total Utility and Marginal Utility It is a common practice to explain concepts of microeconomics using

common consumer goods as an example. However, we will explain it by considering number of units of

electrical energy as a commodity. This would help the reader to relate things later on while studying

concepts associated with electric power markets.

Total utility and marginal utility

We begin with the notion that the consumer achieves some satisfaction from consuming a product,

electric energy in this case. If this satisfaction is absent, the consumer would not demand it at all. This

term is called total utility. Similarly, marginal utility is the utility obtained from the last unit consumed. Let

us explain these terms with the help of an example.

Let there be a square shaped room as shown in Figure 6. Small circles in the figure represent

incandescent lamps located at the same height from the ground, as a source of light for the whole room.

Suppose there are nine lamps in all, fitted in the room as per the plan shown in the figure. Let us assume

that all lamps are of the same rating and illuminance (a scientific word for brightness). When all lamps are

off, there is complete darkness in the room. Let us assume that there is an interlock arrangement in the

switchgear such that for putting lamps ON at L level, the lamps at M level should be ON. Similarly, for

putting lamps at M level ON, the central lamp - C should be ON. Now suppose a person enters the room

and puts lamp C ON. Since this lamp is at the center, it spreads even light all across the room. This light

is good enough for a person to move to each and every corner of the room. Let us assume that the

satisfaction' this person gets by putting lamp C ON is 10 units.

Now suppose the person switches the lamp - M1 ON. This bulb still adds to the brightness of the room,

but the satisfaction that it adds to the person is lesser than that provided by lamp C. For this lamp, the

person in the room may not get a satisfaction of 10 units, but it will definitely be lesser than 10 units as

room is already lit from the state of total darkness by lamp C. Let us say the person gets satisfaction

equal to 9 units. Similarly, for all lamps sequentially put ON thereafter would render diminishing

satisfaction to the person in the room. This satisfaction for each of the lamps lighted is nothing but the

marginal utility. For first lamps C, it was 10 units, for subsequent lamps it went on reducing. Let us define

total utility as the sum of marginal utilities.

69

The results of marginal and total utility gained by putting lamps on sequentially are tabulated in Table 1

No. of

Lamps

Marginal

utility

Total utility

10

10

M1

19

M2

27

M3

34

M4

40

L1

45

L2

49

L3

52

L4

54

70

The above pattern of marginal utility provided by sequence of putting bulbs on is called as law of

diminishing marginal utility. It states that after consuming a certain amount of a good or service, the

marginal utility from it diminishes as more and more is consumed. This law is quite natural and should

hold for most of the products one consumes.

Consumer Surplus

The person entering the room in the previous example would have been indifferent to the number lamps

to be put ON had electricity been for free. Then the person would not have bothered about the marginal

utility and the total utility. But as soon as the person is made to pay for the usage of electric energy, he

would start thinking and would rather make a judicious choice about how many lamps to put on. The

person then would have calculated how much utility he could have obtained if he had spent same amount

of energy on other usage, for example say, air conditioner. In other words, how many lamps the person

would have put ON depends not only on the marginal and total utilities but also on the price of electricity.

Let the price of electricity be INR 4 for each lamp equivalent rating. We now define marginal utility of one

INR as the extra utility when additional one INR is spent on other available usage in general. For the sake

of simplicity, let it be 1 unit. In other words, after spending one INR, the marginal utility associated with it

is one unit. Having the information on price and marginal utility of INR, the person can determine how

many lamps to be put ON. Consider only one lamp, C is ON. The person obtains marginal utility of 10

(from table 2.1). Since, marginal utility of 1 INR is equal to 1 unit of utility, the utility obtained in this case

would be (10/1 =10 INR). On the expenditure side, the person spends 4 INR to get the lamp ON. Then,

the person will go ahead and put the lamp ON (as a matter of fact, he is left with no choice in this case!).

When the person puts the second lamp ON, i.e., M1, he obtains a marginal utility of 9 units which is

equivalent of (9/1) = 9 INR. Since, the marginal utility that the person would obtain is greater than the

price he pays (INR 4), he would go ahead to put the second lamp ON. The person keeps on making such

comparisons before putting the next lamp ON.

What happens when he puts ON lamp L2, i.e. seventh lamp? It renders utility equal to 4 INR which is

equal to price per unit of electricity. The answer is that the person will be indifferent. However, one thing

is for sure: the person will not put ON lamps after 7th lamp as the price he pays is more than the worth he

accrues. This decision making process can be easily understood with the help of Figure 7. The horizontal

line at INR 4 depicts the price of electricity. Before lamp no. 7 is lit, the marginal utility (converted into

INR) is more than the price of electricity. At 7th lamp it becomes equal while for lamps 8, 9 and 10, the

marginal utility is lesser than the price.

