EE 369

POWER SYSTEM ANALYSIS

Lecture 17
Optimal Power Flow, LMPs

Tom Overbye and Ross Baldick

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 Announcements
Read Chapter 7 (sections 7.1 to 7.3).
Homework 12 is 6.62, 6.63, 6.67 (calculate
economic dispatch for values of load from
55 MW to 350 MW); due Tuesday, 11/29.
Class review and course evaluation on
Tuesday, 11/29.
Midterm III on Thursday, 12/1, including
material through Homework 12.

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 Electricity Markets
• Over last 20 years electricity markets have
moved from bilateral contracts between
utilities to also include centralized markets
operated by Independent System
Operators/Regional Transmission Operators:
– Day-ahead market that establishes unit
commitment and “forward financial positions,”
– Real-time market, run every 5 or 15 minutes that
arranges for physical dispatch, the “spot” market.
• Basic “engine” for operating centralized
markets is Optimal Power Flow (OPF). 3
 Electricity Markets
OPF is used as basis for day-ahead and real-
time dispatch pricing in US ISO/RTO electricity
markets:
MISO, PJM, ISO-NE, NYISO, SPP, CA, and ERCOT.
Electricity (MWh) is treated as a commodity
(like corn, coffee, natural gas) but with the
extent of the market limited by transmission
system constraints.
Tools of commodity trading have been widely
adopted (options, forwards, hedges, swaps).
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Electricity Futures Example

Source: Wall Street Journal Online, 10/30/08 5

 “Ideal” Power Market
Ideal power market is analogous to a lake.
Generators supply energy to lake and loads
remove energy.
Ideal power market has no transmission
constraints
Single marginal cost associated with enforcing
constraint that supply = demand
– buy from the least cost unit that is not at a limit
– this price is the marginal cost.
This solution is identical to the economic
dispatch problem solution. 6
 Two Bus ED Example
Total Hourly Cost : 8459 $/hr
Area Lambda : 13.02

Bus A Bus B

300.0 MW 300.0 MW
199.6 MW 400.4 MW
AGC ON AGC ON

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Market Marginal (Incremental)
Cost
Below are some graphs associated with this two bus system. The graph on left
shows the marginal cost for each of the generators. The graph on the right
shows the system supply curve, assuming the system is optimally dispatched.

16.00 16.00

15.00 15.00

14.00 14.00

13.00 13.00

12.00 12.00
0 175 350 525 700 0 350 700 1050 1400
Generator Power (MW) Total Area Generation (MW)

Current generator operating point

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 Real Power Markets
Different operating regions impose constraints
– may limit ability to achieve economic
dispatch “globally.”
Transmission system imposes constraints on
the market:
Marginal costs differ at different buses.
Optimal dispatch solution requires solution by
an optimal power flow
Charging for energy based on marginal costs
at different buses is called “locational
marginal pricing” (LMP) or “nodal” pricing. 9
 Pricing Electricity
 LMP indicates the additional cost to supply an
additional amount of electricity to bus.
 All North American ISO/RTO electricicity markets
price wholesale energy at LMP.
 If there were no transmission limitations then the
LMPs would be the same at all buses:
 Equal to value of lambda from economic dispatch.
 Transmission constraints result in differing LMPs at
buses.
 Determination of LMPs requires the solution of an
“Optimal Power Flow” (OPF).
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 Optimal Power Flow (OPF)
OPF functionally combines the power flow
with economic dispatch.
Minimize cost function, such as operating
cost, taking into account realistic equality and
inequality constraints.
Equality constraints:
– bus real and reactive power balance
– generator voltage setpoints
– area MW interchange
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 OPF, cont’d
Inequality constraints:
– transmission line/transformer/interface flow
limits
– generator MW limits
– generator reactive power capability curves
– bus voltage magnitudes (not yet implemented in
Simulator OPF)
Available Controls:
– generator MW outputs
– transformer taps and phase angles 12
 OPF Solution Methods
Non-linear approach using Newton’s method:
– handles marginal losses well, but is relatively slow
and has problems determining binding constraints
Linear Programming (LP):
– fast and efficient in determining binding
constraints, but can have difficulty with marginal
losses.
– used in PowerWorld Simulator

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 LP OPF Solution Method
Solution iterates between:
– solving a full ac power flow solution
enforces real/reactive power balance at each bus
enforces generator reactive limits
system controls are assumed fixed
takes into account non-linearities
– solving an LP
changes system controls to enforce linearized
constraints while minimizing cost

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 Two Bus with Unconstrained Line
With no
overloads the Transmission line
OPF matches Total Hourly Cost : 8459 $/hr is not overloaded
Area Lambda : 13.01
the economic
dispatch

Bus A 13.01 $/MWh Bus B 13.01 $/MWh

300.0 MW 300.0 MW
197.0 MW 403.0 MW
AGC ON AGC ON

Marginal cost of supplying

power to each bus (locational
marginal costs)
This would be price paid by load
and paid to the generators. 15
 Two Bus with Constrained Line

Total Hourly Cost : 9513 $/hr

Area Lambda : 13.26

Bus A 13.43 $/MWh Bus B 13.08 $/MWh

380.0 MW 300.0 MW
260.9 MW 419.1 MW
AGC ON AGC ON

With the line loaded to its limit, additional load at Bus A must be supplied
locally, causing the marginal costs to diverge.
Similarly, prices paid by load and paid to generators will differ bus by bus.
(In practice, some markets such as ERCOT charge zonal averaged price to load.)
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 Three Bus (B3) Example
Consider a three bus case (bus 1 is system
slack), with all buses connected through 0.1
pu reactance lines, each with a 100 MVA limit.
Let the generator marginal costs be:
– Bus 1: 10 $ / MWhr; Range = 0 to 400 MW,
– Bus 2: 12 $ / MWhr; Range = 0 to 400 MW,
– Bus 3: 20 $ / MWhr; Range = 0 to 400 MW,
Assume a single 180 MW load at bus 2.

