OPTIMUM MARKET STRATEGY FOR AN INDEPENDENT POWER PRODUCER A. Bhuiya N. Chowdhury M. Hug Operations and Reliability Dept of Electrical Engincering Dept of Economics Alberta Electric System Operator University of Saskatchewan _ University of Saskatchewan E-mail: Ashikur. Bhuiya@aeso.ca Abstract One of the direct consequences of deregulation is the unbundling of electricity in several marketable products. In addition ro electrical energy, reactive ‘power and spinning reserve can be bought and sold ‘through energy exchanging agents or through an Independent System Operator (ISO) in a deregulated environment. Energy suppliers can compete among. themselves to supply reactive power and spinning reserve in addition to real power. An Independent Power Producer can optimize its profit by producing a proper combination of real, reactive power and spinning reserve. The optimum combination of these three commodities, however, ‘would change with a change in the market price for any ‘one of the components, The optimum profit is also subject to the operating constraints of the generating units. An algorithm has been developed to find an ‘optimum combination of real, reactive power and spinning reserve from a supplier's perspective. The details of the optimization technique and its constraints ‘with memerical examples are presented inthe paper Keywords: Deregulation, Independent Power Producer, Reactive Power, Spinning Reserve, Optimization 1, INTRODUCTION Maintaining adequate amount of resetive power is ‘an essential part of the operation of @ power system network. Reactive power must be provided to maintain, system security and a desirable voltage profile throughout the network. Reactive power in a System can be controlled by adjusting the excitation of ‘generating units and also by the use of reactive VAR ‘compensators. In monopoly systems, less interest has ‘boon given to reactive power pricing compared to real power pricing due to the complex nature of reactive ‘power and its pricing. The reactive power flow in a ower system is a major source of system voltage drop. CCECE 2004 - CCGEL 2004, Niagara Falls, May/mai 2004 0-7803-8253-6/04/817.00 © 2004 IEEE E-mail:mnc960@engr-usask.ca E-mail; hugm@duke.usask.ca If generators cannot provide sufficient reactive power due to operating constraints, alternative methods are used to mect the reactive power demand of the system. Various methods eg, synchronous condensers, generators, static capacitors etc. are used t0 supply reactive power in a power system. Some utilities charge power factor penalties to their ‘customers as an indirect way of recovering the reactive power cost. The charge for power factor penalty. may take one of the following forms: ‘A fixed charge per KVA of maximum demand AA fixed charge per KW of maximam demand ‘with a percentage penalty according to stipulated power factor values ‘© Accharge which consists of two components, ‘one proportional to energy consumption in KWh and. the proportional to reactive ‘consumption ia KVARh Generation in a system must be available in sufficient quantity to aecount for unplanned or forced ‘outages as well as normal maintenance of unit. Reliable operation of a power system, therefore, requites that the generation capacity synchzonized 10 the bus at any time should be greater than the load plus transmission loss. The synchronized capacity in excess of load is commonly known as spinning reserve. The required amount of spinning reserve at any given time depends on the ftilure rates of generating units and the Toad pattem. A power system network with higher spinning reserve offers higher reliability of supply to its customers. However, an increased level of reliability ‘would increase the system operating cost. An ISO hes the responsibility for meeting the reserve requirements based on predetermined operating guidelines. In a deregulated environment an ISO or an IMO say have to buy reactive power and spinning reserve in addition to real power and thus create markets for these commodities. An Independent Power Producer (IPP) ean sell a combination of these commodities to an ISO = 1937 -or an IMO. An IPP may want to maximize its profit based on the given market prices. This paper presents a profit maximization model for a single supplier in a deregulated power system network. 2. REACTIVE POWER MARKET In z monopoly system, as mentioned earlier, power factor penalties have been used in providing reactive power pricing. Researchers have shown that this practice is not capable of providing valid basis for the pricing of reactive power and it gives wrong price signals to customers, specially in a deregulated power system network, ‘An ISO ensures that an adequate level of reactive power is available 1o maintain a desired voltage profile throughout the system. Ina pool system, like California, the Independent System Operator (ISO) determines the reactive power support requirement using load flow study on a daily basis. Deregulation in power industry is ereating a market for reactive power ‘Under deregulation, the ISO procures reactive power from generstors to meet part of js reactive power demand {1]. The same generator that supplies real power also provides reactive power in most of the ‘eases. An independent power producer (IPP) or supplier can bid for offering real power, reactive power as well as spinning reserve. An ISO accepts bids for real power, reactive power as well as spinning reserve. ‘The markets of spinning reserve and reactive power ‘work the same way as it works for real power. The market prices are set ffom the supply end demand relation in such @ way that the demand for all three products would be satisfied. All bidders who bid less ‘than the market price will get paid the market price imespective of their bidding prices for the amount ‘commited, 3. SPINNING RESERVE MARKET. Ima deregulated market, energy suppliers compete ‘among themselves to supply energy and, in genera, not responsible for spinning reserve in the system. Power providers submit their 24-hour bids for selling energy from which successful bidders are chosen by an Independent System Operator (ISO), An ISO, sttong ‘ober things, determines the required amount of spinning reserve required to maintain a reliable