Chapter - 2

LITERATURE REVIEW

R.Billinton et al. [(1), (2)] presented that the restructured power system has created many problems regarding
system reliability management and pricing. The conventional techniques used for reliability management and
pricing cannot be directly used to the new environment due to the changes in structure, regulations, and own-
erships.

R.N. Allan et al. [(3), (6)] done an extensive work to calculate the reliability and pricing of restructured pow-
er system. Their report describes an enhanced test system (RTS-96) for use in bulk power system reliability
evaluation studies. The value of the test system is that it will permit comparative and benchmark studies to be
performed on new and existing reliability evaluation techniques. The test system was developed by modifying
and updating the original IEEE RTS (referred to as RTS-79 hereafter) to reflect changes in evaluation method-
ologies and to overcome perceived deficiencies. The IEEE Reliability Test System (RTS) developed by the
Application of Probability Method Subcommittee has been used to compare and test a wide range of generat-
ing capacity and composite system evaluation techniques and subsequent digital computer programs. A basic
reliability test system is presented which has evolved from the reliability education and research programs
conducted by the Power System Research Group at the University of Saskatchewan. The basic system data
necessary for adequacy evaluation at the generation and composite generation and transmission system levels
are presented together with the fundamental data required to conduct reliability-cost/reliability-worth evalua-
tion.

Jean-Thomas Bernard et al. [4] discussed that since January 1, 1997, the wholesale electricity market in the
United States has been open to competition. To satisfy the reciprocity requirements imposed by the Federal
Energy Regulatory Commission, Hydro-Québec, a Canadian utility, made its transmission grid accessible to
third parties. Under the current regulation, transmission losses are taken into account through a single, con-
stant rate; location and time of use play no role. Hydro-Québec generates most of its electricity from hydro re-
sources. Long high-voltage power lines link production in the North to consumption centers in the South,
where there are interconnections with neighboring areas. They develop an optimization model that allows
them to calculate nodal prices on the basis of the opportunity costs of exports. Hydro resources and intercon-
nections with neighbors tend to equalize nodal prices between peak and off-peak periods. However, transmis-
sion losses give rise to large price differences between the northern and the southern regions. That the price
differences are not taken into account under the current regulation has implications for sitting new power sta-
tions. The ongoing deregulation of electricity production has opened a new field of research focusing on ways
to organize and price power transmission services. In this paper, we analyze a simple model that embodies the
salient features of large hydro-based electric networks, with limited availability of water over the annual cy-
cle, long lines from production to consumption, and imports and exports with neighboring areas to even out
supply and demand. The model shows that the limited availability of water behind the dams tends to equalize
nodal prices between peak and off-peak periods and that interconnection with adjacent regions further con-
tribute to such equalization. This simple model is then applied to the province of Quebec, which gets most of
its power from hydro resources. The profit maximization results show fairly significant nodal price differen-
ces between the southern region, where most of the consumption takes place, and the northern region, where
hydro production occurs. Under the current regulation, power losses are taken into account through a fixed
rate applied to all power injected into the system. This provides an erroneous price signal about desirable lo-
cations for new generation equipment.

P.Wang et al. [8] proposed a reliability network equivalent technique to calculate the reliability of restructured
power system. In this technique generation, transmission and distribution system is represented by an equiva-
lent reliability model. The concept of non uniform reliability is presented. In this paper customer choices are
taken into consideration to choose its own power supplier and the required reliability level. The nodal prices
were not calculated. Also, simultaneous failure of generation and transmission system was not taken into con-
sideration. The nodal reliabilities were calculated only for bilateral model of restructured power system.

P.Wang et al. [9] proposed a reliability network equivalent technique to calculate the reliability of restructured
power system considering the reserve agreement among GENCOs for bilateral model only. In this technique
also generation, transmission and distribution system is represented by an equivalent reliability model. This
paper also has not considered nodal prices and simultaneous failure of generation and transmission system.