Table 2 summarizes these results at each stage. It provides details about total utility and total

expenditure at each stage. Last column of Table 2 depicts nothing but the person's surplus in terms of

money. In other words, it is the difference between what he gains and expenditure towards the same. The

shaded area in Figure 7 is called as net consumer surplus. The net consumer surplus represents the

extra value that the person in the room is able to get from being able to buy all the electric energy at INR

4, even though the value he attaches to electric energy is higher than the price of electricity.

71

Figure 7:Decision making based on marginal utility and net consumer surplus

No. of

Lamps

Total utility

(INR)

Total

Expenditure

(INR)

Surplus

(INR)

10

19

11

27

12

15

34

16

18

40

20

20

45

24

21

49

28

21

52

32

20

54

36

18

Table 2: Details about total expenditure and total utility at each stage

72

Consumer Equilibrium

The word equilibrium used in generic terms means the position of balance. In the above example, the

person in the room will stop or rest or attain equilibrium after lighting 6th or 7th lamp on. Last column of

Table 2 reveals the fact that the person's surplus is maximized at 6th and 7th lamp. In other words, the

shaded area in Figure 7 representing net consumer surplus is maximized at equilibrium. In general, we

can then say that consumer's equilibrium with respect to the purchase of one good is attained when the

difference between total utility in terms of money and the total expenditure on it is maximized.

5.10 Supplier Behaviour

Law of Diminishing Marginal Product:

Just as we have law of diminishing marginal utility in case of consumer, we have law of diminishing

marginal product for supplier. This law establishes the input-output relationship for the producer in shortrun. This law is depicted in Figure 7

Supply Function

Suppose, the total commodity output is called as y. Let us assume that there is only one factor of

production, x'. Thus, the production function is given as

y = f(x).........................................................................................................................(1)

For almost all goods and technologies, the production y increases with x at the beginning. But as

cheaper resources start depleting, costlier resources are employed for production and for the same

quantity of production, the cost starts increasing. In other words, the rate of increase of y decreases as x

gets larger. The inverse of production function will be:

x = g(y).......................................................................................................................(2)

This function indicates how much of the variable production factor is required to produce a specified

amount of commodity. If unit cost of factor of production x is w, then, the cost function is given as:

cos t (y)= w. g(y)...............................................................................................................(3)

Figure 8 shows cost function and the marginal cost function which is the derivative of the cost function.

The

convexity

of

the

function

is

due

to

law

of

diminishing

marginal

product.

73

Supply functions

Suppose there are many suppliers and they make use of different technologies and fuels to produce

electric energy. Thereby, these producers will have different marginal costs and will have different power

producing quantities at different price levels. If the amount supplied by a large number of producers is

aggregated, a smooth and upward sloping curve is obtained as shown in Figure 9. This is typically known

as supply curve.

74

Suppliers' surplus

Suppliers' surplus can be explained on similar lines to the consumer surplus. The entire supply of

commodity is traded at the market price . The suppliers' revenue is the product of traded quantity q and

the market price . Let us consider Figure 10. The horizontal line depicts the market price . The shaded

portion shows producers' net surplus. This arises from the concept of all goods being traded at a price

higher than their opportunity costs. Eventually, net surplus is the area between supply curve and

horizontal line depicting market price.

The supplier whose opportunity cost is equal to the market price is called as marginal producer. The

marginal producer neither accrues any profit nor loss. The infra-marginal producers accrue profit while the

extra-marginal producers would find it worthwhile to sell the commodity only in case market price

increases.

Supplier's Equilibrium

If supplier's marginal cost function is as shown in Figure 8, at what level should the supplier stop

producing that commodity? To answer this question, let us explain what is meant by opportunity cost. The

supplier has a threshold price in mind below which it will not sell its commodity. There are two reasons for

deciding this threshold price. First of course is that the total revenue will be less than total cost of

producing that commodity. Second and important reason could be that the supplier could make use of

same resources required to produce the commodity under consideration to produce some other

commodity that would fetch more money. In that case, the revenue from the sale of the commodity under

consideration will be less than the opportunity cost associated with the production of the same. In other

75

words, the supplier will sell the commodity at a price at which the opportunity cost of production is equal

or lesser.

