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Original Title: Economical Dispatch Optimal Power Flow and Locational Marginal Pricing - Power Systems Exercise Ariel Villalon M

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PowerWorld Simulation

Exercise

Economic Dispatch, Optimal Power Flow and

Locational Marginal Pricing

Ariel Villalón Monsalve

18/03/2011

Table of Contents

I.1 CONSTANT MARGINAL COSTS .............................................................................................. 3

I.2 VARIABLE MARGINAL COSTS ................................................................................................ 9

PART II: LOCATIONAL MARGINAL PRICING (LMP)....................................................................... 21

II.1 BASE CASE – UNIFORM PRICING (TRANSMISSION CONGESTION NEGLECTED)........... 21

II.2 COMPETITION IN QUANTITIES............................................................................................ 25

II.3 COMPETITION IN PRICES ................................................................................................... 33

II.4 LOCATIONAL MARGINAL PRICES: congestion included ...................................................... 37

References ...................................................................................................................................... 42

PART 1 – OPTIMAL DISPATCH

Generator 1 6 2 4 7

Incremental Cost (£/MWh) 2 4 6 10 12

Min MW 0 0 0 0 0

Max MW 400 500 500 200 600

For the configuration shown in the figure 1, the output of each of the generators is:

Generator 1 6 2 4 7

Output MW 102 200 170 95 888

The total cost per hour for the seven-bus system is 17,092 £/h.

Manually, all the generators but 7 were set to their maximum output, in order to minimize the total cost

of generation per hour in the seven-bus system.

Having done that, the results are summarized in table 3 and figure 2:

Generator 1 6 2 4 7

Output MW 400 500 500 200 -51

Figure 2. Seven-bus system. Merit Order – manual action

The total cost per hour for the seven-bus system is 10,645 £/h. Increasing the generation for cheaper

generators will decrease the total cost per hour for the whole system.

The latter mentioned fact does not assure an optimum solution from the economic point of view,

considering the whole seven-bus system. Just the optimum may be found following the equimarginal

costs principle.

Generator 1 6 2 4 7

Output MW 400 500 500 134 0

Figure 3. Economic dispatch with transmission losses neglected for the seven-bus system

1. Check the economic dispatch calculated by the program and compare it with your manual

economic dispatch. Are there any differences?

By diminishing the power output of some generators, in this case, the generator 4, that has a marginal

cost of 10 £/MWh, the economic dispatch allows to achieve a lower total cost per hour for generation

in the whole seven-bus system.

In this case, the total cost per hour is 10,597 £/h, for a generation of 1,534 MW, and a demand of

1,406 MW (128 MW of losses).

2. Which generator is at the margin (i.e. is partly loaded and supplies the last MW of demand)

and why? What value has the system lambda? Why?

The generator 4 is the marginal generator because is partly-loaded (output 134 MW of maximum

output of 200 MW), mainly due to its marginal cost which is the highest of the loaded generators.

For this case the system lambda corresponds to the marginal cost of the marginal generator, being 10

£/MWh. This system lambda is the same for the whole system because there are no constraints for

transmission lines.

Generator 1 6 2 4 7

Output MW 400 500 500 148 3

Figure 4. Economic dispatch with transmission losses included for the seven-bus system

3. How have the generation cost and transmission losses changed? Compare with the case

when transmission losses were neglected.

Where Pk and Dk are the generation and demand at the node k, respectively.

Thus, we have the following minimization of the total cost of producing energy in a network of infinite

capacity with losses included (Kirschen, 2004):

Ik = net injection of power at node k (MW);

L = losses of power in the branches of the network (MW);

n = slack bus of the network

So, the Lagrange multiplier, represents the marginal cost of marginal benefit of an injection of power

at the slack bus, and the Marginal Cost of Injection of power at bus k is .

From the economic dispatch calculated in PowerWorld, lambda is 11.86, so the generation costs have

to be considered as nodal prices for each of the nodes.

Additionally, can be said that the penalty factor for bus k, Pfk, is:

Table 6. Nodal prices for each of the buses for the seven-bus system

Marginal Loss Marginal Cost of Penalty Factor

Bus Factor for bus Injection of Power at at Bus k

k Bus k (£/MWh) (£/MWh)

1 0.353 7.67 1.546

2 0.281 8.52 1.392

3 0.186 9.65 1.229

4 0.185 9.67 1.226

5 0.044 11.34 1.046

6 0.225 9.19 1.291

7 0.000 11.86 1.000

Comparing the output in table 4 with the outputs from table 5, the generators that changed their

output were number 4 and 7, from 134 to 148 MW to generator 4, and from 0 to 3 MW to generator 7.

In this case, the penalty factor for the generator connected to the bus 4 is the smallest penalty factor

of the generators (generators 1, 2, 4, 6, and 7), without considering that the generator connected to

the bus 7 corresponds to the marginal generator (marginal cost equal to the system lambda).

Thus, can be said that the generator 4 has the smallest loss for generating the demanded power, so,

it changed its power output.

5. Which generators are at the margin, i.e. operate at equal generalised lambda = (incremental

cost) x penalty factor)?

The generator 7, which is connected to the slack bus, works as the marginal generator, being the

nodal price for bus 7, 11.86, the value for the seven-bus system lambda as the incremental cost is

defined by:

Optimal power flow

Table 7. Nodal prices for the optimal power flow and marginal cost of generation, output and power

demand for the seven-bus system

Marginal

Nodal Output

Cost Demand at

Bus Price Bus k Generator

Generator bus k (MW)

(£/MWh) (MW)

(£/MWh)

1 2.00 2.00 136 0

2 6.00 6.00 143 74

3 13.86 - 0 204

4 12.66 10.00 200 148

5 14.55 - 0 241

6 8.12 4.00 500 370

7 12.00 12.00 446 370

The difference in nodal prices compared with pure economic dispatch can be seen in the following

table:

Table 8. Comparison of nodal prices between pure economic dispatch and optimal power flow

Economic dispatch - losses

Optimal Power Flow -

included Marginal Cost of

Bus Losses included Nodal Price

Injection of Power at Bus k

Bus k (£/MWh)

(£/MWh)

1 7.67 2.00

2 8.52 6.00

3 9.65 13.86

4 9.67 12.66

5 11.34 14.55

6 9.19 8.12

7 11.86 12.00

I.2 VARIABLE MARGINAL COSTS

6. Note the values of coefficients of cost function. The general form of the cost function is

cubic but what is the actual form of the generator input-output costs and incremental costs

taking into account the actual values of coefficients?

