646 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO.

3, AUGUST 2002

Network-Constrained Multiperiod Auction

for a Pool-Based Electricity Market
Alexis L. Motto, Student Member, IEEE, Francisco D. Galiana, Fellow, IEEE, Antonio J. Conejo, Senior Member, IEEE,
and José M. Arroyo, Member, IEEE

Abstract—This paper presents a multiperiod electricity auction Imaginary part of the admittance of line [per
market tool that explicitly takes into account transmission conges- unit].
tion and losses as well as intertemporal operating constraints such Fixed cost of the th unit [in dollars per hour].
as start-up costs, ramp rates, and minimum up and down times that
may be included in any generating unit’s composite bid. This ap- Shut–down cost of the th unit [in dollars].
proach, which requires only existing mixed-integer linear solvers, Start-up cost of the th unit [in dollars].
provides the market operator with a valuable tool for scheduling Real part of the admittance of line [per unit].
participants in a competitive market where transparency, fairness, Number of blocks of the linearization of losses.
and confidentiality of participants’ data are of paramount concern. Lower bound on the power output of the th producer
Indeed, under this framework, only network data are of public do-
main; producers are not required to reveal corporate data, and [in megawatts].
they have more flexibility in specifying the structure of their com- Upper bound on the power output of the th producer
posite bid. This paper demonstrates and illustrates, through nu- [in megawatts].
merical studies using test systems, that an efficient and fair com- Maximum capacity of the line [in megawatts].
petitive electricity market can be implemented, taking into account Ramp-down limit of the th unit [in megawatts per
network constraints and losses.
hour].
Index Terms—Congestion management, mixed-integer linear Ramp-up limit of the th unit [in megawatts per
programming, nodal pricing, pool-based electricity market, social
welfare maximization. hour]:
Shut-down ramp limit of the th unit [in megawatts
per hour].
NOMENCLATURE Start-up ramp limit of the th unit [in megawatts per
The main mathematical symbols used throughout this paper hour].
are classified below for quick reference. Scheduling time period [in hours] (here, 24 h).
Constants: Minimum downtime of unit [in hours].
Time period the th unit has been online at the be- Minimum uptime of unit [in hours].
ginning of the operation horizon [in hours]. Variables:
Slope of the th segment (or block) of the linearized Voltage angle at node in hour (in radians).
voltage angle difference relative to the nodes and Variable used in the linearization of the power loss
. in line in hours ; it represents the th angle
Time period the th unit has been offline at the be- block relative to the nodes and in hour [rad].
ginning of the operation horizon [in hours]. Value of power consumed corresponding to the th
Upper bound on the piecewise angle blocks [in block of the th load in hour [in megawatts].
radians]. Total power consumed by the th load in hour [in
Offered price of the th linear block of the energy megawatts].
produced by the th producer in hour [in dollars Value of power output corresponding to the th
per megawatt-hour]. block of the th unit in hour [in megawatts].
Offered price of the th linear block of the energy Total power produced by the th unit in hour [in
demanded by the th load in hour [in dollars per megawatts].
megawatt-hour]. Power injection at node in hour [in megawatts].
Power flow in line at node in hour [in
Manuscript received November 28, 2001. This work was supported by the megawatts].
Natural Sciences and Engineering Council, Ottawa, ON, Canada, and the Fonds
pour la Formation de Chercheurs et d’Aide à la Recherche, Québec, Canada. Power loss in line in hour [in megawatts].
The work was partly supported by the Ministry of Science and Technology of Binary variable: if the th unit is online in
Spain through CICYT Project DPI2000-0654. hour ; if not.
A. L. Motto and F. D. Galiana are with the Department of Electrical and
Computer Engineering at McGill University, Montreal, QC H3A 2A7 Canada Binary variable: if the value of the th
(e-mail: alexis.motto@mail.mcgill.ca; galiana@ece.mcgill.ca). block of angle for the line is equal to its max-
A. J. Conejo and J. M. Arroyo are with the Department of Electrical Engi- imum value, ; if not.
neering at the University of Castilla-La Mancha, Ciudad Real, Spain (e-mail:
Antonio.Conejo@uclm.es; JoseManuel.Arroyo@uclm.es). Binary variable: if the th unit is started
Publisher Item Identifier 10.1109/TPWRS.2002.800909. up at the beginning of hour ; if not.

