ANALYSIS OF SPOT PRICES ARRANGEMENTS IN DEREGULATED

ELECTRICITY MARKET

Tehzeeb-ul-Hassan Ashiq Haral Dr. M. Farooq Aslam

Associate Professor Ph.D. Scholar Professor
Department of Electrical Department of Electrical Department of Electrical
Engineering Engineering Engineering
University of Engineering. & University of Engineering. & University of Engineering. &
Technology, Lahore, Pakistan Technology, Lahore, Pakistan Technology, Lahore, Pakistan
hassan uet44ahoo. corn aharala,gmnai.Lcor rnaslam maiL, corN

ABSTRACT
The absence of central coordination in deregulated
electricity markets sets a new range of challenges to their
organization and functioning. Although a lot of academic
research has been done in the recent years on these topics,
contributions and discussions tend to stay within a single
field of policy analysis. The fundamental factors in the
operation of electrical power systems, at a macro level,
are distribution of the operation parameters over vast
areas, dominance of human factors and high
dimensionality of the problem.
Economics and stability are two disjoint areas of electrical
power system operation. Economic operation of power
systems is a complex problem of decision management
because of distributed nature of the information,
dominance of human factors and high dimensionality of
the state space. The new deregulated market environment
has rendered this management even more complex.
Contemporary power system operation is based on the
idea of a central load dispatch center (CDO). The data
arriving in the CDO from all over the system, is although
useful for system stability, is of little value for the short
term economic operation. Interconnection of independent
power producers (IPP) has increased the state space to the
level of combinatorial explosiveness, while recent
development of multiple fuel plants has added to the
dominance of the human factor. Distributed client-server
databases, artificial intelligence, internet and the intranets
are emerging information technologies that can be
effectively utilized to address these problems.
Distributed economic operation is a new area of research.
This paper extends that research to the management of
information distributed in the power network to make it
useful for short term economic operation.
KEY WORDS
Distributed Economic Operation, Client-Server
Databases, Decision Management
1. Introduction
Academic discussions about the opportunities and
challenges associated with introducing wholesale and
retail competition into the electric power sector have gone
on for decades. However, serious considerations of
comprehensive electricity sector restructuring and
deregulation initiatives in the U.S. only began in the mid-
1990s, following the first comprehensive privatization,
restructuring, wholesale and retail competition program
undertaken in England and Wales (E&W) in 1990 [2]. A
number of other countries followed the same practice
after that. However the process seems to be still in its
evolution stage, even after 15 years of inception of the
idea of deregulated and competitive electricity market. [1]
In the last quarter of 1999 and early 2000, the collapse of
California's electricity restructuring and competition
program has attracted attention around the world. Prices
in California's competitive wholesale electricity market
increased by 50000 between the second half of 1999 and
the second half of 2000. For the first four months of 2001,
wholesale spot prices averaged over $300/MWh, ten
times what they were is 1998 and 1999 [2].
Although wholesale prices began to moderate
significantly during June 2001, the California's
experiment poses a big question to the new electricity
restructuring regime. And while many analysts predicted
that there would be problems resulting from a variety of
market design and regulatory decisions made during the
new system's formation, nobody predicted that
California's electricity restructuring and competition
reforms would lead to such a huge mess [3].
1.1: Restructuring of the Power Market
Replacing the hierarchical governance arrangements with
well functioning decentralized market mechanisms is a
very significant technical challenge, about which even the
best experts have disagreements. [2]

