The Role of Transmission Rights in Electricity Markets

1
The Role of Transmission Rights in Electricity
Markets

• Minghai Liu
• University of Illinois at Urbana-Champaign
• 05/11/2001

2
Objectives

• Review some important concepts in electricity
  markets
• Explain transmission congestion and management
• Illustrate the purposes and properties of
  transmission rights
• Discuss the issuance, trading and settlement of
  Firm Transmission Rights (FTRs)
• Briefly introduce the concept of Flowgate Rights
  (FGRs)
• Discuss future work

3
An Illustrative system

• Lines are lossless with x1.0pu for each line
• Each line has a thermal limitation as indicated
• The bidding (offering) curves are shown
• p price q real power quantity

G1
1
300 MW
ISO
100 MW
3
220 MW
G2
L3
2
4
An Illustrative system

• The DC power flow model sets up the current
  division rule

5
OPF for the Example

• Optimal Power Flow (OPF) is an optimization
  problem which maximizes the social surplus
• In the system, the OPF is stated as

6
Local Marginal Price

• Local Marginal Price (LMP) is the marginal cost
  of generation at a node, i.e., the sensitivity of
  the objective function to the injection
  (withdrawal) of an additional unit at each node

7
The OPF Solution
400 MW
1
30 /MWh
300 MW
congested
3
100 MW
congested
200 MW
40/MWh
100 MW
500 MW
2
45 /MWh
8
Result Interpretation
q ( /MWh)
80
40
34.5
34.25
25
15
p (MW)
267
568
500
9
The Feasible Region Nomogram

q2
optimal solution with the constraints
B


2-gt1
320 MW

X




300 MW



2-gt3

A

optimal solution without the constraints
Y

C


1-gt3
D

100 MW


47.5 MW
1-gt2
E



0

q1
520 MW
300 MW
400 MW
20 MW



10
Dominant and Counter Flows

• Assume the physical flow direction on a line is
  known, we define
• dominant flow a flow in the same direction as
  the physical flow
• counter flow a flow in the opposite direction of
  the physical flow

11
Counter Flow in the Example
400 MW
Physical flow
500 MW
100 MW
superposition
Counter flow
400 MW
1
1
Dominant flow
133 MW
33 MW
3
3
100 MW
100 MW
400 MW
2
2
12
Bilateral Transactions

• Bilateral transactions indicate balanced energy
  trading contracts
• we denote each bilateral transaction by
• we use the protocol in our examples that each
  seller is responsible for delivery of the energy
  to the buyer
• In the example, the two transactions are

injection node
quantity
withdrawal node
13
Bilateral Transactions

• While each transaction may be feasible
  (infeasible), undertaking all the proposed
  transactions simultaneously may results in
  infeasibility (feasibility)
• In pool model, the ISO collect the LMP
  differences and use this revenue to compensate
  the transmission owners and encourage the new
  investement. In bilateral model, the ISO no
  longer collects the LMP differences, transmission
  owners cannot be compensated. Consequently, we
  need some mechanism for ensuring transmission
  services

14
Congestion Charges

• Charges or compensation on each MW of each
  transaction equal to the LMP difference between
  the sink and source nodes of the flow
• for a transaction , the
  congestion charge may be calculated as

15
Transmission Rights

• Objectives
• facilitate congestion management
• facilitate efficient use of the transmission
  network
• provide risk management tools for transmission
  customers
• Basic attributes
• physical priority to use the transmission
  services
• financial right to get financial compensation

16
Firm Transmission Rights (FTRs)

• Definition right or obligation to the LMP
  difference on each MW of balanced transaction
  between two specific nodes
• Key aspects
• Financial provides the holder protection
  from the congestion charges for transfer of power
  from to in an amount up to
• Physical FTR holder has the priority to be
  scheduled for the transfer from node to node

from node
quantity
to node
17
FTR Attributes

• Point to point rights
• path independent independent of the physical
  path of the flow
• direction dependent
  
• FTR prices may be positive, negative or zero
• Option v.s. Obligation
• FTR holder who bought the FTR for a nonnegative
  price has options to use the FTR
• FTR holder who bought the FTR for a negative
  price has the obligation to ensure the transfer
  of power is present

18
Issuance and Trading of FTRs

• Only the ISO can sell FTRs
• the ISO runs a forward FTR market
• sellers and/or buyers use this market to meet
  their needs
• the ISO collects the bids and run an OPF which
  maximizes its revenue subject to the
  simultaneous feasibilities to issue the FTRs
  and decide the dispatching schedule
• Revenues of the ISO are allocated among
  transmission owners on some negotiated basis

19
Settlement of FTRs

• FTRs are settled after real-time operations
• The amount of payment associated with FTR
  may be calculated as
• As long as , the FTR holder is fully
  protected from the congestion charges any flow
  above the limit is not hedged

the actual flow from node ik to node jk
20
FTR Time Line
Year-
Day-
Hour-
Days
Real-time
t
congestion charges
energy forward market
energy spot market
FTR forward market
real-time operations
FTR settlement
21
FTRs in the Example
FTR requirement
player requirement
G1
G2
22
FTRs in the Example

• FTR forward market
• G1 bids for
• G2 bids for
• the ISO runs the OPF and determine the price
  schedule of the FTRs

FTR buy / sell situation
buyer seller FTRs
G1 ISO
G2 ISO
23
FTRs in the Example

• LMP based congestion charges

FTR settlement
G1
G1
(40-30)400MW4000/h
(40-30)400MW4000/h
ISO
ISO
G2
(40-45)100 -500/h
(40-45)100 -500/h
G2
result If the real-time operating point is
identical to the FTR results, FTR holders are
fully hedged
24
Pros and Cons of FTRs

• Pros
• are conceptually easy for transmission users
• fully insure holders against changes in the PTDFs
• Cons
• the transfer capability between any two points in
  a network changes as the system condition changes
• centrally managed frequent reconfiguration
  auctions needed
• the necessity of negative prices increases the
  complexity of the FTR settlement

25
Flowgates

• A flowgate is a set of elements connecting two
  distinct areas of a transmission system, these
  elements may be transmission lines or
  transformers
• Each flowgate has a direction and a well-defined
  capacity limit ( limit of the power that can flow
  across it )
• Denote as

?mn
from area
to area
26
Examples of Flowgates
27
FGRs

• Definition the FGR gives the
  holder a priority to access and the right be
  protected from the congestion charges on flowgate
  
• Key aspects
• financial provides the holder protection
  from the congestion charges for introducing a
  flow on for a amount up to
• physical the FGR grant the holder a capacity
  reservation and scheduling priority for using
  flowgate

28
FGR Attributes

• FGR is defined on physical flowgate
• FGRs are path and direction dependent
• the FGR holder has the right to use any element
  of the specified flowgate but not any other
  flowgates
• FGRs cannot be withdrawn
• the FGR holder can use the right by scheduling
  power transactions otherwise, the scheduling
  priority expires and the right reverts to the ISO
• the ISO can take full advantage of the unused
  flowgate capacity for real-time dispatch

29
Future Work

• Assessment of the impact of uncertainty
• Simulation of large-case studies
• FGRs analysis of the impacts of the PTDFs on the
  definition, usage and money value of rights
• FTRs and FGRs can these two scheme coexist in
  one system?

30
Future Work

• Assessment of the impact of uncertainty
• Simulation of large-case studies
• Analysis of the impacts of the PTDFs on the
  definition, usage and money value of the
  Transmission Rights