0885-8950/02$17.00 © 2002 IEEE

MOTTO et al.: NETWORK-CONSTRAINED MULTIPERIOD AUCTION FOR A POOL-BASED ELECTRICITY MARKET 647

Binary variable: if the th unit is shut down rithm that is much less transparent than the merit order method.
at the beginning of hour ; if not. Nonetheless, the considerable improvement in computer archi-
Sets: tecture and mathematical programming has enabled some im-
Set of blocks of energy bid demanded by the th portant steps toward a comprehensive solution of this problem
consumer in hour using various techniques, among others, augmented Lagrangian
Set of transmission lines. [8], Benders’ decomposition [9], and linear programming [10].
Set of blocks of energy bid offered by the th unit in In this paper, we propose a multiperiod electricity auction
hour . market tool based solely on mixed-integer programming, which
Set of indices of the participating generating units. takes into account transmission congestion and losses as well as
Set of indices of the participating consumers. intertemporal operating constraints such as start-up costs, ramp
Mapping of the set of loads into the set of buses. rates, as well as minimum up and down times. Under this frame-
Mapping of the set of generators into the set of work, participants have more flexibility in regards to what they
buses. wish to include in their composite bid structures. This work
Set of indices of the network buses (or nodes) complements the work in [10] from several points, among the
set of indices of time periods. following:
i) a mathematical argument is given to substantiate why
I. INTRODUCTION and how the proposed market-clearing procedure will
“naturally” favor loss reduction (see Proposition in

C URRENTLY, some pool-based electricity markets operate

under a system-wide market price [1], [2], while others
have elected the approach of nodal (or “locational”) marginal
Section III);
ii) an alternative is set forth for when the premise of “nat-
ural” loss reduction does not hold (see Section III);
prices [3]. In the single-price auction, the market-clearing price iii) branch flow limits are more accurately represented;
is determined by a merit order algorithm [4]: a well-established iv) minimum up and down time constraints as well as com-
technique where all participating generators’ bids are ordered mitment and de–commitment of units are modeled.
according to increasing levels while participating consumers’
bids are ranked according to decreasing levels. The market- The remaining sections are outlined as follows. Section II
clearing price is then defined by the intersection of the aggre- presents a formulation of the pool-based electricity market
gate demand and supply curves. This method has the advantage that includes transmission–network constraints. Section III
that it is very simple to implement. presents the linearization of the network constraints suitable
A disadvantage of the single-price auction is that it has to take for a commercial mixed-integer solver such as GAMS/CPLEX
into account transmission congestion and losses through a sepa- [11]. Section IV provides some numerical insights of the
rate procedure. Under transmission flow congestion, a security proposed approach using the IEEE Reliability Test System
dispatch is performed by curtailing some generation while in- [12]. Section V provides some concluding remarks.
creasing the outputs of others. Compensation for these security
corrections is distributed among all participants. Also, once the
generation and consumption levels are determined by a merit II. FORMULATION OF THE POOL AUCTION
order algorithm, one or several slack generators must be selected A multiperiod network-constrained electricity auction for a
to supply the inevitable transmission losses. Since the loss-sup- pool-based electricity market can be modeled for all hours , all
plying generators must be compensated for this extra output, a nodes , all generators , and all lines , as follows:
mechanism must be set up to allocate a fraction of the actual
losses and its cost to each producer and consumer. For this pur-
pose, several loss allocation procedures have been developed,
with varying degrees of complexity and fairness, all of which,
however, involve some degree of arbitrariness [5]–[7]. The ul-
timate impact of all these separate heuristic procedures is to re-
duce the overall pool schedule efficiency, as well as to create po-
tentially unnecessary cross-subsidies among producers and con-
sumers. Indeed, these heuristic procedures yield approximate, (1)
nonoptimal nodal marginal prices, thereby justifying the eco-
nomic inefficiency of the single-price merit order approach.
The nodal price method solves an optimal power flow that subject to
explicitly takes account of transmission losses and congestion,
while at the same time maximizing the social welfare. Theoret-
ically, this dispatch yields the most economically efficient use
of generation, demand, and transmission resources. Despite this (2)
desirable property, in the past, the nodal price method was not
accepted worldwide mainly due to the relative complexity of
the optimal power flow step: a nonlinear numerical search algo- (3)
648 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO. 3, AUGUST 2002

