10-02-2025 © Deep Kiran, IIT Roorkee (2025) 1
EEN/L-671:
RESTRUCTURED POWER
SYSTEMS
LECTURE 10: Organization of Electricity
Markets
10-02-2025 © Deep Kiran, IIT Roorkee (2025) 2
Why price near real time is volatile?
INR/ MW
Peak load
Min. load
MW
10-02-2025 © Deep Kiran, IIT Roorkee (2025) 3
Why price near real time is volatile?
INR/ MW
Peaking gen.
Base gen.
MW
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Why price near real time is volatile?
INR/ MW
Peak load
Min. load
π max
Peaking gen.
π min
Base gen.
MW
Price of electricity fluctuates throughout the day
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Why price near real time is volatile?
INR/ MW
Extreme peak
Normal peak
π ext
Peaking gen.
π normal
Base gen.
MW
Small increases in peak demand cause large changes in peak prices
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Why price near real time is volatile?
Reduced
INR/ MW
supply
Normal
π ext supply
π normal
Base gen.
MW
Small reduction in supply cause large changes in peak prices
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Bilateral contracts
➢Long term
➢Trading over the counter
➢Electronic trading
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Long term contracts
• Customized contracts
• Flexible terms
• Negotiated between the parties
• Duration of several months to several years
• Advantage:
• Guarantees a fixed price over a long period
• Worthwhile only for large amounts of energy
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Over the counter trading
• Smaller amounts of energy
• Delivery according to standardized profiles
• Used to refine position as delivery time approach
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Electronic trading
• Buyers and sellers enter bids directly into computerized
marketplace
• All participants can observe the prices and quantities
offered
• Automatic matching of bids and offers
• Participants remain anonymous
• Market organizer handles the settlement
• Advantages:
• Very fast
• Very cheap
• Good source of information about the market
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Example of bilateral trading
Generating units owned by Tata Power
Unit Pmin (MW) Pmax (MW) MC (INR/ MW)
A 100 500 1000
B 50 200 1300
C 0 50 1700
Bilateral trades of Tata Power for 12th March between 5 to 6 PM
Identifier Buyer Seller Amount (MW) Price (INR/ MW)
LT1 Reliance energy Tata Power 200 1250
LT2 BEST Tata Power 250 1280
FT1 CEC Tata Power 100 1400
FT2 Tata Power Suzlon 30 1350
FT3 DEB Tata Power 50 1380
Net position: sold 570 MW; Production capacity: 750 MW
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Example of bilateral trading
Pending offers and bids on Power Exchange of India (PXI) before Gate
Closure for the period from 5 till 6 pm:
Identifier Amount (MW) Price (INR/ MW)
B5 20 1750
B4 25 1630
Bids to sell
B3 20 1440
energy
B2 10 1390
B1 25 1370
O1 20 1350
O2 30 1330
Offers to buy
O3 10 1325
energy
O4 30 1280
O5 50 1255
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Example of bilateral trading
Electronic Trades made by Tata Power
Identifier Amount (MW) Price (INR/ MW)
B5 20 1750
B4 25 1630
Bids to sell
B3 20 1440
energy
B2 10 1390
B1 25 1370
O1 20 1350
O2 30 1330
Offers to buy
O3 10 1325
energy
O4 30 1280
O5 50 1255
Net position: sold 630 MW;
Self schedule: Unit A: 500 MW, Unit B: 130 MW, Unit C: 0 MW
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Example of bilateral trading
• Shortly before PXI closes bilateral trading for hours 5 to 6
PM of 12th March
• Some problem constrains Unit B generation to 80 MW,
instead of scheduled 130 MW
• Options left with Tata Power:
• Do nothing and pay the spot price for missing energy (real time
prices are erratic!)
• Make up deficit with Unit C (costly affair!)
• Trade on power exchange for bilateral transactions
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Example of bilateral trading
New Electronic Trades made by Tata Power
Identifier Amount (MW) Price (INR/ MW)
B5 20 1750
B4 25 1630
Bids to sell
B3 20 1440
energy
B6 20 1430
B8 10 1410
O4 30 1280
Offers to buy
O6 25 1270
energy
O5 50 1255
Net position: sold 580 MW;
New Self schedule: Unit A: 500 MW, Unit B: 80 MW, Unit C: 0 MW
Better buy from power exchange rather than produce power with unit C!
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The Pool Trading
Company Quantity (MW) Price (INR)
S1 200 2400
S1 50 3000
S1 50 4000
Bids S2 150 3200
S2 50 3400
S3 100 2600
S3 50 3600
D1 50 2600
D1 100 4600
D2 50 2200
Offers
D2 150 4400
D3 50 2000
D3 200 5000
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The Pool Trading
π*: MCP
Accepted
offers:
D3, D1, D2
Accepted bids:
S1, S3, S1, S2
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Attendance
• MS Teams: l6ahq8m
• Please ensure 75% of attendance for ETE.
