A study of bilateral contracts in a deregulated power system network

Abstract

One of the main objectives of deregulating the electric power industry is to introduce competition in the electricity business and prevent monopolies. The introduction of deregulation has, however, led to confusions in the areas of transmission network loss sharing and the responsibility of generation of reactive power. Because, under deregulation, the business and economic decisions in a power system are made by each individual vendor/utility in a decentralized manner. Each power producing entity operates on the principle of profit maximization by optimizing its production cost of real power, reactive power and the spinning reserve margin. Two methods have been developed to determine a generator's share of transmission loss in a deregulated power system. They are: the Incremental Load Flow Approach (ILFA) and the Marginal Transmission Loss Approach (MTLA). The ILFA employs an iterative load flow technique. The MTLA finds the transmission loss share of a generator by utilizing the marginal rate of transmission loss. Both methods are very straightforward and can be implemented by an electric utility or an Independent System Operator (ISO) with little difficulty. Results obtained from both approaches agree well. The details of the two methods along with some numerical examples have been presented in this thesis. The profit maximization objectives of any generating entity or an IPP not only depends on transmission loss allocation but also on the production levels of real power, reactive power and spinning reserve. A model for profit maximization by a generating entity or an IPP who is interested to sell both real and reactive power is developed and presented in this thesis. In many jurisdictions, a power producer has the option for selling spinning reserve in addition to real and reactive power. A profit maximization model based on the forecasted market price of real power, reactive power and spinning reserve has been developed and presented in this thesis. The model would help a producer to decide the production levels of these three commodities in order to realize the maximum profit. Zero profit conditions have been considered along with the profit maximization model to determine the minimum acceptable price vectors of these three commodities. A small test network and the IEEE 24-Bus Reliability Test System (RTS) have been utilized to conduct studies and illustrate the concepts with numerical examples.