(4)
(5)

(6)

(7)

(8)
(9) Fig. 1. Modeling a piecewise linear per-branch loss function.

where denotes the capacity of the line; —here

designates the sending node; and , the receiving node.
where the last equality follows from a second–order approxi-
The objective function in (1) represents the “social welfare
mation of the cosine function, which has proven to be a good
function” if every agent bids its actual data. The constraints (2)
approximation of the power loss in the line under normal
enforce the power balance at every node and every hour. The
operation. We hasten to mention that a second–order approxi-
constraints (3) enforce the line flow limits at every hour. The
mation of the cosine and sine functions is not necessary for the
constraints (4) and (5) are operating constraints that specify that
tool proposed in this paper. However, this supports a substantial
if a generator is scheduled, its power output must be within a cer-
reduction in computer storage requirement, which could also be
tain range represented by a minimum output and a maximum
a considerable gain in computational speed where it is needed.
output . The other constraints included in the formulation
In the sequel, we use the second–order approximation of the co-
above are the ramp-down and shut-down ramp constraints, (6),
sine and sine functions.
and the ramp-up and start-up ramp constraints (7). Constraints
A linear approximation of can be obtained using
(8) and (9) are further conditions imposed by the start-up and
piecewise linear blocks as shown in Fig. 1. A similar lin-
shut-down operating logic [13]. Note that, in all of our numer-
earization with blocks was used in [15]. However, we will
ical results, we have also included the linear version of minimum
show later that only piecewise linear blocks are sufficient
up and downtime constraints that are relevant to thermal units.
to take into account system losses and congestion with even
However, for the purpose of simplicity and conciseness, we will
fewer real and no integer variables compared with the approach
refer the interested reader to the Appendix or to [14] for further
adopted in [15].
explanation of these specific constraints.
In order to reduce the linearization to the positive orthant only,
we introduce the following definitions:
III. LINEARIZATION OF THE NETWORK CONSTRAINTS
(13)
In this section, the subscript is dropped for notational sim-
plicity. Otherwise, it would appear in every variable and con- (14)
straint. Also, all of the expressions presented below apply to
every transmission line. Therefore, the indication
will be explicitly omitted, except where it is needed for clarity.
(15)
Suppose . For normal operation, under the flat
voltage assumption, the real power flow in the line com-
puted at bus , , and the real power flow in the line where and denote, respectively, the slope and
computed at bus , are given by value of the th block of angle. Constraints (13) define a
new variable for each line as the absolute value of the
(10) difference of the voltage angles at both nodes of the line.
Constraints (14) state that the absolute value of the angle
(11) difference between two nodes is equal to the sum of the values
in each block of the linearization. Constraints (15) substitute a
where , is the admittance of the line . linear expression for the nonlinear loss in line . A linear
The power loss in the line , can be obtained expression of the absolute value in (13) is needed, which is
as follows: obtained by means of the following substitution [16]:

(16)
(17)
(12) (18)
MOTTO et al.: NETWORK-CONSTRAINED MULTIPERIOD AUCTION FOR A POOL-BASED ELECTRICITY MARKET 649

Using the above linear expressions, the real power flow in of the linear approximation of the power loss function need not
the line computed at bus , and at bus , be stored because a simple expression of the slope of the blocks
, can be cast as follows: of angles for all lines can be used, that is

