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EEN/L-671:
RESTRUCTURED POWER
SYSTEMS
LECTURE 15: Models of trading
arrangements
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Generator product compatibility and
interactions
Cause Effect
Product compatibility Ancillary Service
and interactions Management
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Ancillary Services
• Interdependencies – Ancillary Services
• Production of electricity is also associated with production of other
services - necessary for reliable operations – like
• Operating reserves
• Reactive power
• Frequency control
• Black-start capability etc.
• SO has to make necessary arrangements for ancillary services in
short-run as well as in long-run
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Effects of peculiarities
Four pillars of
market design
Scheduling &
management
Congestion
Imbalance
Dispatch
Ancillary
services
Real time Demand & Supply Power Flows Generator Producer
Balance Obeys Laws Compatibility &
Interactions
of Physics
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Market Architecture
• Market architecture is a map of its component submarkets
• Map includes type of each market and linkage between
them
• Why do we need multiple markets?
• Answer can be traced back to peculiarities associated with
electricity
• Four pillars of market design tend to cast the same electric energy
into various products
• Various products lead to separate markets
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Sub-markets of a power market
• Wholesale spot market
• Wholesale forward market
• Markets for ancillary services
• Markets for transmission capacity
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The Spot and Forward Market
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The ‘spot market’ definitions
Definition 1 Definition 2
• Includes only real time • Includes day-ahead and
market real time market
• All trades taking place • All trades taking place
before that are termed before that are termed
‘forward’ trades (including ‘forward’ trades
day-ahead market)
Where to draw line between forward and spot market?
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Where to draw line between forward
markets and spot markets?: Approach 1
• In many forward markets, traders need not own
generation or load
• If power is not delivered in real time, then the supplier
must purchase replacement power at the real time rate
and fulfill the contract
• A customer who buys power in a forward market will
receive either electricity delivered by the seller or the
financial compensation
• Any power that is sold in the day ahead market but not
delivered is deemed to be purchased in real time at the
real time price of energy
• Thus, all markets ahead of real time markets can be
called as forward markets
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Where to draw line between forward
markets and spot markets?: Approach 2
• The day-ahead market and the real-time market settle
according to ‘system price’
• Forward contracts are settled as per mutual pricing
decision
• Thus, all those markets where no ‘system price’ is
calculated are termed as forward markets.
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Role of system operator in market
settlement
Role of profit making entities
Years ahead Real time
System Operator’s Role
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Why spot market is necessary?
• Neither party can meet its contractual obligation with
perfect accuracy
• Forward contracts may not necessarily lead to an
equilibrium that replicates real time scenario
• Necessity of intermediate stage: Spot market
• Its function is to match residual load and generation by
adjusting the production of flexible generators and
curtailing the demand of willing customers
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Real-time and day-ahead market
• Spot markets may consist of two markets: day-ahead and
real time markets
• This arrangement is typically called as multi-settlement
markets as in US
• Real-time market is a must in order to balance the supply-
demand in real time
• Why day-ahead (DA) market is required?
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Necessity of DA market
• Large thermal plants take more than an hour to start-up
• Such generators can not bid if Gate closure for spot
market is lesser than one hour
• May prove beneficial to generators that have high start-up
costs
• In centralized unit commitment model, operator will take
into account this information as well while scheduling the
unit
• In other words, time horizon is a day, not some minutes
before real time
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Necessity of DA market: Less chances of
gaming
8
Price
(Rs/MWh) 7
5
MCP
Quantity cleared MW
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Necessity of DA market: Less chances of
gaming
Price 8
(Rs/MWh)
7
MCP
6
Quantity cleared MW
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Models of trading arrangements
• Centralized dispatch philosophy
• De-centralized dispatch philosophy
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Sub-markets due to four pillars of market
design
Imbalance • Rules of spot
energy market market
Transmission • Congestion
capacity market management
Ancillary • Ancillary service
services market management
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How are these sub-markets arranged?
Integrated arrangement [Option 1] Sequential arrangement [Option 2]
Imbalance energy market Imbalance energy market
Transmission capacity Transmission capacity
market market
Ancillary service market Ancillary service market
Real time operation Real time operation
Centralized dispatch Decentralized dispatch
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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?
