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rfd"|D.i

Figure6.5TheCaiifonuaISOsnd powermarket6.4 TradingArrangementsItispos sib letoconceptualiseandmodel(henew tradingstructuresititoafewaltemativecategories asdiscussedbelow.6.4.1 ThePoolInthepoo lmodelsbowninFigure6.6,competitionisinitiatedinIhegenerationbus ines s

bycreatingmorethanoneCencoandisgradualiybro ugh itothedistributionsidewhcrerelailerscouldbeseparatedfromDiscosandwhereconsumerscouldbe aowedtaphaseinachoiceofretailsupply.TheIransmissionsyatcmiscentrallycontrolledbyacombinatiouofanindcpendentsysleinoperalorandapower exchange(ISO+PX)whichisdisassociatcdfromalimarketpar ticipan lsand ensuresopenaccess.TheISO+PXopralestheelectricitypoo ltofKrformaprice-baseddspatchandpro videsaforumforscttingthe systempn cesandbandl ing electricitytrades.Hedgingcontractsbecomeaniajoroptlonandarepopu larintheE&Wsystemundertheame'ContractsforDifTerencc'.Therestructuring modeisin Chile,ArgentinaandEastAustraliaaiso failintethis categorywithsomemodifications tothe bas ic structureofFigure 6.6.

I yEnergysales Energy flow -4......CoordinationFigure6.6Trading inthepowerpool

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6.4.2 PoolandBilateralTradesThemost likelyarrangement,whichwillemergeinpmcticalsystems inthefiiture,isthatapoolwillcxistsmultaneouslywithbilateralandmultilateraltransactions.Thesignificantdifferencebehveenthismodelandthepoolmodelisthatthetransmissionsectorisanbundiedintoa'market'sectoranda'security'sector(sceFigure6,7).Inthemaitetsector,therearemltipleseprateenergymaricets,conlainiagapoolmarkettakencareof

bythePXandbilateralcontractsestabshed

bytheSCs.TheISOis

responsiblefor

system

operatioiiandgiiaranticssystemsecurityandinoperatioaalraattershoidsasuperiorpositionoverthePXandSCs.Theexistenccofapowerpooiignomandatoryinthismodelbutwillinvariablybethecase.Marketparticipantsmaynotoniybidintothepoolbutalsoraakebilateralcontractswitheachother.TTiercfore,thismodelpiX)vi(iesmoreflexibleoptionsfortransmissionaccess.TheCaliforniamodelisarepresentativeofthiscategory.TheNordicmodeiandtheNewZealandmodelalsofallintothiscategorywithsomemodifications.OlhermodeissuchastheNewYorkpowerpool(NYPP)andthePJMmodelfallsomewhere inbetweenthesn threecategories.

Thepowersysteminthenewenvironmentcouldbefurtherdisaggregatedandreference[9]hasproposodafullydisaggregatedcompetitiveelectriciymarket.Themodelenvisageswhatitcalis'eo-ordinfltedmultilateraltrading'andcompletelydispenseswiththePXinfavourofamultitudeofindividualmarket-driventransactions.

Gencos

Energysales Energylow CoordinationFigure6.7Ttwlingwithpcxiiandbilateralcontracts.'f.S MuliilateralTradesMuililateialtradesareageneralsationofbaleraltransactionswhereanSCorpowerbrokerpu!stogetheragroupofenergyproducersandbuyerstoformabalancedtransaction.Inpractice,raultiiatcra!andbilateraltransactionswlcoexisiwithapowerpool.ConceptuallytheextremecaseiswheretheconceptsofpoolandthePXdisappearintothismult-marfcetstmctureasillustratedinFigure6.8.EachmarketismauagedbyanSCorabrokerunderitsindividualrules.Differencesintherulesofthedifferentmarketscouldgiverisetodifferentstratcgiesforparticipajits.Inthismodel,theISOisaMicroISOwhoseobjectivesarerestrictedtoopcrationandsecurity,Thecontractsinlseenergymarkelswillberespecledby theISOwithoutdiscrimination.Oniywhensystemsecurityisthreatenedwil!theISOintafereinmanagingcontracteddispatches,Changesintheelectricitysupplybusinessbringopportunitiesfornewparticipants.Manyofthenewentrantswillbeintermediarie;e,g.SCsareaggregatorsforbetterdeals.Marketers,whobuyandIhenresellelectricitysupplycontracts,andbrokerswhoarrangetransactionsbetweenbuyersandsellers,wUfenterthemarkets,Theseintermediarieswillhaveaconstructiveroleinpromotingcompetitionbutthereisalsothedangerofpriccvolatilityandmarketinstabilityandmanyconcemshavebeenvoiced.Furthermore,somecompaniesmayplaymorethanoneroleinthisscenario.Forinstance,aCencocouldalsobeabrokeroramarketerandmanybusinessacquisitions haveareadytakenplace.