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B3 with Line Limits NOT Enforced
60 MW 60 MW
Bus 2 Bus 1
10.00 $/MWh

0.0 MW 10.00 $/MWh

120 MW 180.0 MW
120%
0 MW
60 MW
120% 120 MW
Total Cost 60 MW
1800 $/hr Line from Bus 1
Bus 3 10.00 $/MWh to Bus 3 is over-
180 MW loaded; all buses
have same
0 MW marginal cost
(but not allowed to
dispatch to overload
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line!)
 B3 with Line Limits Enforced
20 MW 20 MW
Bus 2 Bus 1
10.00 $/MWh

60.0 MW 12.00 $/MWh

100 MW 120.0 MW
100%
0 MW
80 MW
100% 100 MW
Total Cost 80 MW
1920 $/hr
Bus 3 14.00 $/MWh LP OPF redispatches
180 MW to remove violation.
Bus marginal
0 MW costs are now
different.
Prices will be different
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at each bus.
 Verify Bus 3 Marginal Cost
19 MW 19 MW
Bus 2 Bus 1
10.00 $/MWh

62.0 MW 12.00 $/MWh

100 MW 119.0 MW
81% 100%
0 MW
81 MW
81% 100% 100 MW
Total Cost 81 MW
1934 $/hr
Bus 3 14.00 $/MWh
181 MW One additional MW
of load at bus 3
0 MW raised total cost by
14 $/hr, as G2 went
up by 2 MW and G1
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went down by 1MW.
 Why is bus 3 LMP = $14 /MWh ?
All lines have equal impedance. Power flow in
a simple network distributes inversely to
impedance of path.
– For bus 1 to supply 1 MW to bus 3, 2/3 MW would
take direct path from 1 to 3, while 1/3 MW would
“loop around” from 1 to 2 to 3.
– Likewise, for bus 2 to supply 1 MW to bus 3,
2/3MW would go from 2 to 3, while 1/3 MW
would go from 2 to 1to 3.

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 Why is bus 3 LMP $ 14 / MWh,
cont’d
With the line from 1 to 3 limited, no additional
power flows are allowed on it.
To supply 1 more MW to bus 3 we need:
– Extra production of 1MW: Pg1 + Pg2 = 1 MW
– No more flow on line 1 to 3: 2/3 Pg1 + 1/3 Pg2 = 0;
 Solving requires we increase Pg2 by 2 MW and
decrease Pg1 by 1 MW – for a net increase of
$14/h for the 1 MW increase.
That is, the marginal cost of delivering power
to bus 3 is $14/MWh. 22
Both lines into Bus 3 Congested
0 MW 0 MW
Bus 2 Bus 1
10.00 $/MWh

100.0 MW12.00 $/MWh

100 MW 100.0 MW
100% 100%
0 MW
100 MW
100% 100% 100 MW For bus 3 loads
Total Cost100 MW
above 200 MW,
2280 $/hr
Bus 3 20.00 $/MWh the load must be
204 MW supplied locally.
Then what if the
4 MW bus 3 generator
breaker opens?

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 Typical Electricity Markets
Electricity markets trade various commodities,
with MWh being the most important.
A typical market has two settlement periods:
day ahead and real-time:
– Day Ahead: Generators (and possibly loads)
submit offers for the next day (offer roughly
represents marginal costs); OPF is used to
determine who gets dispatched based upon
forecasted conditions. Results are “financially”
binding: either generate or pay for someone else.
– Real-time: Modifies the conditions from the day
ahead market based upon real-time conditions. 24
 Payment
Generators are not paid their offer, rather they
are paid the LMP at their bus, while the loads
pay the LMP:
In most systems, loads are charged based on a
zonal weighted average of LMPs.
At the residential/small commercial level the
LMP costs are usually not passed on directly to
the end consumer. Rather, these consumers
typically pay a fixed rate that reflects time and
geographical average of LMPs.
LMPs differ across the system due to
transmission system “congestion.” 25
 LMPs at 8:55 AM on one day
in Midwest.

Source: www.midwestmarket.org
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LMPs at 9:30 AM on same day

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MISO LMP Contours – 10/30/08

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Limiting Carbon Dioxide Emissions
• There is growing concern about the need to
limit carbon dioxide emissions.
• The two main approaches are 1) a carbon tax,
or 2) a cap-and-trade system (emissions trading)
• The tax approach involves setting a price and
emitter of CO2 pays based upon how much CO2 is
emitted.
• A cap-and-trade system limits emissions by requiring
permits (allowances) to emit CO2. The government
sets the number of allowances, allocates them
initially, and then private markets set their prices
and allow trade.
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