Coefficients of Cost Generator Generator Generator Generator Generator

Function 1 6 2 4 7

A 761.94 831.92 831.84 530.03 500.08

B 7.62 7.57 7.52 7.84 7.77

C 0.0013 0.00131 0.00136 0.00134 0.00194

D 0 0 0 0 0

Unit Fuel Cost

2.04 2.139 2.061 2.093 2.574

(£/MBtu)

In the simulator of the software PowerWorld, the following cubic relationship is used to determine the

cost associated with operating a generator:

where Pgi is the output of the generator at bus i in MW. The values ai, bi, ci, and di are used to model

the generator’s input-output (I/O) curve. This curve specifies the relationship between how much heat

must be input to the generator (expressed in MBtu per hour) and its resulting MW output (PowerWorld

Corporation, 2009).

So, for the generators, the total cost and the marginal cost respectively are:

Figure 6. Total cost curve and marginal cost curve, generator 1

Figure 10. Total cost curve and marginal cost curve, generator 7

Economic dispatch without including loss penalty factors into the dispatch

7. Make sense out of the results. Check the values of generators incremental costs IC, to see if

they indeed satisfy the condition of economic dispatch. Are all the incremental costs the

same?

The outputs of the generators and the corresponding marginal costs are presented in the following

table:

Power output Gen MW Marg.

Generator

(MW) Cost (£/MWh)

1 276.75 17.01

2 270.07 17.01

4 107.6 17.01

6 146.4 17.01

7 1.89 20.02

As can be seen in table 10 and figure 13, all the generators but the generator 7 that is connected to

the slack bus, produce power until they equal the marginal cost, that for this case corresponds to

17.01 £/MWh. This equimarginal condition for the economic dispatch is given by the power outputs

that can be seen in the table 10, or alternatively, in figure 13.

Thus, in this case, the ED is accomplished minimizing the cost of generation constrained to a certain

balance between generation and demand by the following relationship:

I.e. when the incremental costs of all generators are the same and equal to λ.

In this case the total cost of economic dispatch per hour is 16,618 £/h.

8. Without doing simulations, how can you predict what the total cost of economic dispatch

will be if demand increases by 10 MW? Validate your prediction by increasing demand in node

2 by 10 MW and checking the resulting increase in the costs.

To the total cost of economic dispatch presented in figure 12, 16,618 £/h, it has to be summed the

corresponding increment in demand, considering a marginal cost of 17.01 £/MWh.

Can be seen that increasing the demand in node 2 in the software PowerWorld, we obtain a total cost

of the economic dispatch of 16,787 £/h.

9. Check the values of penalty factors. Currently the influence of losses is not taken into

account but later on, you will include transmission losses in the dispatch. Make a prediction

about which generator you expect to increase its output and which decrease when the

influence of losses is included.

The values of penalty factors for all the buses (and the generators connected to them) are equal to 1,

as losses are not included.

It is more likely that generator 1 diminishes its output due to its marginal cost function has a bigger

slope, though all the generators are similar in this aspect.

Additionally, it is likely that generator 6 increases its output, mainly due to its closeness to bigger

loads, as generator 1 has to deliver its energy just using the branches 1-3 and 1-2, aspect that will be

reflected in the penalty factors when the losses during transmission are considered.

Additionally, can be mentioned that there is a total generation output of 802.72 MW for a demand of

760.00 MW, and the losses reach a value of 42.72 MW.

Economic dispatch with transmission losses included

10. Why have results changed? Make sense out of them, i.e. check the values of generation

outputs and the overall cost of dispatch. Check the validity of your prediction about

generation changes made before.

As was mentioned in question 9, the biggest penalty factor is for the generator connected to bus 1

(table 11), because it has to dispatch energy through branches 1-3 and 1-2, because there is no

feeder connected to the bus 1, and the impedances in the branches, eventually, are higher. In this

way, there are more transmission losses, aspect that is reflected in a bigger incremental loss factor.

The generator 6 increased its output from 146.4 MW for the situation with ED without losses to 248.9

MW for the situation of ED including losses to minimize the overall generation cost. As can be seen in

table 11, the penalty factor is the second smaller of the whole seven-bus system.

Additionally, there is an overall generation of 788.04 MW for a demand of 760 MW, fact that makes to

have losses of 28.04 MW, value that is smaller than the value of losses for the ED when transmission

losses were not considered.

11. Check how the operating points moved. How and why has the overall generation cost

changed? Calculate the savings in both dispatch and losses. Check the values of incremental

costs, penalty factors and lambdas for each generator. Check that the equal lambda criterion,

modified by loss factors, still holds.

Figure 16. Incremental costs for all generators in Economic dispatch, transmission losses included

Table 11. Power output, penalty factor, marginal loss factor, and nodal prices for each bus of the

seven-bus system

Bus 1 Bus 2 Bus 3 Bus 4 Bus 5 Bus 6 Bus 7

Power output (MW) 140.38 248.59 - 150.19 - 248.88 0

Penalty factor 1.2152 1.1719 1.1372 1.1475 1.0316 1.1256 1

Loss MW Sens 0.1771 0.1467 0.1207 0.1285 0.0306 0.1116 0

Nodal Price (£/MWh) 16.29 16.90 17.41 17.26 19.19 17.59 19.80

The lambda, λ, for the whole system is 19.80 £/MWh and is related to the nodal prices for the

following relationship1:

Ik = net injection of power at node k (MW);

L = losses of power in the branches of the network (MW);

n = slack bus of the network

The overall generation cost changed from 16,618 £/h for the ED without losses, to 16,447 £/h for the

ED considering losses. The overall cost diminished, because now the seven-bus system has different

nodal prices which reflect more accurately the real situation, making some generators increase their

output and others, decrease their output, according to its location in the network, taking into account

the impedances of the transmission lines, physics phenomena that may make or not, more

competitive in marginal costs a generator, pursuing a more competitive electric market.

The fact of consider the penalty factors for the generators, related to each of the buses, makes that

the economic dispatch minimize the overall cost of generation by considering the transmission losses

as well, as they were not considered in the ED without considering transmission losses, leading to

save losses and maximize the social welfare for the whole electrical market considered (Kirschen,

2004).

1

Check question 3 for more detailed explanation of the relationship

Optimal power flow

12. Compare the results and costs in ED and OPF. Make sense out of them. How was the

overload in line 2-5 relieved? Rationalise that in terms of which generator outputs have

increased and which decreased and what effect that had on the flow in line 2-5?

