Power System Economic and Market Operations

Jin Zhong

• Publisher: CRC Press
• Year: 2018
• Print ISBN: 9781482299045
• eBook ISBN: 9781351180054
• Edition: 1
• Topic: Physical Sciences
• Subtopic: Energy

Power system operation is one of the important issues in the power industry. The book aims to provide readers with the methods and algorithms to save the total cost in electricity generation and transmission. It begins with traditional power systems and builds into the fundamentals of power system operation, economic dispatch (ED), optimal power flow (OPF), and unit commitment (UC). The book covers electricity pricing mechanisms, such as nodal pricing and zonal pricing, based on Security-Constrained ED (SCED) or SCUC. The operation of energy market and ancillary service market are also explored.

"It covers a wide range of interesting topics, which could be very useful for understanding the main phenomena ruling power systems economy (such as Optimal Power Flow analysis and unit Commitments). It addresses topics widely treated in the literature, hence it is important to outline its distinctive features compared to other similar books. The book is well structured and well balanced."
— Alfredo Vaccaro, University of Sannio, Italy

CHAPTER ONE

Introduction

Electrical power is probably one of the most important elements of modern society. Since the discovery of electricity and the invention of electric dynamo and incandescent light bulb, people’s life style has been changed significantly. Electric power systems provide a clean and convenient energy to light houses and drive machine motors. Electric energy has become a necessity of daily life.

Pearl Street Station, the first power station established in 1882 by Thomas Edison, supplied DC power for lighting streets within a short distance from the station. Due to the excessive power losses and voltage drop, the low voltage of DC system became the bottleneck of long-distance electricity delivering. The invention of AC transformer made it possible to raise the voltage to a higher level for long distance power transmission. The advantages of AC power systems were obvious, and AC power systems were adopted all over the world. In recent decades, HVDC/EHVDC has developed very fast, which helps to transfer electric power in a more efficient way through long distances. In the past century, electric power system had a significant development. Large-scale centralized power plants were established due to the economies of scale. High-voltage transmission and distribution lines were installed to deliver electric energy to every corner of the world. Power lines of different voltage levels form the power grid, which interconnects power plants and electricity users in different areas. The interconnection of power grids makes the overall power generation and transmission more economical and reliable. Through interconnection, less expensive generators can generate more power to supply customers at expensive areas, and fewer generators are engaged as reserves for peak load periods in an interconnected system.

The power system operator monitors and controls the system and maintains the system to be operated in a safe and reliable way. In addition to system reliable operations, the system operator is responsible for power system economic operation. The purpose of economic operation is to dispatch electric power generators with the minimum generation cost while satisfying the electricity demand. As the amount of fuel consumptions for a power system is huge, the savings on fuels in a small percentage by economic operation could result in a large amount of savings in generation costs.

Electric power is generated by different types of generators. According to fuel types, conventional power plants could be categorized as coal-fired power plant, oil-fired power plant, gas turbines, nuclear power plant, and hydro power station. With today’s emphasis on energy and environmental considerations, renewable energy, such as wind power-, solar-, and geothermal-based generations, is increasing significantly. For different types of generators, generation costs are different due to fuel prices and generation technologies. Every generating unit has its unique generation cost characteristics. In a power system, the total available generation capacity is bigger than the total demand for almost anytime. To supply a given amount of electricity demand, there are more than one options/combinations of generating units for the system operator to dispatch the generators. The total generation cost differs for different combinations of generating units and outputs. It would be more economical to find the option/combination with lower cost to supply the electricity demand. This is the basic principle of power system economic operation. Power network constraints also need to be considered for economic operation.

Conventional power system economic dispatch is implemented on the basis that all generators in the network are owned by one power company, and the system operator knows the cost curves of all generators. The system operator searches for a least-cost solution for dispatching generating units in the system.

Power industry has been changed since power deregulation in 1990s. Generations are separated from the transmission network. Most generators are independent power providers owned by generation companies. Independent system operators (ISOs) or transmission system operators (TSOs) are responsible for system reliable and economic operations. The generation cost of each generator is not known to the ISO/TSO. Electric energy is traded in the electricity market. In the market, the concept of economic dispatch is extended with market operation. The market design, clearing procedure, and settlement process affect the way electricity is traded and the generation dispatched. Besides, power network constraints need to be considered in the market operation.

The purpose of the book is to provide a systematic understanding of power system economic operations in traditionally vertically integrated systems and market operations in deregulated power system. The principles of economic dispatch, unit commitment, and optimal power flow and their mathematical models will be introduced. Then, the market mechanisms and mathematical models for energy market and ancillary services will be presented. In the end, electricity financial market and low carbon electricity market operation will be introduced.

The book is targeted to senior students and postgraduate students in electric power engineering and energy engineering, researchers and engineers in the area of power system economic operations and electricity markets, system operators, electricity marketers, electricity retailers, and other electricity market participants.