P.Wang et al. [10] focus on customer response on the system and nodal reliabilities. The technique is based on
the probabilistic reliability evaluation and optimal power flow method. This technique is used to determine
both nodal prices and nodal reliability indices of deregulated power system considering their correlation. The
customer responses are modeled by the elasticity of the demand for electricity in the normal state. This techni-
que provides a useful tool to calculate nodal price and reliability and to use this information to make optimal
trading decisions in market trading and operations. In this reserve among GENCOs was not considered. Only
bilateral contracts were considered between the customers and suppliers.

Antonio J. Conejo et al. [11] addresses generation maintenance scheduling in a competitive electric energy
environment. In a centralized setting, the system operator derives a maintenance scheduling plan that attains
the desired reliability while minimizing cost and imposes it to all producers. In a competitive environment,
this is not possible because the operator is still in charge of maintaining an adequate level of reliability, but
the target of each producer is to maximize its own profits, which conflicts in general with the reliability objec-
tive of the operator. The author proposes a technically sound coordinating mechanism based on incentives/dis-
incentives among producers and the operator, which allows producers to maximize their respective profits
while the operator ensures an appropriate level of reliability. The author sets up an appropriate coordinating
mechanism that allows achieving a generation maintenance plan that satisfies producer maximum-profit crite-
ria while achieving a sufficient level of reliability in each week of the year. The coordination mechanism con-
siders the perspectives of both producers and the ISO, so that an acceptable solution for both is achieved. The
proposed procedure is simple to implement in practice, and requires a reasonably small amount of computing
time and a small amount of data communication. This coordinating procedure is illustrated in a real-world
case study that is based on the generating system of mainland Spain.

Yi Ding et al. [12] proposed a general methodology to evaluate both reliabilities and prices for the pool and
bilateral customers in a hybrid power market. An optimal power flow (OPF) technique was used to determine
reliability indices and electricity prices for each contingency state. They formulate the reliability and price
problems with and without considering agreements using improved optimal power flow techniques. They con-
sider correlation between reliabilities and prices in the techniques. The author does not include reserve cost
from the power pool in the objective function. The unreliability contributions from supply-side (GENCO) and
the associated demand-side reliability (customers) were not clearly defined and classified.

Goel et al. [(13), (14)] proposed a framework to implement supply side reserve bids and demand side load
curtailment bids for contingency management in reliability assessment of restructured power systems with hy-
brid market models. The developed framework and the technique provide a possible tool for the ISO to imple-
ment the participation of GENCO and customers in reliability management. All the bidding costs were as-
sumed to be constant. Therefore the cost models are not practical and accurate. Generations re-dispatch costs
and transmission line contingencies were not included in the objective function.

P.Wang et al. [15] proposed an optimization technique to determine load curtailment and generation re-dis-
patch for each contingency state in the reliability evaluation of restructured power systems with the POOLCO
market structure. The objective of the problem is to minimize the total system cost, which includes genera-
tion, reserve and interruption costs, subject to market and network constraints. The proposed technique can be
used to evaluate both conventional and restructured power systems reliability. This paper does not include the
bilateral contracts among customers and suppliers.

Nanang Hariyanto et al. [16] proposed a decentralized and simultaneous planning of electric power genera-
tion and transmission network that provides negotiation space for players in the process can be accomplished
by using cooperative game theory. In this developed planning process, operational aspect, such as operational
security criterion, is included in every process of coalition in its desired EENS value. In every process of coa-
lition, players in the system can negotiate their commitment in determining characteristic function value. This
characteristic function value is used to determine Shapley Bilateral value while also influencing the process
of coalition between players. In conclusion (a) Coalition in every process of cooperative game provides nego-
tiation option between each player and option for a player to enter the coalition earlier than the other players.
(b) Player that enters the coalition earlier will have higher payoff than others that enter the coalition later. (c)
In the case of simultaneous planning of generation system and transmission network, with GENCO, TRANS-
CO, Existing Network and New Load as players, it can be shown that player with high capacity will have op-
portunity to enter coalition earlier than the other players. (d) Negotiation process in this game mechanism can
be accomplished by adjusting characteristic function value that is given in the early process of coalition.