Table 12. Comparison of the flows in the lines, between Optimum Power Flow, OPF, and Economic

Dispatch with transmission losses, ED

Economic dispatch including

Optimal Power Flow

transmission losses

Limit

Lines MVA

MVA MVA Congestion of Congestion of the line

Marginal MVA from

from the line (%) (%)

Cost

1-2 150 125.7 83.8% 0 96.1 64.1%

1-3 65 38.0 58.5% 0 46.4 71.4%

2-3 80 23.8 29.8% 0 33.6 42.0%

2-4 100 22.1 22.1% 0 26.9 26.9%

2-5 100 100.0 100.0% 12.00 152.1 152.1%

2-6 200 78.5 39.3% 0 101.9 51.0%

3-4 100 66.3 66.3% 0 39.2 39.2%

4-5 60 53.3 88.8% 0 58.4 97.3%

5-7 200 65.5 32.8% 0 110.6 55.3%

6-

200 38.8 19.4% 0 74.6 37.3%

7(1)

6-

200 38.8 19.4% 0 74.6 37.3%

7(2)

Table 13. Comparison of the Power Output of the generators, between Optimum Power Flow, OPF,

and Economic Dispatch with transmission losses, ED

Generator OPF - Output (MW) ED - Output (MW)

1 160.0 140.4

2 99.6 248.6

4 200.0 150.2

6 200.0 248.9

7 115.5 0.0

Table 14. Comparison of Nodal Prices at the Buses, between Optimum Power Flow, OPF, and

Economic Dispatch with transmission losses, ED

Bus OPF - Nodal Price (£/MWh) ED - Nodal Price (£/MWh)

1 16.23 16.29

2 15.78 16.90

3 17.02 17.41

4 17.42 17.26

5 22.30 19.19

6 17.33 17.59

7 20.60 19.80

The line 2-5 has a rating of 100 MVA, so for the ED the generator that is connected to bus 2 was

generating 248.6 MW, but considering the optimum power flow (OPF) where the ratings of the

branches are considered, the generator 2 is set to produce 99.6 MW that is feasible to be dispatched

through the line 2-5. In terms of apparent power, the line 2-5 is congested, meaning that there is no

more transmission capacity through this line.

The overall cost of generation for the OPF is 16,703 £/h, value that is bigger than the value obtained

for ED (16,447 £/h). The overall cost of generation is bigger because the network has a finite

capacity, making it more expensive.

In table 14, the nodal prices for OPF are presented compared to nodal prices for ED.

For the OPF, the total generation is 775.1 MW, a power demand of 760 MW and losses of 15.1 MW

for transmission.

13. Click OPF Case Info/OPF Lines and Transformers. Column MVA Marg cost gives the values

of Lagrange multipliers connected with a constraint on a maximum value of given line flow.

Why are all the values equal to zero apart from one?

As can be seen in table 12, in column MVA Marginal cost for Optimal Power Flow, just the line 2-5

has the value different from zero, being 12.1. This value represents the Lagrange multiplier for the line

2-5 that is fully loaded (Lagrange multiplier is nonzero only if the flow on the branch between nodes i

and j is equal to its limit), that is the marginal cost of this constraint in the network. Then, for the line 2-

5 the Lagrange multiplier λ25, is 12.1 £/MWh, and represents the saving that would accrue each hour

if the flow in branch 2-5 could be increased by 1 MW (Kirschen, 2004).

= the rating of a line ij

= the Lagrange multiplier for the constrained line ij

14. Power system operation must be secure not only for a normal state of operation but also

following a contingency, i.e. when any one system element trips to e.g. an unexpected fault.

This is referred to as (N-1) security criterion.

Figure 18. The seven-bus system when the transmission line 2-5 is tripped

As can be seen in figure above, once the line 2-5 is tripped, the line 4-5 will be overloaded by 157.3%

of its thermal capacity.

Table 15. Comparison of power flows through transmission lines with the system in normal state and

under a contingency (line 2-5 tripped)

Optimal Power Flow System with line 2-5 tripped

Limit

Lines MVA Congestion of the line MVA Congestion of the line

MVA

from (%) from (%)

1-2 150 125.7 83.8% 118.2 78.8%

1-3 65 38.0 58.5% 46.8 72.0%

2-3 80 23.8 29.8% 29.4 36.8%

2-4 100 22.1 22.1% 22.5 22.5%

2-5 100 100.0 100.0% - -

2-6 200 78.5 39.3% 142.4 71.2%

3-4 100 66.3 66.3% 44.0 44.0%

4-5 60 53.3 88.8% 94.4 157.3%

5-7 200 65.5 32.8% 86.2 43.1%

6-7(1) 200 38.8 19.4% 70.1 35.1%

6-7(2) 200 38.8 19.4% 70.1 35.1%

The spare capacity of transmission is used, as the rest of the transmission lines were not constrained

until the fault. But, since the line 4-5 is overloaded, the generation output should be changed, this

meaning, a new OPF should be carried out to restore the normal state of the seven-bus system.

The fundamental principle of security in a power system considers that a power system should always

be operated in such a way that no credible contingency could trigger cascading outages or another

form of instability. Because all the power systems are routinely affected by unpredictable faults and

failures, they have to be operated with a sufficient security margin. There must be enough reserve

generation capacity to make up for the loss of a generating unit and enough transmission capacity to

handle the power flows displaced by the outage of a line. Securing the system only calls against all

credible contingencies as it is impossible secure it against all possible contingencies. What credible

contingencies are assumed to be it is that the probability of two or more independent faults or failures

taking place simultaneously is too low to be considered credible. So the N-1 accounts for the

feasibility to lose any one of the power system’s N components and continue operating (Kirschen,

2003).

15. Investigate the resulting power flows when you trip a number of different lines (initially one

at a time and then some combinations of trips). Try to make sense out of the resulting power

flows by thinking how a power that was flowing through a tripped line has to be shared by the

remaining lines.

Figure 19. The seven-bus system when the transmission lines 2-5 and 4-5 are tripped

Figure 20. The seven-bus system when the transmission lines 2-5, 4-5, and 4-3 are tripped

Table 16. The seven-bus system with different contingencies. Transmission lines tripped.

System with line 2-5 System with lines 2-5 and System with lines 2-5, 4-5,

Limit tripped 4-5 tripped and 4-3 tripped

Lines

MVA MVA Congestion of the MVA Congestion of the MVA Congestion of the

from line (%) from line (%) from line (%)

1-2 150 118.2 78.8% 142.5 95.0% 106.5 71.0%

1-3 65 46.8 72.0% 30.0 46.2% 66.5 102.3%

2-3 80 29.4 36.8% 29.6 37.0% 58.6 73.3%

2-4 100 22.5 22.5% 39.2 39.2% 132.5 132.5%

2-5 100 - - - - - -

2-6 200 142.4 71.2% 244.3 122.2% 238.4 119.2%

3-4 100 44.0 44.0% 93.6 93.6% - -

4-5 60 94.4 157.3% - - - -

5-7 200 86.2 43.1% 141.8 70.9% 141.8 70.9%

6-

200 70.1 35.1% 118.3 59.2% 116.8 58.4%

7(1)

6-

200 70.1 35.1% 118.3 59.2% 116.8 58.4%

7(2)

In table 16 several contingencies in the power system are presented. First, the line 2-5 is tripped,

then, to line 2-5, the line 4-5 is under fault, therefore, tripped, and after, to those two transmission

lines tripped, line 4-3 is tripped. These states can be seen in figures 18, 19, and 20, respectively.