5.11 Market Equilibrium

We have seen how consumers and suppliers would behave individually. Let us now consider how the

consumers and suppliers would interact with each other at the marketplace. We take the case of a

perfectly competitive market, although the electricity market is seldom a perfectly competitive market. A

perfectly competitive market has many attributes, the most important being that a single player is not able

to change the market price. Similarly, under perfect competition case, all market buyers buy at the same

market clearing price. The market equilibrium is achieved at a price called market clearing price such that

the quantity that the suppliers are willing to sell is equal to quantity that the consumers wish to obtain. In

other words, market equilibrium is a state of zero excess demand and zero excess supply.

Consider Figure 9 for more explanation. It depicts supply and demand curves for a particular product

denoted by S and D, respectively. What should be the market equilibrium price? Suppose that price is 1.

At this price, the consumers demand the quantity d1 and the producers supply the quantity s1. Obviously,

there is a mismatch. Consumers want more than what the producers are willing to supply. The excess

demand will create competition among the buyers and push the price up. It will increase, say, to 2.

Excess demand is present at this price also. Thus price will increase further. Indeed, the price will keep

increasing as long as there is an excess demand. Finally it will converge to *, at which there is no

excess demand. Corresponding quantity is q*.

Just the opposite happens if the initial price is 3 . The quantity demanded d3 is less than the quantity

supplied s3. There is a mismatch in the form of excess supply. The price will keep falling as long as there

is excess supply. Where will the price finally settle? The answer is again * , at which there is no excess

supply.

76

Thus,* and q* mark the price and quantity at equilibrium, respectively. The equilibrium situation in a

competitive market is said to be Pareto efficient. An economic situation is Pareto efficient if the benefit

derived by any of the parties can be increased only be decreasing benefit enjoyed by one of the other

parties. In Figure 8, suppose the quantity exchanged is s1 instead of q*. At that quantity, there is

someone willing to sell extra units of the good considered at price 1, which is less than the price 4 that

someone else is willing to pay for that extra unit. If trade can be arranged between these two parties at

any price between 1 and 4 , both parties will be better off and as per definition, this is not the Pareto

efficient situation. Thus, if total amount traded is less than the equilibrium q*, the situation is not Pareto

efficient. Similarly, any amount in excess of the equilibrium value is not Pareto efficient because the price

that someone would be willing to pay for an extra unit is lower than the price that it would take to get it

supplied.

It is not difficult to conclude that the Pareto efficiency is achieved only when goods are allocated on the

basis of a single marginal rate of substitution, as happens in a competitive market.

5.12 Explicit auctioning

The principle of explicit auctioning is based on selling the available capacity of the tie line to the highest

bidder through auction. This is nothing but auctioning of the tie line capacity. The explicit auctioning

separates the energy market from transmission capacity market.

This approach is commonly used in Europe for capacity allocation at several borders. In explicit

auctioning, the system operators (or the TSO in Europe) determine ex-ante, the available transmission

capacity (ATC) considering security analysis, accepts bids from potential buyers and allocates the

capacity to the ones that value it most. Thus, explicit auctioning is a market based concept, which

provides economic signals. Thus, with perfect foresight, bidders for transmission capacity would predict

the electricity market outcome with efficient use of transmission.

A limitation of this mechanism is the increased complexity which may complicate trading activities of

market participants. Another limitation is that the mechanism fails to account for parallel flows in meshed

networks. In this context, a new method has been proposed called coordinated auctioning.

5.13 Coordinated Auctioning

The coordinated auctioning splits the markets into energy market and transmission capacity market.

Participants have to ensure that they own sufficient transmission rights to conclude their energy

exchanges. However, coordinated auctioning tries to overcome problems associated with explicit

auctioning by accounting for the effects of loop flows in the network. A central auctioneer is introduced

who manages capacity allocation at all borders included in the Internal European Market (IEM). For

coordinated auctioning, three steps are necessary:

Each system operator informs the central auctioneer about the available transmission capability.

Market participants submit their bids to the central auctioneer.

The auctioneer allocates transmission capacity using a model similar to nodal pricing.

Market participants may value their willingness to pay for transmission rights by comparing the different

zonal prices. Hence, rational bidders for transmission rights will submit bids equal to the zonal difference

in energy prices, as savings for cheaper energy are traded off against the transmission costs. With

perfect foresight and all information available, a coordinated auction will lead to the same allocation as

the nodal pricing approach, which in turn is considered as an economically efficient decision.