CHAPTER TWO

Economic operation in power systems

2.1 Introduction of power system operation

The electric power system is one of the most complicated systems in the world, due to its large size, real-time operation, and the large number of customers involved. Conventionally, a power system can be subdivided into four parts: generation, transmission, distribution, and customer services. A vertically integrated power company owns generation, transmission, and distribution facilities and provides customer services. Electricity generated by generators flows through transmission system and distribution network to customers.

Electric power is generated by different types of generators. Most of them are centralized large-scale power plants located far from customers. To transmit electricity over a long distance, high voltage is needed. Apparent power transmitted is the product of voltage and current. Transmitting the same amount of power, using a higher voltage level results in a lower current in the power line, and hence a lower voltage drop (I*Z) and lower losses (I²*R). Thus, transmission lines with higher voltages can transmit more power. The terminal voltages of generating units are mostly not high enough for long distance power delivery. Voltage is stepped up by transformers in power stations. Power is transmitted through high-voltage/extra high voltage transmission networks to load centers. Then, voltage is stepped down through distribution substations to low voltage levels for power distributions. Distribution substations are usually close to end users. Distribution lines/power feeders connect residential and commercial customers with distribution substations. Power grid connects millions of electricity end users and industry users to generators located at different places. Geographically, a power grid covers a very wide area. Electricity flowing in the power grid follows physical laws. The system operator is responsible for monitoring and controlling the system to ensure that it is operated in a safe and reliable way all the time. The most important task for the operator is to maintain the real-time power balancing of the power grid. For example, when any customer switches on his/her electric device, electricity flows instantaneously to the device and powers it up. Power generation is adjusted simultaneously to follow the load change. This is the real-time power balancing between electric power generations and electricity demands.

In the traditional power system, most customer behavior is invisible and uncontrollable to the system operator. Although some customers could respond to the system operator with recent developments of smart grid technologies, such as distributed generation, communication and demand response, and so on, the response of demand to the operator is still limited. To the system operator, most customers are uncontrollable passive customers, whereas outputs of most conventional generators are controllable. Therefore, the system operator controls and adjusts power outputs of generators to follow load changes to maintain real-time power balancing. The traditional operation paradigm is generation following load. Millions of small diverse customers’ electricity consumptions are balanced by controlling the outputs of several large generators in the system.

Changes in loads are the major uncertainties to the conventional power system operation. Later, with the installations of more renewable energy generations, such as wind power and photovoltaic panels, the intermittencies of renewable energy become part of the uncertainties to power system operations. For the system operator, an accurate forecast of load is quite important. According to time scales, load changes could be categorized as (1) long-term load changes caused by load growth; (2) mid-term load changes due to seasons, weathers, or other reasons; (3) short-term load variations of consumption patterns; and (4) very short-term load fluctuations. The trend of load changes in a long term could be forecasted based on economic growth. In different seasons and weather conditions, electricity consumptions are different, it is, however, forecastable using historical data and weather forecasting results as the basis. Short-term load variations and load fluctuations are hard to accurately forecast.

The power system operation has similar time periods for system planning and operation, which matches the time of load changes. Transmission line constructions and generating unit installations are planned years in advance according to forecasted load growth and system reliability requirements while considering transmission capabilities. Generation schedules for all generating units are made in advance. In some systems, the amount of energy that will be produced by a generating unit is scheduled 1 year or months in advance. When time is closer, detailed generation scheduling is made by considering the load forecasting results and network constraints. Generating units are committed days or weeks ahead considering unit maintenance schedules, minimum ON/OFF requirements, unit startup costs, system reserve requirements, and so on. Once units are committed, day-ahead and hourly-ahead generation schedules are procured by the system operator using more accurate load forecasting results, while considering network constraints, security constraints, generation costs, and other factors. However, even the hourly ahead scheduling is not accurate enough to match the real-time load, as load fluctuates and could be different from forecasted values. Due to real-time load changes, outputs of generating units in the system need to be adjusted in real time to respond to fast load variations.

In a power system, the system frequency is an indicator of the balance of generation and load. When the total generation and system load is balanced, the frequency of the moment is equal to the nominal frequency. When generation exceeds the load, the frequency at the instant is higher than the nominal frequency. Also, when generation is not sufficient to supply load, the frequency at the instance is lower than the nominal frequency. The target of the system operator is to control and maintain the frequency at the nominal value, 50 or 60 Hz, which is the index of real-time power balancing. Frequency control is the approach used in real-time operation for power balancing. Most generating units are equipped with the function automatic generation control to react to real-time frequency signals and adjust their generation outputs automatically. In addition to the generation scheduling and frequency control, the system operator needs to consider many other issues, such as power system stability, reactive power and voltage control, blackout restoration, and so on.