System with line 2- System with lines 2-5 System with lines 2-5,

Generator 5 tripped and 4-5 tripped 4-5, and 4-3 tripped

Power Output (MW) Power Output (MW) Power Output (MW)

1 162.0 166.6 168.9

2 102.0 106.2 108.5

4 200.0 200.0 200.0

6 202.0 206.6 208.9

7 118.0 122.6 125.1

Total Generation 784.0 802.0 811.4

As can be seen, when a transmission line is tripped, the power flow, at first moment, will take the

branches in the nearby to make the dispatch to the loads. The power flows don’t take into account by

themselves thermal ratings, so the transmission lines capacity, in many cases, will be exceeded.

Eventually, this fact may lead to more faults in the system, so more transmission lines may be tripped,

as the relays for the different zones respond to the contingency to protect the power system.

Additionally, can be seen from table 17 that to supply the demand, as the branches of the network are

decreasing (thus, there will be more losses in the lines), the total generation rises, fact that eventually,

may lead to more stability problems during the operation of the power system.

The overall cost of generation in the system, like the losses, rises.

PART II: LOCATIONAL MARGINAL PRICING (LMP)

The generators connected to the respective busbars are set as appear in table 18.

Generator 1 6 2 4 7

Incremental Cost (£/MWh) 2 4 6 10 20

Min MW 0 0 0 0 0

Max MW 400 500 500 200 600

Figure 22. Economic Dispatch with transmission losses neglected and loads increased 1.5 times

16. Why are all LMPs the same? Which generator is at the margin (i.e. is partly loaded and

supplies the last MW of demand) and why?

All the LMPs are the same because transmission losses are not included in the ED, and therefore, the

lambda of the system, λ, is equal to the marginal cost of the generator that supplies the last MW of

demand, being for this case, the generator 2.

Table 19. Power output of the generators with ED with transmission losses neglected and loads

increased 1.5 times

Generator Power Output (MW)

1 400.0

2 335.5

4 0.0

6 500.0

7 0.0

Total Generation 1,235.5

As can be seen in table 18, generator 2 has a marginal cost of 6.00 £/MWh and a maximum capacity

of generation of 500 MW, so, it is partly loaded.

In general, the following relationship is accomplished; making the nodal price is the same for all the

buses in the seven-bus system:

17. Increase the Load Multiplier to 1.8. Answer again the question made in number 16.

Figure 23. Economic Dispatch with transmission losses neglected and loads increased 1.8 times

Table 20. Power output of the generators with ED with transmission losses neglected and loads

increased 1.8 times

Generator Power Output (MW)

1 400.0

2 500.0

4 93.3

6 500.0

7 0.0

Total Generation 1,493.3

All the LMPs are the same because transmission losses are not included in the ED, and therefore, the

lambda of the system, λ, is equal to the marginal cost of the generator that supplies the last MW of

demand, being for this case, the generator 4, which has a marginal cost of 10 £/MWh.

Additionally, the maximum capacity of generation of generator connected to bus 4 is 200 MW, so it is

partly loaded.

18. Assume that we have a fully competitive market so that the prices the generators bid to the

Pool are equal to their marginal costs. Calculate the profit per MW made by each generator

and the congestion surplus.

For the condition of the seven-bus system with the load multiplied by 1.5, the system marginal price,

SMP is 6.00 £/MWh, so producers are paid this price for the output they sell, and consumers pay the

same price for the energy they buy.

The profits per MW, the producers’ revenues and total consumer payments for the whole system are

presented in table 21.

Table 21. Producer Profits per MW generated, producer revenues, and consumer payments in the

seven-bus system with ED with transmission losses neglected and loads increased 1.5 times

Power Marginal Profits per Producers Consumers

Generator Output Cost MW Revenues payments

(MW) (£/MWh) (£/MWh) (£/h) (£/h)

1 400.0 2.00 4.00 2,400.00 2,400.00

2 335.5 6.00 0.00 2,013.24 2,013.24

4 0.0 10.00 -4.00 0.00 0.00

6 500.0 4.00 2.00 3,000.00 3,000.00

7 0.0 20.00 -14.00 0.00 0.00

Total Generation 1,235.5 7,413.24 7,413.24

As there is only one lambda for the whole system (SMP), due transmission losses are not considered

in the economic dispatch, the Congestion Surplus will be:

For the condition of the seven-bus system with the load multiplied by 1.8, the system marginal price,

SMP is 10.00 £/MWh, so producers are paid this price for the output they sell, and consumers pay the

same price for the energy they buy.

The profits per MW, the producers’ revenues and total consumer payments for the whole system are

presented in table 22.

Table 22. Producer Profits per MW generated, producer revenues, and consumer payments in the

seven-bus system with ED with transmission losses neglected and loads increased 1.8 times

Power Marginal Profits per Producer Consumer

Generator Output Cost MW Revenues payments

(MW) (£/MWh) (£/MWh) (£/h) (£/h)

1 400.0 2 8.00 4,000.00 4,000.00

2 500.0 6 4.00 5,000.00 5,000.00

4 93.3 10 0.00 933.30 933.30

6 500.0 4 6.00 5,000.00 5,000.00

7 0.0 20 -10.00 0.00 0.00

Total Generation 1,493.3 14,933.30 14,933.30

As there is only one lambda for the whole system (SMP), due transmission losses are not considered

in the economic dispatch, the Congestion Surplus will be:

II.2 COMPETITION IN QUANTITIES

19. Assume that you are trader working for inframarginal generator 2. Assume that your

maximum capacity is as declared so far (500 MW). Try to increase your net profit by reducing

your declared capacity to 400 MW, 300 MW, 200 MW or 100 MW. Plot the resulting profits as

the reduction of capacity. What are general conclusions about optimal bidding strategy for an

inframarginal generator?

Generator 1 6 2 4 7

Incremental Cost (£/MWh) 2 4 6 10 12

Min MW 0 0 0 0 0

Max MW 400 500 500 200 600

The load was kept multiplied by 1.5, so the total demand is 1,140 MW.

Figure 25. Generator 2 – 400 MW max output

Figure 27. Generator 2 – 200 MW max output

The system clearing prices (SMP) for each of the situations where the generator 2 withdraws

capacity, its power output, and the profits that the producer, owner of the generator 2, would perceive,

are presented in table 24.