supply of electricity. The demand for spinning reserve ia deregulated market has created a_murket where independent suppliers can bid for offering their reserve. ‘The Power Pool, Independent Market Operator of ISO accapts bids for real power as well as spinning reserve ‘The market of spinning reserve works in the same way as it works for real power. The market operators determine the price of electricity from the data obtained for supply and demand of spinning reserve. The market price is set from the supply and demand relation in such way that the spinning reserve demand would be satisfied. AI suppliers who bid less than the market price are considered as successful bidders and will be ‘considered for supplying the demand. All successful bidders will get paid the market price imespective of their bidding prices for the amount of committed spinning reserve, In addition to the bidding price, the response time ‘of generator is considered by an ISO when it selects suppliers for the spinning reserve. Given a demand, & generating unit ean pick up load at a rate no more than fis response rate generally kaown as ramp rate, The ramp rate essentially dictates the amount of load that & unit can pick up within a given time interval. The response rate of a generator therefore, limits the spinning reserve that @ generator can commit and, therefore, has created two different markets for spinning’ reserve. They are known as Ten-Minute Spinning Reserve (TMSR) and Thirty-Minute Operating Reserve (TMOR) Markets. 3.1 Ten-Minute and Thirty-Minute Reserve Market Ten-Minute Spinning Reserve Market is served by the generators which are synchronized to the system and can meet the increased load within ten. minutes. TMSR is a synchronized capacity and ean supply power within ten minutes for at least thity minutes to ‘overcome the initial emergency situation. Thiety- Minute Operating Reserve is a non-synchronized capacity and it is able 0 begin supply within thirty minutes and lasts for atleast sixty minutes. Ten-Minute Spinning Reserve bids are submitted by the suppliers 24-hour ahead and is evaluated ia the same manner as it is done for real power market. The Thity-Minute Operating Reserve Market works in the same way with the difference in the supply time which is thirty minutes instead of ten minutes. 4, PROFIT MAXIMIZATION MODEL. ‘An IPP may be interested in selling spin reserve as well as real and reactive power to an ISO. Jn 1 healthy competitive market an IPP will be a price taker. An IPP will determine the production level ofits ‘commodities according to the given market prices of the commodities in such a way that its profit becomes ‘maximum. The profit fonction of an IPP can be written P+ PT +¥Q—aP* ~bP-c-dO-e (i) ~ 1938 -= real power production in MW, spinning reserve in MW, > eave power proton in MVAR, rice of real power in SMW, price of spinning reserve in SIMWH, fe power in SMVARHr , %, Y= price of rea = profit in S/Fr a,b, © cost parameters of eal power and d,e= cost parameters of reactive power. Usually the production cost of reactive power is very small and varies between 0.5% to 2.5% of real power depending on the machine size. In the present ‘model, cost of reactive power has been included. The profit function is subject to the following operating ‘constraints ee @ Prin S(P+T)S Pay @) Quin SOS Orne @ ‘The first inequality constraint can be converted into an equality constrain using a slack variable as follows: (P+T¥ +Q? +t? =5' 6) ‘Table 1: Data forthe IPP owned 197 MW generator. way Equations (8), (9) and (10) can be used to determine the optimum production level of real power, reactive power and spinning reserve of an Independent Power Producer based on given market prices of these commodities. Successive relaxation technique is used to ensure that the constraints (3), (4) and (6) are not violated. 4.1 Application ‘The 24-Bus IBEE-RTS [2] has been utilized to provide numerical example on the application of the proposed optimization model, It is assumed that an IPP ‘owns and operates a 197 MW generating unit connected at Bus 13. Table 1 shows generation limits and cost parameters forthe IPP owned generator. Note that Pie is the maximum real power Real Power (MW) | Reactive Power | Maximum Cost Parameters (MVAR) | Apparent Power Pru] Pon | Onn | Com vay 3 b © s io? _[ eo [a0 [65.00 20737 ooo | 20.0971 | 301 22318 ‘A genertor’s ouput level cannot be increased instantaneously. The tte of change of a generator cuput is consmained by is ramp-up rate. The maximum magnitude of spinning reserve that a generator should commit is constrained by: Temxc xP © where = rnp rate of generator in MW/min. Tis either 10 or 30 minutes depending on the type of spinning reserve market ‘The Lagrangian can be expressed as L=n-AM(p+TP +Q?+P-S?) The derivatives of the Lagrangian with respect to real and reactive power, spinning reserve, the slack variable + and the Lagrangian multiplier 2 are obtained. After solving the corresponding derivatives the optimal outputs of real power (P), reactive power (Q) and spinning reserve (7) can be obtained ws follows; O-o,-b pot 6 Producing capacity of a generating unit with its reactive power at Ona and Q's is the maximum reactive power producing capacity of a generating unit, with its real power at Ppa Depending on the market price of real power, five possible operating conditions exist, which are discussed below. The reactive power variable cost coefficient d is. considered 1% of the corresponding real power cost coofficient b. The reactive power fixed cost coefficient @ is considered 10% of the corresponding real power ‘ost coefficient c. 197 MW generator is considered for the profit maximization model. A ramp rate of 2% is considered. Figures 1-3 show the maximum profit as function fof real power, reactive power and spinning reserve prices. ‘Ten-Minute Spinning Reserve bids are considered for the calculation of profit. Figure 1 shows ‘variation in profit with changes in reactive power and spinning reserve prices while real power price remains constant at 23 S/MWHr. Figure 2 shows variation in profit with changes in reactive power and resl power prices while spinning reserve price remains constant at 2 SMWEtr Figure 3 shows variation in profit with - 1939 -