77

There are many ways depending on the time of hand-shaking, where buyers and sellers can do the

transaction. Following are the common modes in which the electric energy can be traded:

1. Bilateral contracts

2. Spot market

Bilateral/Forward Contracts

Bilateral trading generally involves two parties interacting with each other: a buyer and a seller. The

characteristic of bilateral trades is that the price of a transaction is set independently by the parties

involved. There is no market clearing price as such. Since, electricity can not be stored, it creates a wide

fluctuation in the spot price. Forward contracts provide generators and loads with a means of hedging

their exposure to fluctuations in the spot price of electricity. The generators can negotiate a price for their

output prior to the moment of producing it. Similarly, properly structured forward contracts provide buyers

with the ability to lock in a fixed price for a fixed quantity of electricity well in advance of delivery and

consumption. Indeed, if a buyer's actual energy usage matches its forward market purchases, it can

achieve a benefit of complete price certainty in the face of real time price volatility.

Depending upon the quantity of power and time, the buyers and sellers resort to different forms of

trading:

Long Term Contracts: This type of trade generally includes contract for a large amount of power

for a long time period. These types of contracts are negotiated privately and the terms and

conditions are such that they suit both the parties involved in the transaction.

Trading Over The Counter: These transactions involve smaller amounts of energy to be

delivered. For example, the amount of energy to be delivered during different periods of the hour,

day, etc. This type of trading has much lower transaction costs and is used by producers and

consumers to refine their positions before real time.

Electronic Trading: In this, participants can enter offers to buy energy and bids to sell energy

directly in a computerized marketplace. The participants can observe the quantities and offers/

bids submitted by all participants, but do not know the party involved. The software in the

exchange couples the matching offers. It checks whether for a newly entered bid, if there is

matching offer whose price is greater than or equal to price of the bid. If no match is found, the

bid is added to the list of outstanding bids until a new offer matches it. Otherwise, it lapses after

the market is closed. The same process is repeated after a new bid is entered. There is no

market clearing price as such.

As we have discussed a market for any commodity provides an environment for buyers and sellers to

interact and agree on transactions, generally, the quantity and price. These interactions progressively

lead to an equilibrium point at which the price clears the market, that is, the supply is equal to demand. If

electrical energy is to be traded according to a mechanism in which the buyers and sellers are free to

interact individually, the equilibrium between the production and the consumption can be set through

repetitive interaction. In this scheme of attaining equilibrium, the consumers make an estimation of their

consumption before entering into a contract. The generators schedule the production of their units to

deliver at the agreed time the energy that they have agreed to sell. However, in practice, neither party can

meet its contractual obligation with perfect accuracy because, for example, from a load's point of view, the

actual demand of a group of customers is never exactly equal to the value forecasted. Changes in

weather and due to some other externalities, the day ahead or before real time estimation of load

consumption can have deviation from that done few months or years back, while doing the contract. Also,

unforeseen problems may prevent generating units from delivering the contracted amount of energy.

78

It can be concluded that, while a large proportion of the electrical energy can be traded through an

unmanaged open market in terms of forward contracts, such a market may not necessarily lead to an

equilibrium that replicates real time scenario. Thus, an intermediate stage is necessary, where a

managed spot market can provide a mechanism for balancing load and generation. This market should

supersede the open energy market as the time of delivery approaches. Its function is to match residual

load and generation by adjusting the production of flexible generators and curtailing the demand of willing

customers.

In many real life markets, more than 80% of the energy traded is through the forward or bilateral

contracts. The rest is traded through the spot market.

5.15 Global Welfare

Global welfare is the sum of net consumer surplus and net producer surplus. It is the quantification of the

overall benefit that arises from trading. Global welfare is maximized when market is settled at the

intersection of supply and demand curves. The global welfare is also termed as social welfare and social

surplus. Global welfare is explained with the help of Figure 2 In this figure, sum of the areas DS1, DS2

and DW2 represents the consumer surplus while sum of areas SS1, SS2 and DW1 represents the

producer surplus. The total area consisting of areas DS1, DS2, SS1, SS2, DW1 and DW2 represents the

global welfare. It is clear from the figure that if the price is set to any infra-marginal value rather than the

equilibrium price, there is a reduction in the global welfare.

5.16 Deadweight loss

It leads to reduction in global welfare and creation of deadweight loss. Suppose the price is set at 2 due

to some intervention by say, the government, as shown in Figure. In this case, the consumers reduce

their consumption from q* to q. The consumer surplus then becomes equal to area DS1, while producers'

79

surplus is the sum of areas DS2, SS1 and SS2. Similarly, if price is set at 1 , the suppliers reduce their

production to q from q*. The net consumer surplus is the sum of areas DS1, DS2 and SS2, while

producers' surplus is area SS1. Thus, these interventions while setting price have undesirable effect of

reducing the global welfare by an amount equal to the sum of areas DW1 and DW2. The amount

equivalent to this area is called as the deadweight loss. In general, regulated tariff is the major source of

deadweight loss. From electric market point of view, the network constraints can be a major source of

creation of deadweight loss.

80

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