Table 24. SMPs, power outputs, revenues, costs and profits for each of the situations where

generator 2 withdraws an additional unit generation (100 MW)

System

Withdrawn Power

Marginal Costs

Capacity Output Revenues (£/h) Profits (£/h)

Price (£/h)

(MW) (MW)

(£/MWh)

0 500 10.00 5,000.00 3,000.00 2,000.00

100 400 10.00 4,000.00 2,400.00 1,600.00

200 300 12.00 3,600.00 1,800.00 1,800.00

300 200 12.00 2,400.00 1,200.00 1,200.00

400 100 12.00 1,200.00 600.00 600.00

Figure 29. Graph of the profits obtained by generator 2 by withdrawing capacity in the spot market

Profits (£/h) as function of withdrawn generation capacity

2,000

2,000

1,800

1,600

1,500

1,200

£/h

1,000

500 600

0

100

200

300

400

Withdrawn Generation Capacity (MW)

As can be seen in the graph of figure 29, the highest profits are obtained when the generator is

working at its maximum capacity, without withdrawing any unity capacity.

As the generator 2 has a marginal cost of 6.00 £/MWh, when it declares that its maximum capacity for

that hour is 500 MW (its maximum power output possible) and, therefore, an inframarginal generator

that is under all the situations of withdrawn capacity, fully loaded. It is always in merit as the market

clearing price is between 10 and 12 £/MWh, which is determined by the marginal generator,

In general, the optimal bidding strategy for an inframarginal generator can be presented as follows:

It is considered that all the generators in the pool bid the true marginal costs of running their plants

and the system clearing price at demand D is p. The benefit and the cost when one generator

withdraws a unity of capacity Δq will be pΔq, the cost of gaming, and qΔp, the increased profit for the

remaining in-merit generating capacity. Additionally, the effect of withdrawing a unity of capacity Δq is

the increasing of the market clearing price Δp, due to the shifting to the left of the part of supply curve

which stars from the gaming generator (Bialek, 2002).

Then the benefit B is:

Δ Δ Δ Δ Δ Δ

Δ

Δ

Where = the market share of the remaining in-merit plants of the generator

= the price sensitivity of supply, i.e., relative increase in the total generation

as a response to the relative increase in the system clearing price.

The benefit-cost ratio of the gaming allows quantifying the gain that can be earned. It confirms that for

the gaming to be profitable, a portfolio generator should have a large market share s(D-) and/or the

supply curve should be steep, as then eg(D) is small (Bialek, 2002).

In general, the plant to be withdrawn should be the most expensive in-merit plant in the generator’s

portfolio as then c’ q is the highest (Bialek, 2002).

If we consider a base-load power plant with small marginal cost, the ratio c’ q p can be neglected

and the gain is (Bialek, 2002)

So, the gaming is profitable when Gain > 1, i.e., when (Bialek, 2002)

For this sort of power plants, gaming can be profitable if the gaming generator (the owner of the

generation portfolio) has large enough market share (Bialek, 2002).

20. Repeat the investigation assuming that you were working now for the marginal generator 4.

Draw general conclusions

The load was kept multiplied by 1.5, so the total demand is 1,140 MW.

Figure 31. Generator 4 – 100 MW max output

The system clearing prices (SMP) for each of the situations where the generator 4 withdraws

capacity, its power output, and the profits that the producer, owner of the generator 4, would perceive,

are presented in table 25.

Table 25. SMPs, power outputs, revenues, costs and profits for each of the situations where

generator 4 withdraws an additional unit generation (100 MW)

System

Withdrawn Power

Marginal Costs

Capacity Output Revenues (£/h) Profits (£/h)

Price (£/h)

(MW) (MW)

(£/MWh)

0 93 10.00 930.00 930.00 0.00

100 93 10.00 930.00 930.00 0.00

As can be seen on table 25, there are no profits, generation for the generator 4 as it withdraws

generating capacity. The maximum real capacity for the generator 4 is 200 MW, so as we are

considering unities of generation of 100 MW, there is not much space for gaming, and, additionally, its

marginal cost is 10.00 £/MWh, fact that makes the generator 4 become marginal generator (figures 30

and 31), as the market clearing price is 10.00 £/MWh.

In general, the gaming for a marginal generator that for this case was displaced in the merit order by

another plant belonging to another owner, so the marginal gain can be presented as (Bialek, 2002):

assuming that the system clearing price p was set by the marginal cost of the price-setting generator,

c’(q+Δq). The latter equation shows that in this case the gain is always greater or equal than 1

providing that the slope of the supply curve is positive, meaning that at the margin, the price obtained

is equal to the cost so there can be no profit lost due to withdrawing marginal capacity (Bialek, 2002).

Additionally, the demand for energy is supplied by the rest of generators for the seven-bus power

system but the last MWh is supplied by generator 4 as it is the marginal generator that sets the

System Marginal Price, SMP. In other words, and as will be seen in question 22, the generator 4 has

very few market share, so it is not able to be successful when gaming as its auction (its high marginal

cost of production and its reduced declared generation capacity) just sets the price for all the power

system.

21. Now assume that you are trading for a portfolio generator, i.e. a company owning both

generator 2 and generator 4. Try to increase your net profit by reducing the declared capacity

of either, or both, of the generators. Generally, what is the best strategy for a portfolio

generator? What are the risks?

In general, in a Cournot model it is considered that each firm decides the quantity, Pf, that it wants to

produce (Kirschen, 2004):

The price, π, is then determined by the inverse market demand function, which expresses the market

price as a function of the total amount of energy traded

If firm f assumes that its competitors will not adjust the amount of energy they produce, its revenue is

given by

The Cournot model suggests that firms should be able to sustain prices that are higher the marginal

cost of production, with the difference determined by the price elasticity of the demand. For a

commodity like electrical energy that has a very low elasticity, the equilibrium price calculated tends to

be higher than the prices observed in the actual market (Kirschen, 2004).

In the case considering two producers, each of them trying to maximize their profits, they manage to

maintain a price that is much higher than the marginal cost of production. In the pool, their interactions

will settle at the Nash Equilibrium where neither firm can increase its profit through its own actions

(Kirschen, 2004).

This equilibrium can be expressed considering the profits earned by each firm as follows

Where π(D) represents the inverse demand curve. Each firm tries to maximize its profit. As both firms

share the same market, the supply must be equal to the demand. Therefore we must also have

(Kirschen, 2004)

Specifically, for the generator 2 and generator 4, the different combinations of withdrawn capacity

were found, in order to maximize the profit in the pool for the seven-bus system.