(28)
(19)
Although the linear expressions of the power flow in each
line are necessary, it is not sufficient to enable the use of a
mixed-integer linear programming solver in solving a network-
constrained auction for pool-based electricity market models. A
(20) linear substitute for the “ ” function in (3) must be found,
which may be done by the following equivalence of constraints:
In the same vein, the power injected into a node ,
can be written as

(21)
(29)

Replacing with its piecewise linear expression, which entails replacing (3) with two sets of constraints, thereby
(15), and using a second–order approximation for increasing the number of rows of the resulting linear program.
produces Alternatively, (3) can be recast without increasing the number
of rows as

(30)
(22)

To complete the piecewise linearization of the power flows
and line losses, the following set of constraints may be needed
to enforce adjacency of the angle blocks. However, it will be
shown that they are not necessary if the nodal angle differences
are sufficiently small or, in practice, if they are within the range
of normal operation
(23)
(24)
(25)
(26)
(27)
Constraints (23) and (24) set the upper limit of the contribu-
tion of each angle block to the total angle difference between
nodes and . This contribution is non-negative, which is ex-
pressed in (26), and bounded above by , the “length” of each
segment of angle (24). Adjacency may be enforced by a set of
binary variables , through the logic
in (23)–(25). For example, if , then (25) ensure
that , while (23) and (24) ensure that
. Finally, constraints (27) state
that the variables are binary.
It should be noted that although we have used a uniform dis-
cretization of the domain of the angle, a more general nonuni-
form linearization could be used so that each block has a desired
length. On the algorithmic side of things, though, this would
require more memory to store the different length segments in
contrast to the single segment length . Moreover, the slopes
which follows from (19) and (20) and the fact that system losses
are non-negative, and is nonpositive. Thus, we only have
to eliminate the “absolute value” function introduced in (30).
Using (13) and reshuffling produces
(31)
The above constraints state that the power flow in line ,
computed at the sending and receiving nodes, must be less than
the maximum capacity of the line. It should be noted that no
integer variable is required in the equivalent set of constraints,
which means, on the algorithmic side of things, that no addi-
tional node is generated using a branch-cut solution approach
[17].
We will now show that the adjacency of the angle blocks does
not need to be enforced explicitly. In other words, we claim that
the constraints (23)–(27) can be reduced to the following:
(32)
(33)
This is another significant result, as it supports the consid-
eration of network congestion and losses in electricity auction
markets without the need for integer variables other than those
required to model the intertemporal constraints of generating
units. The following result will be useful.
Lemma (Strict Local Convexity of System Losses): The
vector function of system losses, with elements , for all
, is locally, strictly convex in a neighborhood of 0.
650 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO. 3, AUGUST 2002

Proof: Substituting for in (10) and differentiating

twice yields

for sufficiently small (34)

(37)
where the third equality holds within a sufficiently small neigh-
borhood of 0, and the last equality is partly justified because which can be rearranged after division by and
under normal power–system operation (the sign of for the first and second equalities, respectively, as
the cosine function around zero being trivial). A similar argu-
ment can be made to prove the strict local convexity of . Ob-
serving that is the sum of and , a diagonal matrix of
system losses can be formed whose Hessian is readily shown to
be positive definite by evoking the additive property of convex
functions. (38)
As a corollary, the strict local convexity of system losses en-
tails that for sufficiently small angles, which is the case under Suppose that there exists so that , that
normal power–system operation, we have is, the th angle block is at its upper bound. From the KKT
conditions, we have and . Thus, the following
(35) inequality must be true:

Another useful result of this paper is formally stated in the (39)

following proposition:
Proposition (Adjacency Condition): Suppose and
let be a block of angle used in the linearization Now, suppose that . From the optimality con-
illustrated in Fig. 1. Furthermore, assume that the loss function ditions, we have , which produces
is locally, strictly convex. Then, entails
for all and .
The Adjacency Condition (Proposition) states that it is always
best to set before taking for any
(40)
. As a consequence, the integer variables in
(23)–(27) can be avoided, thereby achieving a significant gain
in computational speed and storage. where the inequality holds because , and
Proof: We will prove the adjacency condition by reductio (see Lemma). This contradicts (39); therefore,
ad absurdum. Let be any feasible instance of where . Now, suppose that and
the variables , , and , , and are determined. or, equivalently, that the corresponding constraints (32) and (33)
A Karush–Kuhn–Tucker (KKT) condition [18] for relative are inactive. From the optimality conditions, we have
to can be written as follows: . Again, a contradiction can be readily established
mutatis mutandem of the previous argument.

(36) IV. NUMERICAL EXAMPLE

where
KKT multiplier associated with the nodal power
balance equation (2) after replacing with
its piecewise linear approximation (22);
KKT multiplier associated with the flow constraint
(31);
KKT multiplier associated with the lower bound
constraint (32);
KKT multiplier associated with the upper bound
constraint (33);
KKT multiplier associated with (14). Therefore
The proposed approach is applied to the IEEE Reliability Test
System [12] for a day-ahead market. Congestion is artificially
created by decreasing the capacity of line (14, 16) to 350 MW. It
is assumed that all generators’ data are the submitted bids con-
sisting of piecewise linear incremental costs with as many slopes
as the number of incremental heat rate blocks (see [12, Tab. 9]).
The conversion rates from BTU to dollars for each type of fuel
are from [19], that is, #6 oil $2.3/MBTU, #2 oil $3.0/MBTU,
coal $1.2/MBTU, and nuclear $0.6/MBTU, respectively. For ex-
ample, the piecewise incremental cost segments of the 12-MW
generating unit are provided in Table I. Moreover, aside from
the hydro-units, the upper limit of Block 1 is considered as the
MOTTO et al.: NETWORK-CONSTRAINED MULTIPERIOD AUCTION FOR A POOL-BASED ELECTRICITY MARKET 651

TABLE I
PIECEWISE LINEAR INCREMENTAL COST OF #6 OIL UNIT

Fig. 3. (a) Hourly total generation and (b) system losses.

Fig. 2. Hourly scheduling of some generating units.

minimum power output of the corresponding unit. For example,

the minimum output of the 12-MW generating unit is 2.40 MW.
The start-up cost used for every unit, except for hydro and
nuclear units, is the hot start-up cost listed in [12, Tab. 8]. Ramp
rates, minimum up and downtimes can be found in [12, Tab. 10].
The hourly load demand used in this section is also computed
from [12] corresponding to Tuesday, Week 51, Winter Week Fig. 4. (a) Time and (b) space variations of nodal prices.
Day (Tables II–V). To enable a better illustration of unit com-
mitment and decommitment, the demand in hours 1 and 2 has
Fig. 3 shows the hourly total generation (a), and the hourly
been increased by 10%, and that in hours 11 through 19 has been
system losses (b). System losses from 2 to 4% of the total gen-
decreased by 50%. Moreover, the ramp-up and ramp-down rates
eration have been accounted for in this approach. The fact that
have been replaced by 70% of each unit’s capacity to create ac-
there are more losses in low demand periods is mainly justified
tive ramp constraints. Finally, the unit U350 is considered to
by the scheduling of generators located at different nodes of a
have been offline for 46 h at the beginning of hour 1.
constrained network with losses. In other words, the scheduling
All of the results have been obtained using GAMS/CPLEX
in low demand periods is different from that in high demand
7.0 [11] on an HP Pentium III PC with 128-MB RAM). An
periods. Fig. 4 shows the temporal and spatial variations of the
optimal solution has been reached within 6.40 min of CPU time.
minimum and maximum nodal prices. Note that the high nodal
Fig. 2 shows the schedules for some of the generating units,
prices in hour 19 do not result from network congestion but from
namely, U12, U76, U100, U155, U197, and U350. Both nuclear
the schedule of units with higher incremental costs to supply
units (U400) are scheduled at full capacity over the 24-h period,
the highest hourly demand. Actually, a heavier congestion does
except in the first hour, wherein they produce 280 MW due to
occur on line (14, 16) in hour 22, which produces a nodal price
the ramp-up constraint.
of $24.86/MWh at node 14, that is, the highest in that hour.
Several observations can be made, among other things, the
minimum up-time constraint is active for U12 from 1 to 4 and
V. CONCLUSION
from 18 to 21 h; the minimum up-time constraint is active for
U197 from 1 to 12 h; the minimum down-time constraint is ac- A market-clearing tool for a network-constrained multiperiod
tive for U100 from 10 to 17 h; the ramp-down constraint is active auction for pool-based electricity markets has been proposed.
for U76 from hour 9 to 10; the ramp-down constraint is active This approach does not require a separate procedure to allocate
for U155 in the first hour; and no time coupling constraint is the unavoidable network losses, nor does it require any con-
active for U350. gestion management procedure. The approach preserves market
652 IEEE TRANSACTIONS ON POWER SYSTEMS, VOL. 17, NO. 3, AUGUST 2002