Authorized licensed use limited to: INTERNATIONAL ISLAMIC UNIVERSITY. Downloaded on July 29,2020 at 09:57:17 UTC from IEEE Xplore. Restrictions apply.
The restructuring and competition initiative got off on the
wrong foot in the very beginning, at least in part because
of the underestimation of the nature and magnitude of the
technical and institutional challenges associated with
introduction of competitive wholesale and retail
electricity markets and the associated uncertainties.
To some extent this underestimation was strategic,
reflecting efforts by some participants in the process to
feather their own nests. However, it also reflected a
combination of ignorance, political barriers, and true
uncertainty about how best to restructure to support
competition and how to design effective wholesale and
retail market, transmission, and system operations
institutions. The experts did not, and in many areas still
do not, agree on exactly how best to proceed with these
structural and institutional reforms [2].
This and other growing pains of the electric energy
industry restructuring are becoming quite visible to the
general public now. These are reflected either through
undesired service interruptions and/or through highly
volatile electricity prices [4]. If deregulation is to play a
role in helping to improve the efficiency with which
electricity is produced and used, it must be introduced as
part of a long-term process that also encompasses
regulatory and structural reform [5]. Electricity
restructuring is likely to involve both costs and benefits. If
the restructuring is done right the benefits can
significantly outweigh the costs [6].
Present day electrical power systems are spread over very
vast areas. All principal entities participating in the
system operation continuously generate a lot of data. In
the contemporary system operation CDO is responsible
for keeping all the data that is sensed from various
locations by Regional Telemetry Units (RTU) and
subsequently transmitted by Supervisory Control And
Data Acquisition (SCADA) system. As a result the CDO
is overloaded with a huge amount of data that not only put
a multidimensional impact on the system performance but
getting useful information from this pile is in itself a
difficult problem [8,9].
The system operation has two main aspects; economic
and stability. These two are disjoint areas of system
operation [10]. A less obvious impact of sending whole of
the telemetry data to the CDO is that parameters required
for stability and control of the system are easily sensed by
the RTU and find their way easily to the control center
whereas most of the parameters crucial for economic
operation are not transmitted by SCADA and are
dispatched through slow paper links [11]. Thus most of
this data that is distributed in various parts of the system
is lying dormant and do not participate in any way
whatsoever, in the economic operation. Before the present
era of information technology, it was not even
conceivable to find any suitable means for mobilizing this
information [12].
The information generated by all entities may be logged
by online logging system at regular intervals, into
Authorized licensed use limited to: INTERNATIONAL ISLAMIC UNIVERSITY. Downloaded on July 29,2020 at 09:57:17 UTC from IEEE Xplore. Restrictions apply.
properly designed intelligent database systems and thus
can be made available at important points to actively
participate in the decision making process [13]. These
client-server databases when properly connected would
transform the electrical power system into a distributed
information network. See Fig. 1.
Installation and use of intelligent client-server databases
require another kind of system architecture entirely
different from contemporary centralized control.
An important question arises here, "Where to put this
data?" The reengineering paradigm provides an answer
that is significantly different from conventional
contemporary practice which requires keeping the data
where it is generated. The information generated by the
principal entities can then be logged into client-server
databases and may be processed at the sites it is being
collected and the single transaction containing the output
could then be sent over the intranet to the CDO. This
would not only reduce the network traffic but also would
relieve from the costly hardware of the SCADA system.
Distributed problem solving is said to occur when a
number of independent problem-solving agents
collaborate in solving a problem. Collaboration is
necessary when no single agent can solve the entire
problem [13]. It is easy to visualize that the problem of
power system operation is distributed in nature, where
most of the problem-solving agents are hundreds of
kilometres apart. Individually none of them can solve the
entire problem and thus collaboration is necessary [10]
A prime motive behind the deregulation movement is to
provide electricity to the general public at a cheaper rate.
For economic operation of the system, the fuel cost
characteristic are modeled for each unit in the system as a
quadratic and are shown in (1) below.
+ 2 (1)
F(P) a+ /P+
Where F(Pi) is the cost of fuel incurred per hour. The
determination of the parameter cc, D and y requires the
availability of data relating the cost F(Pi) to the
generation level Pi considering the operation of m thermal
generating units on the same bus [7,14]. Assuming that
the variation of the fuel cost (F.) of each generator with
similar to(i) above, the total fuel cost of the plant can be
given as the sum of the individual unit cost converted to
$/h [14,15].
F =
2+ p +
ai +
Iip2
1
For the system operation to be optimally economic, all the
units participating in the operation at a certain time should
operate at equal incremental fuel costs [15]. Therefore as
a necessary condition for optimal economic operation,
 indee
TransmissionLine

oprtn teu

indee oprtn ateul ice

K_ g~ ~ ~ E6
Information Network

lce ntl fue

ntl ful
cost

GeneratorsILoad
coss5-
[15.3
tI
..................