Profit generator 4 SMP (£/MWh)

Table 26. Illustration of Cournot competition between the generators 2 and 4, owned by the same

company, in the seven-bus system

Maximum

Declared Generator 2

Capacity

(MW) 400 300 200 100

583 1,600 500 1,800 400 1,200 300 600

366 10 400 12 400 12 400 12

Total profit Total profit Total profit Total profit

200 (£/h) 1,966 (£/h) 2,200 (£/h) 1,600 (£/h) 1,000

Generator 4

200 12 200 12 200 12 200 12

Total profit Total profit Total profit Total profit

100 (£/h) 2,600 (£/h) 2,000 (£/h) 1,400 (£/h) 800

400 2,400 300 1,800 200 1,200 100 600

0 12 0 12 0 12 0 12

Total profit Total profit Total profit Total profit

0 (£/h) 2,400 (£/h) 1,800 (£/h) 1,200 (£/h) 600

As can be seen in table 26, the combination that maximizes the profit for the company is generator 2

with a maximum output declared of 400 MW (100 MW withdrawn) and the generator 4 with a

maximum output declared of 100 MW (100 MW withdrawn). After of executing the OPF in the

software PowerWorld, the output for the generators 2 and 4 are 400 MW and 100 MW, respectively.

For this situation, both generators work at its maximum declared capacity, constraining the total

capacity of generation for the whole pool, making the SMP be 12.00 £/MWh, becoming both into

inframarginal generators (in-merit generators) as the marginal generator is the one connected to the

slack bus 7. This generator 7 sets the market clearing price at 12.00 £/MWh.

The main risk for the power company that owns both generators is that its most expensive generator

turns out to be out of merit as its marginal cost of production may be higher than the market clearing

price.

As a general rule, can be said that the generator to be withdrawn should be the most expensive in-

merit plant in the generator’s portfolio as then the marginal cost of production is the highest (Bialek,

2002).

22. Generally, is it more profitable to reduce capacity of a base load generator or a generator

near the top of the merit order?

In general, it is more profitable to reduce capacity of a generator near the top of the merit order,

though this will depend of the market share of this generator, so, even using base-load plants can be

successful.

Figure 32. Shares and gain: (a) required market share for withdrawing zero-marginal cost plant, (b)

marginal gain due to withdrawing zero-marginal cost plant, (c) marginal gain due to withdrawing

marginal plant when demand is inelastic, and (d) marginal gain due to withdrawing marginal plant

when the price sensitivity of supply is -0.05

In figure 32 can be seen that gaming can be successful even using base-load plants, providing that

the gaming generator has large enough market share (curve a). As can be seen, for the demand of

40-75% of the system capacity, the required market share is about 20-40%. In the region of 75-85%

of the system capacity, the supply curve is quite flat, making not profitable for a base-load generator

at all to withdraw capacity as the required market share would have to be greater than 1, fact that is

impossible. As can be seen, as the marginal cost of production of a base-load plant is very low (it can

be considered as 0), the only moment when it is worth to withdraw capacity is when the supply curve

is very steep, being in the case shown in the curve b of the figure 32, when demand is greater than

90% of the maximum load (Bialek, 2002).

For a generator near the top of the merit order, is definitively more profitable to withdraw capacity,

compared with a base-load generator. As can be seen for the curve c, the marginal gain is between 1

and 2 until the system load reaches 90%. Then the supply curve becomes very steep and the gain

increases reaching the peak value of 7 (Bialek, 2002).

23. Assume that you are a trader working for inframarginal generator 2. Try to increase your

profit by changing your bid price so that it is different than your marginal cost given in table 1.

Plot the results. Can you increase your profitability by doing that? What are the conclusions?

Table 27. SMPs, power outputs, revenues, costs and profits for each of the situations where

generator 2 raises its bid price

Real

Price

Generation SMP Revenues Marginal Expenses Profits

bidden

(MW) (£/MWh) (£/h) Cost (£/h) (£/h)

(£/MWh)

(£/MWh)

6 500 10 5,000 6 3,000 2,000

7 500 10 5,000 6 3,000 2,000

8 500 10 5,000 6 3,000 2,000

10 500 10 5,000 6 3,000 2,000

12 382 12 4,584 6 2,292 2,292

13 0 12 0 6 0 0

14 0 12 0 6 0 0

16 0 12 0 6 0 0

18 0 12 0 6 0 0

20 0 12 0 6 0 0

Figure 33. Graph of the profits obtained by generator 2 by raising the bid price in the spot market

Profits (£/h) as function of raising of the bid price

2,500

2,292

2,000 2,000 2,000

2,000 2,000

Profit (£/h)

1,500

1,000

500

0 0

0 0

6 7 0 0

8 10 12 13 14 16

Bid Price (£/MWh) 18 20

Assuming that the generator 2 bids its true marginal cost (6 £/MWh), the profit that can get is 2,000

£/h. By raising the bid price to 12 £/MWh, the profit turns out to be higher, reaching 2,292 £/h, as can

be seen in table 27 and figure 33. This inframarginal generator, by raising the bid price to 12 £/MWh,

becomes into the marginal generator, setting the market clearing price, and getting partly loaded as

its power output is 382 MW.

For the inframarginal generator 2, there is no effect on the profits meanwhile the bidding price does

not reach the value of the market clearing price.

24. Assume that you are a trader working for the marginal generator 4. Try to increase your

profit by changing your bid price so that it is different than your marginal cost given in table 1.

Plot the results. Can you increase your profit by doing that? To what extent? What are the

conclusions? What is the danger in that strategy?

Table 28. SMPs, power outputs, revenues, costs and profits for each of the situations where

generator 4 raises its bid price

Real

Price

Generation SMP Revenues Marginal Expenses Profits

bidden

(MW) (£/MWh) (£/h) Cost (£/h) (£/h)

(£/MWh)

(£/MWh)

10 93 10 930 10 930 0

11 93 11 1,023 10 930 93

12 93 12 1,116 10 930 186

13 0 12 0 10 0 0

14 0 12 0 10 0 0

15 0 12 0 10 0 0

16 0 12 0 10 0 0

Figure 34. Graph of the profits obtained by generator 4 by raising the bid price in the spot market

Profits (£/h) as function of raising of the bid price

200 186

150

Profit (£/h)

93

100

50

0

0 0

0

10 0

11 0

12

13

14

15

Bid Price (£/MWh) 16

As can be seen in table 28, the marginal generator 4 increases its profit from 0 £/h to 186 £/h by

increasing the bidding price from the real marginal cost until 12 £/MWh, that corresponds to the value

of the marginal cost for the generator 7. By bidding prices further this value, the generator 4 just

becomes out-of-merit, and therefore, there will not be any power output neither profit.

In general for a marginal generator, the outcome of raising the bid price by Δp will depend of the size

of Δp. If it is small then the marginal plant will not be replaced in the merit-order by another plant.