Whether in long-term generation planning, or in mid-term or short-term generation scheduling, generation costs are the major concern in addition to power balancing. A more economical combination of generating units and a less expensive generation schedule can save a large amount of fuels and generation expenses. This book focuses on the methods of operating the power system in a more economical way, in other words, power system economic operation. The mathematical methods for obtaining most economical/optimized generation schedules in a power system will be introduced. How to operate the power system and make generation schedules in an electricity market will be discussed. Electricity pricing, electricity market models, and market settlements will also be presented in the book.

2.2 Development of economic operation

The system operator, at the early stage of power system development, has already realized that once a system has more than one generating units, the fuel costs would be different for different generation schedules made for the units. This is mainly because that each generating unit has its unique fuel consumption characteristics, which is a nonlinear function of power output. The fuel consumption of a generating unit depends on its fuel consumption curve and the operating point. For a given electricity load, fuels consumed by different generators are different. If one generator is enough to supply the load, the generator with lowest fuel consumption will be selected. If multiple generators are selected, there will be multiple options to allocate generations to the selected generators. Different generation allocation options result in different results of fuel consumptions/costs. If the option with the least fuel consumption/cost is fortunately selected, the generation schedule is an economical schedule. Of course, the system operator can enumerate all options and find out which option is the most economical. However, the enumeration method may not be practical for a system with a big number of generators. The number of generation allocation options could be too large to be enumerated in a reasonable time. To obtain the most economic generation schedule, optimization methods can be used to minimize the total fuel consumption/cost while considering system operation requirements. This is the purpose of power system economic operation.

Economic generation schedules are usually made days or hours before the real-time energy delivery. Use 1 day as an example, electric demand (in MW) is first forecasted for the 24 hours of the day. For each hour, the forecasted load is assumed as given. The system operator needs to decide how much electricity should be generated by each generator in each hour, so that the total generation in the hour equals to the forecasted load plus losses. It would be better if the total cost is the most economical. Mathematically, this is an optimization problem. Due to the big size of power system and its nonlinear characteristics, the problem comes out to be a complicated optimization problem. Before computer was developed, it was difficult to solve the complicated nonlinear optimization problem by hand. In 1930s, electrical engineers figured out the basic principles of economic dispatch (ED), which has been used to obtain economic generation schedules. The method is still in use currently in some locations.

The key of economic dispatch is equal incremental cost function. It was obtained by electrical engineers in 1930s after exploring the economical allocation of generations to generators. People noticed that, similar to other commodity goods, the value/price of electricity generation depends on its incremental cost, which is the additional cost of producing one more unit of electricity from its current output level. This is also called marginal cost. The significance of economic dispatch is that engineers have proved that the total cost is the minimum if all generators in the system are operated at the output points with the same incremental cost. Economic dispatch results obtained with the equal incremental cost principle satisfy the constraint that the total generation equals to the total load during the hour.

Transmission losses cannot be avoided in any power system. When equal incremental cost function was derived, only generation characteristics of generators were studied and transmission lines were not considered. Later in 1940s, electrical engineers tried to use a quadratic function to simplify and represent transmission losses occurring in the system. The classical economic dispatch method was amended by including transmission losses. The equal incremental cost was found to be subject to the constraints that the total generation equals the total load plus the simplified loss. The new equal incremental cost function with penalty factor that represents the impacts of losses was obtained, and it is called coordination equation.

Equal incremental cost function and coordination equation have been well applied for economic operation ever since they were developed. The economic dispatch results obtained by them are economically effective and the calculation procedure is straightforward. The only disadvantage is that transmission losses were simplified due to the lack of accurate model for transmission network.

In 1950s to 1960s, with the increase in voltage levels and the interconnection of power grids, power systems became much more complicated. It was necessary to find an accurate way to calculate the active power and reactive power that flow in the lines. As AC power system is a nonlinear system, the simple Ohm’s Law is not suitable. Using Kirchhoff’s Law, electrical engineers wrote active power and reactive power balancing equations for all nodes of the system. They are power balancing equations, also called power flow equations. The equations are able to mathematically represent the power network. This is one of the big steps in the development of power system analysis. Power flow equations are nonlinear equations. Newton Raphson method is one of the effective ways to solve the equations. Starting with initial values, Newton Raphson method provides searching directions for each iteration to reach a converged solution. The number of iterations could be big if the system is large and the initial values are far from the converged solution. The development of computer technologies in 1960s made it possible to solve the power flow equations. Then, power network could be represented mathematically, and power flow was calculated by computer programming. This led to a new era for power system analysis.

In the area of power system economic operation, J. Carpentier must be mentioned due to his contributions in the development of optimal power flow (OPF). On the basis of the...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Preface
• Acknowledgments
• 1 Introduction
• 2 Economic operation in power systems
• 3 Power generation costs
• 4 Economic dispatch
• 5 Optimal power flow
• 6 Unit commitment
• 7 Electricity market overview
• 8 Electricity market pricing models
• 9 Congestion management and transmission tariff
• 10 Ancillary service markets
• 11 Electricity financial market and its risk management
• 12 Low carbon power system operation
• Index