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Models of trading arrangements
• Centralized dispatch philosophy
• De-centralized dispatch philosophy
• Wheeling model
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What is the difference between models of
competition and models of trading arrangements?
Models of competition Models of trading arrangements
• Models classified • Models classified
according to level of according to level of
competition competition integration of
commercial and
operational aspects of
various sub-markets
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Trading arrangement models
• The general categorization of trading models can be done
on the degree to which operational arrangements and
commercial arrangements for scheduling, imbalances,
congestion, and ancillary services are integrated with spot
markets
Decentralized
Wheeling model Centralized model
model
Low integration High integration
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Centralized / Integrated Model
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Centralized / Integrated Model
Sellers Forward contracts Sellers
Imbalance energy
Congestion
Ancillary
Various markets Joint optimization by SO
Scheduling
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Key Features
• SO is independent of generation, distribution, retail activity
• ISO takes all responsibilities of scheduling, dispatch,
imbalances, congestion, and ancillary services
• For this, ISO takes bids from traders for their reservation
prices – the prices at which traders are willing to buy or sell
more or less than they have scheduled
• ISO uses optimization taking into consideration all the electrical
network constraints to find out least cost feasible plan
• Thus, ISO runs spot market which also serves as the
imbalance market
• Reservation prices decide market clearing price and quantity
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Key Features
• Market clearing is done through optimization, calculated
by security constrained dispatch software
• Prices are given locational bias, hence give right signals
for generation, transmission, etc.
• Operating reserves, including regulation reserves,
integrated with energy markets and priced as options
• Congestion management is integrated with system
operator optimization process
• ISO charges locational charges and bottleneck fees for
contracts
• Transmission losses integrated with the security
constrained optimization and integrated with locational
spot price
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Key Features
• Ownership of transmission is independent – governed by
regional Transco
• Long term financial transmission rights (FTRs) to enable
traders hedge against high bottleneck fees
• Hourly settlement intervals together with hourly metering
for final customers – this creates demand side response
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Treatment of forward contracts
• Spot electricity prices are highly volatile
• This force risk averse people to enter into forward market
which usually shares approx. 80% of total volume traded
in electricity market
• All differences between contract positions and actual
positions are traded at market price (spot price) that is
outcome of central optimization process
• The forward contracts remain financial in nature only
• Every generator is scheduled by the SO irrespective of its
forward contract obligation
• Forward contracts act only as risk hedging tools
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Contract for Difference (CfDs)
BP = 25 ₹/MW
G L
BQ = 100 MW
Case 1 Case 2
Spot price 30 ₹/MW 20 ₹/MW
G is paid ₹3000 ₹2000
L pays ₹3000 ₹2000
Difference 30 – 25 = 5 20 – 25 = - 5
price ₹/MW ₹/MW
Difference
5 x 100 = - 5 x 100 = -
price paid by
₹500 ₹500
G to L
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Generator bidding
• Flexible bid (ISO provides schedule to Gen)
• Anything up to 100 MW can be dispatched by ISO so long as the
spot price is above 30 ₹/MW
• Inflexible bid (Generator provides the schedule to ISO)
• Regardless of price, ISO should schedule exactly 100 MW
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Effect of flexible bid
• Suppose a generator has forward contract as 100 MW
• Flexible bid: Anything up to 100 MW can be dispatched by
ISO so long as the spot price is above 30 ₹/MW
• Spot market outcome:
• If spot price below 30 ₹
ͅ /MW, generator is not dispatched by ISO
• The bilateral contract will still be satisfied
• It is equivalent to power purchased by generator at spot price
(which is lesser than its operating cost)
• If spot price is above 30 ₹/MW, ISO will dispatch the generator
• The generator is better off being flexible
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Illustrative Example
Case 1: Spot price > Case 2: Spot price <
contract price contract price
Contract MW 100 100
Contract Price 11 11
Spot Price 12 8
Generated MW 100 0
Generator is paid 12 x 100 = ₹1200 8 x 0 = ₹0
Load pays 12 x 100 = ₹1200 8 x 100 = ₹800
Generator cost 10 x 100 = ₹1000 10 x 0 = ₹0
Difference price 12 – 11 = 1 ₹/MW 8 – 11 = -1 ₹/MW
Difference price paid by
1 x 100 = ₹100 -3 x 100 = -₹300
Gen to load