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Geneos

SCs

ReiailmV

c:> Enerf(Ysales

ConsumcrsEncrRyflowM........Coordination

Figure6.8Stmcturewithbilatcral/muUibtora)tradcsonlyChangosiiithcindustryalsobringopportunitiestomanageriskassociatedwitha

competitiveenvironment.Inordertohedgeagaiiistpricevolatjiilyduetomarketeompetition,fuelavailabitityandloadfluctuations,financia)instruments,suchasContraisforDifferencesandotherforwardmarketvariations,areuaed.Futurescontrais,inwhichtherighttotakedeliveryofelectricitycanbeboughtorsold,areanothertoolfortrading

186_ TowerSystem RcstnictiiringandDeregulationoffpriceandrisk.Forejcampie,futuresmarketshavebeensetupintheNord Poo!andtheUSA.Thedistinclionbetweenaforwardmarketandafuturesmarketisthatthcformerrcgulatcsspecictransactionsatidisatechnicalandeconomicnstninientwhile thelatterisapurelyfinancial instrument tradablcinafuturesexchange.6.5 TransmissiotiPricinginOpen-accessSystems6.5.1 Int roducl ionAkeyfeatureoftheopenIransmissionsysteminanunbundicdcnviroruncnt istheneedtoehargeallcustoraersonanon-discrimioatorybasisfortransmissionservices.Derivationofchargcsforthedierentkindsoftransmissionservicesshouldbesimpleandtransparentandthesignisibesechargesprovideshouldbestable,'Correct'pricingoftransmissionservicesisusefulinprovidingeconomicsignisforcfTicientshort-runoperations,recoveryofcosts,long-termcapital investmentsmdfairallocationofcostsamongparticipants.

Therearefivelypesofcostsassociatedwithtransmissionservices;operatitigcosts,capitalorembeddedcosts,opportunitycoste,reliabilitycostsandsystemexpansincosts.Thesearedescribedbrieflybelow.

Operatingcostsinciudetransmissionlosses,costsincurredbygenerationredispaichduetooperatingconstraintssuchastransmissionandbusvoltagelimits,co.stsincurredintheprevisinofancillaryservicesandmanagement andmaintenanceexpenses,

Recoveryofcapitalcontaofthe transm.ssionsystemovcrthelifetimeofthefacilitiestalikelytobelargerthantheoperatingcoatsofthegridsystem.Individualtransmissionfaciliticsarevariablyloadedassystemconditionschangewithtime,andtheextenttowhichanyparticularsupplier-to-consumertransmissiontransactionutilisesatiyparticularcircuitisdilTicultlodiscem.

ISO

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Opportunitycostsaiethebenefitsthatthegridcompanyforgoesasaconsequenceofoperatingconstraintsthatariscowingtoaspecifctramaction,Eachtransmissiontransactionmaychangetheservicereliabilityleve!andthisafectsexpcctedoulagecostandheneeresultsinreliabillycosts.Reliabilitycostsareverydifficulttoassessbecausetheyarerelatedtomanyfactorssuchasthetiraing,theduration,theextentoftheserviceoutage,thebackuppoweravaabletothecustomerandcustoraerlocation.Thesecostshavebcenignorad inthepastindesigning transmission servicerates.

fyi-iemexpansincostsincludeinvestmenttoaccommodatenewusersandtheextrenielyimportantissueoflong-temitransmissionexpansininctevelopingcountries.

Transmissionpr idngisoncofthemostcoraplicatedissuesinrestnicturingelectricitysupplybecaiiseofthephysicallawsthatgovempowerflowinthetransmissionnetwork,andtheneedtobalancesupplyanddemandatalltimes.Sincegeneratorsandcustomersareaconnectedtothesamenetwork,actionsbyonepaiticipantcanhavesignicantconsequencesonothersmakingitdificulttoinvestgatethecosteachparticpantisresponsiblefor.Inadditiontooperatingcosts,enibeddedcostsandfinancngoffutureexpansinshouldbereflectedinthetariffstructure.Sinceembeddedcostsinthetransnnissionsystemareverylargecomparedwithoperatingexpenses,ilisespeciallyimportanttodcsignareasonablepricingstructureforitsreeoveiyximallparticipantsonareasonablebasis.Astoexpansin,itislargclydrivenbypocyobjectives.

Thercarethieemainpricingparadigms;rolled-inmeiods,incremcntalraethodsandcompositeembeddcd/incremental(marginal)methods[10].Abriefintroductionisprovidedbelo>'followedbyaconcisedescrptionofthetransmissionpricingmcthodusedin theNGC,UK.6.5.2 Rolled-inPricingMethodsThesimple.itmethodofchargingfortransmissionservicesistheso-cal!edpostagestampmethod,whchdcpendsoniyontheamountofpowermovedandthedurationofuse,irrespectiveofsupplyanddeverypoints,distanceoftransmissionusagcorthedistributionofioadingimposedondifferenttransmissioncircuitsbyaspecifctransaction.Themaindisadvantageof thismethodistheigncH'anceoftheimpactofanyparticulartransactiononactualsystemoperalions.Asaresult,itislikelyosendincorrecteconomicsignistouscrs.Aparticpantwhousestheliansmisaionsj'stemightly,i.e.atashortelectricaldistance,actuallysubsidisesotherswhousethesystemheavily.Obviously,thismethodisnotequitableamongusers.