• Please finalize a paper from IEEE TEMPR in a team of two.
Please get it confirmed from me at the earliest!
• Brief introduction to the work done in the chosen paper.
• What was the situation before the authors did the work? What was the
motivation for the authors that led them to do this work?
• Describe the methodology of the work in the chosen paper. Explain the
optimization model.
• Describe the key numeric results given in the paper which justify the
findings of the paper.
• What do you think about the actual implementation/ validation/ testing
of the work proposed in real life world/ test bed?
• Quiz: Tuesday (2-3 pm)
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The Settlement
Let us revisit Tata Power’s situation before commencement
of bidding in pool market (Spot market)
Unit Pmin (MW) Pmax (MW) MC (INR/ MW)
A 100 500 1000
B 50 200 1300
C 0 50 1700
Tata Power can submit following bids and offers in (pool) spot market
Type Unit MC (INR/ MW) Pmax (MW)
Bid (increase) C 1750 50
Offer (decrease) B 1250 30
Offer (decrease) A 950 400
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The Settlement
• 12th March between 5:00 pm and 6:00 pm
• Spot / Real price: 1825 INR/MW
• Unit B of Tata Power could produce only 10 MW instead
of 80 MW
• Tata Power thus had a deficit of 70 MW for this hour
• 40 MW of Tata Power’s spot market bid of 50 MW at 1750
INR/MW was called by the operator
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The Settlement
Market Type Amount (MW) Price (INR/ MW) Income (INR) Expense (INR)
Sale 200 1250 250000
Sale 250 1280 320000
Long Term
Bilateral and Sale 100 1400 140000
Futures
Purchase -30 1350 40500
Sale 50 1380 69000
Sale 20 1350 27000
Sale 30 1330 39900
Shot Term
Bilateral Sale 10 1325 13250
through Purchase -20 1440 28800
exchange
Purchase -20 1430 28600
Purchase -10 1410 14100
Spot Market Sale 40 1825 73000
Imbalance Purchase -70 1825 127750
Total 550 932150 239750
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Features of pool markets
• All demands pay as per MCP
• All generators are paid as per MCP
• The ‘marginal generator’ sets the MCP
• Except for marginal generator, all ‘infra-marginal
generators’ get paid more than what they have asked for
• Why every generator is not paid what it has asked for?
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Pay-as-bid scheme
• Paying generators as per their asking price results in
reduced average price
• The basic assumption in above conclusion is that the
generators would continue to bid in the same way as in
marginal pricing scheme
• Assumption not true!
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Pay-as-bid scheme
• All generators would try to guess what MCP would be
• All generators would try to bid to the level of MCP and
gain more profit
• Likely outcomes:
• MCP may go higher
• Some low cost generators may get substituted by high cost
generators
• Non-optimal use of available resources
• Ultimate results: increase in price!
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Marginal Pricing Scheme (MCP)
• If seller bids at its own marginal cost:
• Assurance of ‘no loss’ situation
• Profit if non-marginal generator
• No profit no loss if marginal generator
• No incentive for bidding higher than marginal cost!
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Simple Bids and Complex Bids
• Simple bids are provided in decentralized markets
• Complex bids are provided in centralized markets
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Philosophy of Market Modelling
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Philosophy of Market Modelling
• What are possible ways in which buyers and sellers can
trade electrical energy?
• Which part of the consumer section has choice of
selecting energy provider?
• What are the peculiarities of electricity market?
• What is the role and involvement of system operator in
market decisions?
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Market Models
• Defining Question: If there are to be competitive
generators, whom can they sell to? OR
• Who are the buyers having choice of supplier?
• Following four models progressively reduce the scope for
monopoly:
• Model 1: Monopoly
• Model 2: Single Buyer
• Model 3: Wholesale competition
• Model 4: Retail competition
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Monopoly Model
Generation • A very “conventional”
model
• No competitive
Transmission generators, no one is
permitted to buy from
them
Distribution • All functions are
bundled together and
regulated
Customer
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Monopoly Model: Separate Distribution
Company
Generation • Distribution companies
represent local
monopolies
Transmission
Distribution
Customer
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Single Buyer Model
IPP Own
Generation
IPP • Single buyer agency
buys power from IPPs
Single Buyer
+ its own generation
• Power purchasing
utility sells power to
Transmission
distribution utilities
• Distribution companies
Distribution don’t have a choice to
choose power supplier
Customer
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Single buyer model
• The single buyer makes a long term contract with IPPs.
• Contracts usually are of life-of-plant type
• The generator may see contract as assured return on
investment
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Single Buyer Model: Alternate version
IPP IPP IPP • A buyer does not own any
generation
• Distribution activity is also
Single disaggregated
Buyer
• Introduces some
competition between
Distribution Distribution Distribution without expense of setting
competitive market
• Tariff needs to be
Customer Customer Customer regulated as single entity
has monopoly over
Discoms and monopsony
over IPPs