S. B. Warkad et al. [17] discussed that electricity industries around the world have significantly restructured
in order to improve their economic efficiency, reliability of power systems and accountability. Accurate pre-
diction of day-ahead electricity nodal price has now become an important activity to address the system oper-
ations and price volatility in the restructured electricity market. This will facilitate the market participants to
estimate the risk and have better market oriented decision making. In order to meet the electricity demand
and other benefits, many developing countries including India are adopting HVDC transmissions in their ex-
isting system. Developing countries need to address this practice while adopting suitable electricity nodal
pricing scheme and its accurate prediction. They studied AC-DC optimal power flow(OPF) based nodal pric-
ing and formulation of day-ahead nodal price prediction using Artificial Neural Networks(ANN) and present
numerical results for a real system of India to demonstrate the rationality and feasibility of the proposed meth-
odology. Their study proposed new AC-DC OPF based methodology and use of ANN to predict day-ahead
electricity nodal prices. The said methodology was implemented on real system of India and results were
computed. They demonstrates that ANN can be suitably used to realize forecasting tasks, given its ability of
simulating complex and nonlinear process, and its capacity to forecast. The performances of the FFN network
depend on the BP training algorithm. This study compares the performance of FFN with CFN. The simulation
showed that the Levenberg-Marquardt algorithm has the fastest convergence in terms of iteration number and
is able to obtain lower RMSE and MAPE error compared to CFN. Also FFN requires the lower amount of
computation for low MSE for system under study. This advantage is mainly noticeable if very accurate quali-
ty level is required. The nodal price predictions obtained were accurate enough to be used by market partici-
pants to estimate the risk of price volatility in spot market, to ensure investments recovery and to predict exer-
cises of market power etc. The proposed methodology is rational and more feasible for such developing coun-
tries to develop and maintain their wholesale market.

Ashish Saini and A.K. Saxena [18] discussed that in competitive electricity markets all over the world, an
adoption of suitable transmission pricing model is a problem as transmission segment still operates as a mo-
nopoly. Transmission pricing is an important tool to promote investment for various transmission services in
order to provide economic, secure and reliable electricity to bulk and retail customers. The nodal pricing
based on Short Run Marginal Cost (SRMC) is found extremely useful by researchers for sending correct eco-
nomic signals. The marginal prices must be determined as a part of solution to optimization problem i.e. to
maximize the social welfare. The need to maximize the social welfare subject to number of system operation-
al constraints is a major challenge from computation and societal point of views. They present a nodal trans-
mission pricing model based on SRMC by developing new mathematical expressions of real and reactive
power marginal prices using GA-Fuzzy based optimal power flow framework. They analyze and verify im-
pacts of selecting different social welfare functions on power marginal prices. They determine network reve-
nues for two different power systems using expressions derived for real and reactive power marginal prices.
They derive new expressions for real and reactive power marginal nodal prices and uses GA-Fuzzy OPF for
successful implementation of proposed nodal transmission pricing method. They show that real power mar-
ginal price is usually much higher than the reactive marginal price in non-stressed system. Reactive power
marginal price is affected by the reactive power production costs of generations and the capital investment
cost of capacitors. Reactive power marginal prices can be related to the urgency of the reactive power supply
and an incentive can be given to improve load power factor and reduce power demand. The proposed nodal
transmission pricing model forms a basis to calculate network revenue for bilateral and multilateral power
transactions in deregulated power systems to wheel the power between the buses.

M. Ghayeni et al. [19] presented a new method for TCA based on the nodal pricing approach in which the no-
dal prices are controlled. In his method the nodal prices are regulated from marginal points to new points with
minimum variations in such a way that the total transmission network costs to be recovered and also the cost
splitting between loads and generators is realized in accordance with any predefined ratio. In the proposed
method the different clearing prices are assigned to load and generator in each node of concern. It means that
for a positive injected node, the NNP which is less than the locational marginal prices (LMP) will be the
clearing price of generator while the LMP is for load. For a negative injected node, the NNP which is greater
than the LMP is the load clearing price and the LMP is for generator. The authors show that with this strategy,
the variation of NNPs from LMPs is less in compare with other methods and also the cost splitting between
loads and generators can be controlled from zero to hundred percent, dictated by market regulators. The au-
thors shows that in the proposed approach, the financial incentive is provided to loads and generators to locate
at nodes leading to the reduction of injected power, so in long term the need for transmission network expan-
sion is reduced. This method also provides appropriate economic signals to users for optimal selection of bi-
lateral transactions. As users can easily calculate the transmission cost of contracts between two arbitrary no-
des using the known nodal prices, a suitable decision making is provided then. The presented method can be
easily extended for pool-bilateral markets. Bilateral transactions are charged for network usage according to
the difference of NNPs between the injecting and extracting nodes and then the residual costs are allocated to
other loads and generators in the pool market.