TTieMW-Miiemethodisanattempttocompnsatefortheseshortcomings.Thebasicconceptisthattheloadingofeachtransmissionneduetoeachtransactionistobeobtainedseparateiy;thisismultipedbythe linelengthandthensuntmedoveralllinasinthegridtoobtainameasureofhowmucheachtransactionusesthegrid. Differenttransactonsarethenchargedinptoportiontotheirutilisationofthegrid,Negieetingtemporalconsiderationsthismaybeexpressedmathematicallybysetting thechargeleviedontraijsaction Twhere

(6.1)andPj.jistheloadingoflinejduetotransactionTFjistherevenuerequiredfromthislic. hastobecomputedusingasaisitivitymethodorsomelinearisedapproach.

TTieMW-MilemethodisamoreequitableapproachfortransmissionpricingbntcontinestosuerfromthedefectsofiumpingoperatingandembeddedcoststogetherandfromafailuretodistinguishbetweentherelativeimportanceofdifferentUnesforthesecuteoperationofthesystemasawholeandtotherehabilityofeachtransmissiontransactioc.

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6.5.3 ncremental(Marginal)PricingMethod.

Thismethoddeterminespricesforpowerateachbusofthesystemaccountingforallcostsandtransmisstonconstraints.ThenodalpricesaretypicallycalculatedasdualvariablesorLagrangemultipliersofanoptimalpowerflow(OPF)calculation[11],Marginaltransmissionpnces ,ortnarginalwheelingratesastheyaresometimescalled,arederiveddirectlyfromnodalprices.IfMP/andMP,arethemarginalnodalpricesofelectricilyatbusesiandj, thetnarginal transmissionpnceisMP,-MPjand isameasureofwhat itcoststhegrid toacceptanadditionalunitofpoweratiandtodcliveritatj.

Short-nmnodalpnces changedynamicallyasafinctionofloaddistributions,systemsiructureandgenerationoutputpatterns.Therefore,theymustberecomputedonaperiodic

basis.Thispricingschemercflectsonlyoperatingcosts,sothatcapitalrecoveryandmanagemetit

cosmustbeadded.Amajor

advantage

ofthismethodisthattheright

operationalpricingsignisarerevealed.ThemajordisadvantageisIhenecdforaseparaterevenuereconciliation exercise.

Thispricingschemehasthrceirtherdisadvantages.Thefirstistheintensereal-timecomputationaleffbrtrcqutrcd.ThesecondIstheIncentiveproblcm;Ihismethodproducesa

perverseincentiveforthemoDopolytransmissionownertocause,ornottorelieve,constraints.Anotherdisadvantageis thedramaticvolatilityofthepnce.Uptonow, thereisnofiillyoperativeexampleofnodalpiieingin theindustry.

Thenodalpricingmethodcanbeappliedtothepricingofrealaswellasreactivepower[12],Thepricingofrealpowercanbecaniedout,approximateiy,solelybyusingaDCloadflowmodel.Howe\'er,thepricingofreactivepowerhastobedoneusinganACloadflowmodelsimultaneouslywithrealpowerpricingandalsoincorporatingoperatingconstraints,especiallythoscconcerningreactivepower(suchasreactivepowerbalancesatallbusesandbusvoltage limits).ZonalPricing

Notwithstandingitscompellingtheoretlcalbasisthenodalpricingmethodhasbeendecmedtobetoocomplicatedforapplications, at leastintheforeseeablefiiture.Thezonal

pricingschemehasbecnproposedanduscdasanaltemative.Thispricingmethodrepresentsacombinationofthepostagestampmethodandthenodalpricingmethodandattemptstosimplifythepricingprocessandatthesametimetoreflectthevarylngcostsofsnpplyingpowertodilereniareas.

Likethenodalpricingmethodthezonalpricingmethodcanbeshort-nmmarginal(Incremental)costbasedorlong-runmarginal(incremental)costbased,dependingontheobjectiveasmcntionedbefore.

Generally,thenodalpricing methodisfirstutilisedtoobtain theprices inallbuses,andthcnaweighcdavcragevaluofallnodalpriceswithinazoneissetasthezonalprice.Thisisdoneperiodicallytoaccountfor thechangeofsystemconditions.Thenodalpricesatallbasesinazoneshouldbercasonablycisetoeachotherforthemethodtobemeaningful.Otlierwisezonalboundariesshouldbeadjusted.TheNorwegianelectricitymarkctusesthisapproachwithfourorfivezones.Along-runmarginal-cost-basedzonal

pricingmethod isemployedintheNGC,UK,forrucovetyofcapitalcosts[13,14],Anotherimportantpmposeofzonalpricingiscongestinmanagement.Congestin

occurswhentliedispatchofallpoolandcontractedtransactionsinillwouldresult intheviolationofoperationalconstraints.Forexample,inCalifornia,thereare24adjustable

pricezones.UndernormalcircumsUinceswithoutcongestin,allzoneshavethesame