The expected value of the gain for the marginal generator is (Bialek, 2002)

Where P is the probability of the marginal plant is not replaced in the merit-order by another plant, and

if Δp is large, then the gaming plant will be replaced in the merit-order by the next cheapest plant

which has its bid price p1 lower than the inflated bid price of the gaming plant, i.e., p1 = (p+Δp1) <

(p+Δp). The probability of such event is (1-P).

The latter equation shows that the marginal gain is always greater than 1 providing that the slope of

the supply curve is positive. P can be considered as the probability of predicting accurately the bids of

other generators. Thus accurate prediction of the competitors’ bids has the effect of increasing the

gain, as it allows choosing such a value of Δp that the gaming generator is not pushed out of the

merit-order (Bialek, 2002).

As the outcome of raising the bid price by Δp depends of the size of Δp , the danger in this strategy is

to turn the generator out of merit, as there is always uncertainty in prediction of the competitors’ bids

that may lead to the undesirable outcome of having an out-of-merit generator, and therefore, no

profits at all.

Additionally, the probability of the marginal generator is not replaced in the merit-order by another

generator may increase as there is repetitiveness of the auction coupled with the increasingly limited

number of competitors as the load increases, especially at the peak load (Bialek, 2002). This fact

helps to diminish the uncertainty for gaming with bid prices and to improve the accurate of prediction

of the competitors’ bids.

Moreover, one would not expect aggressive bidding from the competitors which would have the effect

of lowering the probability of keeping the generator in-merit (P). As inflating the market clearing price

benefits all the generators, not only the gaming one, it is not in their interest to outbid each other,

making tacit collusion, and thus high P, very likely (Bialek, 2002).

25. Now assume that you are trading for a company owning both generator 2 and generator 4.

Try to increase your profit by manipulating bid prices. What is the best strategy?

Table 29. Illustration of Bertrand competition between the generators 2 and 4, owned by the same

company, in the seven-bus system

Real Marginal Cost

Price Bidden (£/MWh) Generation (MW)

(£/MWh) SMP Revenues Expenses Profits

Generator Generator Generator Generator Generator Generator (£/MWh) (£/h) (£/h) (£/h)

2 4 2 4 2 4

6 10 500 93 6 10 10 5,930 3,930 2,000

7 11 500 93 6 10 11 6,523 3,930 2,593

8 12 500 93 6 10 12 7,116 3,930 3,186

10 13 500 0 6 10 12 6,000 3,000 3,000

12 14 500 0 6 10 12 6,000 3,000 3,000

14 15 0 0 6 10 12 0 0 0

As can be seen in table 29, the bidding prices for generators 2 and 4 that have the highest profit , are

8 £/MWh and 12 £/MWh, respectively. The base-load generator 2 is fully loaded and the generator 4

is the marginal generator, setting the market clearing price.

For Bertrand competition the optimal bidding strategy, according to (Hao, 2000) can be expressed in

a simplified way as follows:

For a bidder who participates in a clearing price auction, three outcomes exist: winning below and on

the margin, or losing. Corresponding to these outcomes, the bid price is either the same as the

winning price, or below the winning price, or above the winning price. The bidding strategy is

described by B(ci) for a Bidder i. The probability that a bidder who wins the auction, but not on the

margin is R(B-1(bi)) and H(B-1(bi)) the probability that Bidder i wins the auction on the margin.

The common objective for bidders is to maximize their expected payoffs. Assuming the winning price

is w, the payoff π for bidder i is (w-ci) if bi wins the auction but not on the margin, and is (bi-ci) if bid bi

is on the margin. Thus the expected payoff function π bi) is the sum of above two terms weighted by

their probabilities of occurrence:

Increasing bi will increase the bidder’s payoff if Bidder i continues to set the marginal clearing price.

However increasing bi will also decrease the probability of winning. The objective for a bidder is to

select bi to balance the gain from winning against the increased probability of losing so that the

expected payoff is maximized.

And rearranging and integrating by part formula and boundary condition, the general bidding strategy

can be expressed as follows:

So, the latter equation describes the general bidding strategy given an estimate of the expected

winning price. This result shows that a bidder´s optimal bid is determined by three components: its

cost of production, the probability of winning below or on the margin and the difference between its

cost and the expected winning price (Hao, 2000).

II.4 LOCATIONAL MARGINAL PRICES: congestion included

26. Compare the bus marginal costs (i.e. LMPs) with generator prices. Try to make sense of

LMPs. Why are they equal to marginal cost for some local generators but not for all of the?

What is the regularity?

As can be seen in figure 35, the marginal costs of the buses are:

Bus Marginal Cost (£/MWh) Load (MW)

1 2.00 0

2 2.68 60

3 9.25 165

4 10.00 120

5 25.77 195

6 8.46 300

7 20.00 300

Generator Marginal Cost (£/MWh)

1 2.00

2 6.00

4 10.00

6 4.00

7 20.00

Generator 1 6 2 4 7

Maximum Output (MW) 400 500 500 200 600

Actual Output (MW) 205.6 500.0 0.0 178.1 255.9

The generators 1, 4, and 7 are the marginal generators as the bus marginal costs are the same that

the marginal costs of generation for each of them (table 30 and 31). Additionally, these generators are

not generating at their maximum capacity, as can be seen in table 32. They are called part-loaded

generators, and each of them set the marginal price at the bus where they are connected.

In general, if there are m transmission constraints in the system, there will be m + 1 marginal

generators (Kirschen, 2004).

Table 33. Transmissions lines capacities, actual power flow, and congestion

Lines Limit (MVA) Flow (MW) Congestion of the line (%)

1-2 150 140.6 93.7%

1-3 65 65.0 100.0%

2-3 80 39.8 49.8%

2-4 100 29.8 29.8%

2-5 100 100.0 100.0%

2-6 200 89.0 44.5%

3-4 100 60.2 60.2%

4-5 60 27.7 46.1%

5-7 200 67.0 33.5%

6-7(1) 200 55.5 27.8%

6-7(2) 200 55.5 27.8%

So, as can be seen in table 33, there are two transmission constraints (100% of congestion of the

lines), and that fact does make sense with the regularity of m + 1 marginal generators as generators

1, 4, and 7 are.

27. For those nodal LMPs which are not equal to the marginal costs of local generators, verify

experimentally that LMP is equal to the minimum cost of supplying extra MW of demand

without violating security constraints. Do it for node 5 as its LMP is higher than any generation

cost. To do that increase the local demand by 1 MW, see where the power to supply that extra

demand comes from and calculate the nodal LMP as the weighted average of costs of

generators supplying this extra 1 MW.