Qiuwei Wu et al. [20] presented a direct load control (DLC) scheme of air conditioning loads (ACL) consid-
ering direct monetary compensation to ACL customers for the service interruption caused by the DLC pro-
gram is proposed for restructured power systems. The nodal interrupted energy assessment rate (NIEAR),
which is used as the bids from the ACL customers, is utilized to determine the direct monetary compensation
to the ACL customers. The optimal DLC scheme is determined based on the minimum system operating cost
which is comprised of the system energy cost, the system spinning reserve cost and the compensation cost to
the ACL customers. Dynamic programming (DP) was used to obtain the optimal DLC scheme. The IEEE reli-
ability test system (RTS) was studied to illustrate the proposed DLC scheme. In order to illustrate the impacts
of the proposed DLC scheme on the peak load shaving, the system reliability and the system operating cost,
the IEEE RTS [18] was studied using the program developed based on MATPOWER [25]. The DLC was im-
plemented during the peak load periods from 17:00 to 20:00 h.

S. B. Warkad et al. [21] discussed that the electricity markets have significantly restructured in developing
countries. The electricity nodal pricing has emerged as an efficient tool under it. Recently, the incorporation
of High Voltage Direct Current (HVDC) link in AC network brought significant techno-commercial changes
in the electricity markets in developing countries. They discussed need of study electricity nodal pricing, for-
mulate optimal nodal price with incorporation of HVDC link in a AC transmission system, tested the method-
ology on IEEE 30-bus system and compute nodal prices for real transmission network of India and assess the
combined impact of transmission investment, incorporation of DC link, generation addition on electricity no-
dal prices. They conclude that the nodal prices reduce with the incorporation of DC link and generation addi-
tion is one of the requirements to encourage competition in the wholesale electricity market. They presented
basics of optimal nodal pricing based on AC-DC OPF. They suggested the techno-commercial advantages of
nodal pricing scheme for development of wholesale electricity markets in developing countries like India. The
proposed optimal scheme can ensure to achieve technical objectives, lower and uniform electricity nodal pri-
ces. This price behavior also provides vital information to the market participants about techno-commercial
advantages of generation addition and investment in transmission sector, one of the prime requirements to
promote competition in the electricity market for developing or transition economy

Mohammad Taghi Ameli et al. [22] discussed that due to varying degrees of importance associated with the
outage of various loads, it seems reasonable to have the units with low probability of outage serve the more
important loads. They show that to avoid the high traffic in transmission lines, the risk of the transmission line
outage may be considered, too. Regarding network incidents, any sudden load surge on each bus may be con-
sidered as a network fault. This allows calculating the network risk of such situations. For provision of the to-
tal network reserve, the consumer side reserve of some buses can be utilized. In other words, when a network
fault occurs, the consumers of power may reduce their loads thereby help the system in restoring its balance.
Since the costs of risk for industrial and residential loads are different, the spinning reserve of a power net-
work should be allocated in such a way that loads with high-cost-risk are protected against outage threats. The
authors propose that in addition to probability of unit failure, future studies should take into consideration the
probability of transmission line failures and the failures of high-voltage substations.