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where , and
.
Equations (A1) enforce the minimum up-time constraints for Alexis L. Motto (S’99) received the Dipl.Ing. degree from Ecole Supérieure
Interafricaine de l’Electricité in 1993, the Master of applied computer science
every unit that has been online at hour 0 for a time period not degree from Ecole Polytechnique, Montreal, QC, Canada, in 1996, and the Ph.D.
exceeding their minimum up-time. Constraints (A2) enforce the degree from McGill University, Montreal, in 2001.
minimum up-time logic for all sets of consecutive hours of size He is currently a Postdoctoral Research Fellow at McGill University. His re-
search interests are in the fields of mathematical optimization, systems control,
. Constraints (A3) enforce the minimum up time logic for and computer science, with applications to equilibrium modeling in energy and
the last h, that is, if unit is started up in one of communication systems.
these hours, it must remain online until the end of the operation
horizon. Constraints (A4)–(A6), which enforce the minimum
down time logic, are derived from (A1)–(A3) by substitution
of , , , and with , , , and ,
respectively. Francisco D. Galiana (F’91) received the B.Eng. (Hon.) degree from McGill
University, Montreal, QC, Canada, in 1966 and the S.M. and Ph.D. at the Mass-
achusetts Institute of Technology (MIT), Cambridge, MA, in 1968 and 1971,
respectively.
REFERENCES He spent some years at the Brown Boveri Research Center and held a faculty
position at the University of Michigan, Ann Arbor, MI. He joined the Electrical
[1] R. Green and D. Newbery, “Competition in the British electricity spot Engineering Department of McGill University in 1977, where he is currently a
market,” J. Political Econ., vol. 100, no. 5, pp. 929–953, Oct. 1992. Full Professor.
MOTTO et al.: NETWORK-CONSTRAINED MULTIPERIOD AUCTION FOR A POOL-BASED ELECTRICITY MARKET 653

Antonio J. Conejo (SM’98) received the B.S. degree from the Universidad
P. Comillas, Madrid, Spain, in 1983, the M.S. degree from Massachusetts Insti-
tute of Technology, Cambridge, in 1987, and the Ph.D. degree from the Royal In-
stitute of Technology, Stockholm, Sweden in 1990, all in electrical engineering.
He is currently a Full Professor at the Universidad de Castilla-La Mancha,
Ciudad Real, Spain. His present research interests include control, operations,
planning, and economics of electric energy systems, as well as optimization
theory and its applications.
José M. Arroyo (S’96–M’01) received the Ingeniero Industrial degree from
the Universidad de Málaga, Málaga, Spain in 1995 and the Ph.D. degree in
power–system operations and planning from the Universidad de Castilla-La
Mancha, Ciudad Real, Spain, in 2000.
He is currently Assistant Professor of electrical engineering at the Univer-
sidad de Castilla-La Mancha. His present research interests include operations,
planning, and economics of electric energy systems, as well as optimization and
parallel computation.