Figure 36. Optimal Power Flow including congestion of transmission with load in bus 5 increased in 1

MW

As can be seen in figure 36, the total cost of the total generation per hour, with the load in bus 5

incremented in 5 MW (load of 196 MW) is 12,793.00 £/h, value that is £ 25.77 bigger than the

situation presented in figure 35, where the total cost per hour of the generation is 12,767.00 £/h for a

load of 195 MW in the feeder connected to the bus 5.

Considering that the nodal price is defined as the cost of supplying an additional MW of demand at

that node by the cheapest means, without violating the security-constrained dispatch, therefore, can

be said that the definition is accomplished as the total price is incremented in £ 25.77 as the demand

at node 5 is 1 MW bigger (table 34) than the situation presented for question 26 (figure 35).

Bus Locational Marginal Price (£/MWh) Load (MW)

1 2.00 0

2 2.68 60

3 9.25 165

4 10.00 120

5 25.77 196

6 8.46 300

7 20.00 300

Generator 1 6 2 4 7

Actual Output (MW) 205.5 500.0 0.0 177.8 257.4

Table 36. Transmissions lines capacities, actual power flow, and congestion

Lines Limit (MVA) Flow (MW) Congestion of the line (%)

1-2 150 140.4 93.6%

1-3 65 65.0 100.0%

2-3 80 39.9 49.9%

2-4 100 29.9 29.9%

2-5 100 100.0 100.0%

2-6 200 89.4 44.7%

3-4 100 60.1 60.1%

4-5 60 27.6 46.0%

5-7 200 68.1 34.0%

6-7(1) 200 55.3 27.7%

6-7(2) 200 55.3 27.7%

As can be seen in tables 35 and 36, the extra power comes from the generator 7, mainly, and flows

through transmission line 5-7.

28. Shadow costs of the lines (i.e. values of Lagrange multipliers associated with a constraint).

Why are there only two lines with their shadow costs different than zero? What is the general

rule?

From Bus To Bus Max % of MVA Limit Lim MVA Marg. Cost (λ), Constraint

Number Number MVA (Max) MVA £/MWh Status

1 2 140.6 93.7 150

1 3 65 100 65 10 Binding

2 3 39.8 49.8 80

2 4 29.8 29.8 100

2 5 100 100 100 42.5 Binding

2 6 89 44.5 200

3 4 60.2 60.2 100

4 5 27.7 46.1 60

7 5 67 33.5 200

6 7 55.5 27.7 200

6 7 55.5 27.7 200

As can be seen in table 37, just two lines are occupied until their complete capacity (100%), as they

are line 1-3 and 2-5.

In this case, the Lagrange multiplier, λ, for all the transmission lines but 1-3 and 2-5, are equal to zero

as they still have capacity for transmission, so the constraint is not active.

For the line 1-3 the Lagrange multiplier is 10 £/MWh, that means that the saving that would accrue

each hour if the flow in branch 1-3 could be increased by 1 MW.

Equivalently, for the line 2-5, the Lagrange multiplier is 42.5 £/MWh, amount that could be saved each

hour by increasing the flow in 1 MW.

29. What is the physical meaning of a Lagrangian multiplier related to a power flow constraint?

Figure 37. Optimal Power Flow with the rating of branch 2-5 incremented in 1 MW (from 100 to 101

MVA)

As can be seen in figure 37, the total cost of generation in the system is now 12,725 £/h, value that is

smaller in 42.5 £/h than the total cost considered with a rating of 100 MW for the branch 2-5.

In this case, and as can be seen in table 37, the Lagrangian multiplier for this branch is 42.5 £/MWh.

So, the total cost per hour was reduced in the value of the Lagrangian multiplier for the mentioned

branch.

30. Calculate and compare the congestion surplus in each of three ways:

a. The difference between the payments by the loads and the generators revenues

Total

Bus 1 Bus 2 Bus 3 Bus 4 Bus 5 Bus 6 Bus 7

System

Consumption (MW) 0.0 60.0 165.0 120.0 195.0 300.0 300.0 1,140

Production (MW) 205.6 0.0 0.0 178.1 0.0 500.0 255.9 1,140

Nodal Marginal Price

2.00 2.68 9.25 10.00 25.77 8.46 20.00 78.16

(£/MWh)

Consumer payments 160.8 1,526.2 1,200.0 5,025.1 2,538.0 6,000.0

0.00 16,450.20

(£/h) 0 5 0 5 0 0

Producers revenues 1,780.9 4,230.0 5,118.7

411.18 0.00 0.00 0.00 11,540.90

(£/h) 8 0 4

Merchandising surplus (£/h) 4,909.30

Table 39. Contribution of each branch to the merchandising surplus of the seven-bus system

Lines Flow (MW) From price (£/MWh) To price (£/MWh) Surplus (£/h)

1-2 140.6 2 2.7 95.60

1-3 65.0 2 9.3 471.25

2-3 39.8 2.68 9.3 261.49

2-4 29.8 2.68 10.0 217.92

2-5 100.0 2.68 25.8 2,309.00

2-6 89.0 8.46 2.7 -514.30

3-4 60.2 10 9.3 -45.15

4-5 27.7 10 25.8 436.36

5-7 67.0 20 25.8 386.30

6-7(1) 55.5 8.46 20.0 640.59

6-7(2) 55.5 8.46 20.0 640.59

Total 4,899.63

c. Calculation of the congestion surplus utilizing the shadow cost of the transmission

lines

As can be seen on table 37, the shadow cost of the each of the branches (column MVA Marg. Cost

(λ)) is zero, except for those transmission lines that are fully loaded.

Those branches are 1-3 and 2-5, with 10 £/MWh and 42.5 £/MWh, respectively.

Where:

References

Bialek J.W. Gaming the Uniform-Price Spot Market: Quantitative Analysis [Journal] = Bialek: Gaming

the Uniform // IEEE Transactions on Power Systems / ed. IEEE. - August 2002. - 3 : Vol. 17. - pp.

768-773.

Hao S. A Study of Basic Bidding Strategy in Clearing Price Auctions [Journal] = Hao: A Study of Basic

Bidding Strategy // IEEE Transactions on Power Systems / ed. IEEE. - August 2000. - 3 : Vol. 15. -

pp. 975-980.

Kirschen D., Strbac, G. Fundamentals of Power System Economics [Book]. - [s.l.] : John Wiley &

Sons Ltd., 2004. - p. 284. - ISBN-0-470-84572-4.

Kirschen D., Strbac, G. Why investments do not prevent blackouts [Journal]. - Manchester : [s.n.], 27

August 2003. - UMIST.

PowerWorld Corporation User's Guide. Simulator Version 14 [Book]. - Champaign : [s.n.], 2009. - p.

1517.

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