M. Ghayeni et al. [23] presented a multi area approach based on controlling the nodal prices for TCA prob-
lem. This algorithm is quite fast so it can be easily applied for large power systems. The results show that the
simulation time is greatly reduced when applied on a large power system. In addition, the proposed method al-
locates the transmission costs more equitable than the single area approaches. Since, in multi-area framework,
the costs of each area are allocated to all users of that area. Therefore, if the ATNC of a given area is high,
due to its higher reliability index, only the users of the concerned area will contribute, whereas, in the single
area methods the costs of whole system allocated to all users regardless of their locations. Hence, in single
area approaches the users of a given area with lower reliability, experience some excessive costs without ben-
efit from it. They also show that in their proposed approach, the variations of nodal prices for recovering the
transmission costs are smooth in compare with the single area methods.

Elango.K et al. [24] analyzed and applied a new method for the minimization of the FATCS devices and re-
scheduling cost to alleviate congestion in pool dispatch to IEEE 57 bus system. The generators were selected
which were participating in congestion alleviation based on the congested line and FACTS method. They had
been used for corrective rescheduling and minimizing the FATCS devices to alleviate congestion. The reac-
tive power rescheduling and FACTS devices causes lower cost of rescheduling and the better voltage profile.
The author show that the minimum cost of rescheduling is observed when the generator and capacitor provide
reactive support. In this case, the amount of reactive power supplied by the capacitor is less when it is com-
pared to the capacitor reactive support.

Ashwani Kumar et al. [25] discussed that in a competitive environment reactive power management is an es-
sential service provided by independent system operator taking into account the voltage security and transmis-
sion losses. The system operator adopts a transparent and non-discriminatory procedure to procure the reac-
tive power supply for optimal deployment in the system. Since generators’ are the main source of reactive
power generation and the cost of the reactive power should be considered for their noticeable impact on both
real and reactive power marginal prices. In his paper, a method based on marginal cost theory was presented
for locational marginal prices calculation for real and reactive power considering different reactive power cost
models of generators’ reactive support. With the presence of FACTS controllers in the system for more flexi-
ble operation, their impact on nodal prices cannot be ignored for wheeling cost determination and has also to
be considered taking their cost function into account. They formulate a Mixed Integer Non-linear program-
ming (MINLP) approach for solving the complex problem with MATLAB and GAMS interfacing. The pro-
posed approach was tested on IEEE 24-bus reliability test system (RTS). In their work, impact of reactive
power cost model on nodal price for real and reactive power were obtained. The cost model of FACTS devi-
ces was incorporated to find their impact on real and reactive nodal price at each node. They show that the no-
dal prices are different with different methods; the reactive power nodal prices are both positive and negative
at buses and with SVC are found lower due to its reactive support. With SVC the nodal prices for real power
also reduces at all buses for all methods. With UPFC, nodal prices are found lower compared to TCSC. Cost
component of UPFC is high compared to TCSC and SVC being costly device compared to SVC and TCSC.
With FACTS controllers, fuel costs are found to be lower compared to the case without FACTS controllers.
The nodal prices varies with the reactive cost models considered for study and cost model of FACTS devices
also plays an important role for variation in nodal prices. From the discussion it is concluded that reactive cost
models have considerable impact on LMPs of real and reactive power at each bus. Cost model of FACTS de-
vices also have noticeable impact on LMPs. Therefore the ISO must consider the appropriate reactive cost
models for accurate transmission pricing and wheeling cost determination for better market operation. FACTS
cost component cannot be ignored in the model for accurate transmission pricing due to their impact on
LMPs.

Charan Sekhar et al. [26] proposed a congestion management approach considering loadability factor for mul-
ti-line congestion cases. The secure transactions are obtained for hybrid market model. Generation reschedul-
ing can be obtained to manage congestion for multi-line congestion cases with secure transactions and loada-
bility limit. The author observed that the congestion cost reduces with application of FACTS. The congestion
cost depends by how much amount the line is congested. The generators are set to lower preferred schedules
with FACTS application. The overall congestion cost is found lower with UPFC compared to other FACTS
device.

Laleh Haddadi et al. [27] presented by using Monte Carlo simulation, that is a flexible method, that the exact
amount of reactive power is needed for a restructured and a traditional power system. To do this the author
uses the method of probabilistic optimal load flow and considered the uncertainties of production, load and
cost and obtained the results of reactive power changes of different buses and also all buses that is the
amount of total requirement of reactive power for system. One of states of uncertainty considered is a varia-
ble heavy loading of system. That is shown the maximum need of reactive power in a critical condition and
without collapse.

Ali Mansouri et al. [28] evaluate the effects of demand response programs especially direct load control on
system and nodal reliability of a deregulated power system using direct load control and economic load mod-
el, DC power-flow-based optimal load curtailment objective and reliability evaluation techniques. From the
simulation results it was shown that a demand response program improves the system reliability and nodal re-
liability of a deregulated power system.
M. Shahidehpour et al. [(29), (30)] provided an introduction to the electric utility industry and its functions.
They provide a general review of restructuring for power engineers and include introductory information for
non-electrical engineering majors with an interest in utility restructuring. They presented a review key issue
in restructuring and different restructuring models including stranded costs, market operations, transmission
pricing, congestion management, Pool Co model, bilateral contracts and the hybrid model. The author pro-
vides a discussion on major U.S. market models, Independent System Operators (ISOs) in the United States
and major ISO functions as related to the FERC Order 888. These models include California, Pennsylvania-
New Jersey-Maryland (PJM) interconnection, New York Power Pool (NYPP), Electric Reliability Council of
Texas (ERCOT), New England ISO and Midwest ISO. They discusses some of the shortcomings and advan-
tages of these models, presents comparisons among models, and reviews topics such as horizontal and vertical
market power, stranded costs, tics, market clearing prices, Contracts for Differences and transmission pricing.
The author introduces the Open Access Same-Time Information System (OASIS), presents a comprehensive
review of OASIS, discusses the FERC Order No. 889 and elaborates on exploring OASIS as an electronic in-
formation system. OASIS allows users to instantly receive data on the current transmission network operating
status, capacity of a transmission provider (transmission availability), request of transmission services, availa-
ble transmission capability, and transmission pricing. They also discusses requirements of transmission pro-
viders, types of information on OASIS such as the availability of transmission services, hourly transfer ca-
pacities between control areas, hourly firm and non-firm power scheduled at various points, current outages
information, load flow data, current requests for transmission service, and secondary information regarding
capacity rights that customers wish to resell. In addition, the authors also discusses how the information is
posted on OASIS, what are the required interfaces for this posting, which part of viii Preface information is
secure and which part is public, how OASIS enables any transmission customer to communicate through re-
quests to buy and responses to sell available transmission capabilities, and how utilities use OASIS to share
operating data regarding transmission availability, generation capability, system loads, interchange, area-con-
trol error, frequency and operating reserves. The discussion also included whether or not OASIS has a data
link to other systems. They presented the tagging system and discuss the major contributions of the NERC’s
Policy 3. They illustrate the Constrained Path Method (CPM) and show the philosophy behind the transition
from the old tagging system to the new system and functional requirements of software used by market partic-
ipants to meet the minimum NERC Policy 3 requirements. In addition, the shows procedures for canceling
and curtailing interchange transactions. It explains how tags are created and submitted, and types of informa-
tion contained in the tag. The functional specifications are presented that explain obligations and duties of all
parties to an interchange transaction, required data to represent a transaction and specific mechanisms for ex-
changing the data electronically. Their discussion helps readers understand the three main services in electron-
ic tagging-Tag Agent Service, Tag Authority Service, and Tag Approval Service-and their interdependency.
They explain how tags are initiated, authorized and approved. In addition, illustrates some of the tagging con-
cepts using graphical representation and provides examples that help readers grasp the entire picture of inter-
change transactions. The authors elaborate on implementation, curtailment, and cancellation of interchange
transactions, presented various characteristics of electric energy trading and focuses on key issues of trading
systems, description of successful trading tools and qualifying factors of a successful trading system were ad-
dressed. They concentrate on main derivative instruments such as futures, forwards and options. Different cat-
egories of traders, trading hubs, price volatility and green power trading were discussed. Electricity contract
specifications of the New York Mercantile Exchange (NYMEX) and Chicago Board of Trade (CBOT) were
presented and the presentations were supported by pertinent examples for energy trading.