3.C nrbto
onrbtono
Staition Bus

rsetW r

lengths are in
fPeetW r

kilomffeters
~ ~ ~ Fig.1: Electrical Pow er System as an Inform ation

Wales,enuhthe g aeneratin comanites submittheir

bnids caeoaigeuisrscnieeenthsppr o nt

the idsfor ive plats reFige when theti suppler ste n Load o
L ad
reflecting a price for power from their plants. The price operating multiple gas fuels where the gas fuel can be
on
bid by the last plant used to meet electricity needs in a readily mixed together not only causes the calorific value
given period is the
time availabl
haves mnouhtmaesre price
e for
capacity. capacity from all plants.
[16]s to change, but at the same15.e1.
Gar600 time it also changes
72 the price
.04 of
According to theoretical studies of this kind of market fuel in a complicated manner. [17] However to keep the
operation suggests that bidders selling more than one unit analysis simple only the case of single gas fuel is used.
of a good have a monopoly to increase the prices they bid
at high quantities. According to Catherine D. Wolfram

Authorized licensed use limited to: INTERNATIONAL ISLAMIC UNIVERSITY. Downloaded on July 29,2020 at 09:57:17 UTC from IEEE Xplore. Restrictions apply.
 GT-2 400.0 100.0 310.0 7.85 0.00194 GT-3 1147.613 to 1343.950 Rs/MWh
GT-3 l200.0 50.0 78.0 7.97 0.00482
Maximum IFC of the system 1343.950 Rs./MWh
Units are indicated by GT- 1, GT-2 and GT-3. The data of
units is taken from reference [15] and is shown in Table I Minimum IFC of the system 1035.458 Rs./MWh
above.
The results of load dispatch are given below in Table III.
Table II:Data of gas fuels used, I US $ = 63 Rs., and The spare loading capacity under this load dispatch in
Hm3 = 100 m3 each unit is also shown
Calorifi'c Prc Sae
Gas Field Value rice3
R2s/Hm Sal
Tax
Table III:Result of load dis atch, I US $ = 63 Rs.
Btu/Cft Unit QT41 GT-2 GT-3
Sui 918 382.77 15.0 Ful SLi Gap Sui Gas SLi Gas
Mani 724 361.22 15.0 Load MW 578.52 255.92 90.0
Kandh Kot 699 363.26 0.0
Tullow 875 382.63 0.0 Energy
Supplied MWh 578.52 255.92 90.0
ostl IkWh 1.238 1.238 1.238
The gas fuels are coming from 4 gas fields named as Sui, Spare
Mari, Kandhkot and Tullow and are shown in Table- Capacit 21.48 144.08 109.4
II.[17] These are the natural gas fuels actually used in
Natural Gas Thermal Power Station, Guddu, Pakistan. The unit GT-3 has the maximum IFC of all the three units
[18] and would be the last unit in the commitment order.
According to [16] if unit GT- 1 wins the bid and get the
Case study: shown in Fig. 2 below is the one where all the opportunity to supply the load the economic dispatch
three units are operating on the same fuel from Sui gas would be disrupted and the cost of unit of electricity
field. The IFC of units have large overlapping areas and would increase to Rs. 1.246 / kWh, causing a national loss
thus may be operated at a common system incremental of fuel to the country, although the individual generator
fuel cost IFC. may be running at a net profit.
This is the root cause of the California's electricity crises
1400.0 mentioned earlier in this paper. The price continued to
rise up to 500 % until the original company approached
B 1300.0 the bankruptcy.
t 1200.0 The case of multiple fuel units is more sever because the
&
1100.0
~~~~~~~~~~~~~change
in fuel not only changes the calorific value of the
fuel but the economic load sharing is also becomes void.
[19]
1000.0 0
-4-GT-1, Sui X
GT-2, Sui 0.0 200.0 400.0 600.0 800.0 4. Conclusion
GT-3, Sui Case I-B, Power P (MW)
Two sub problems in the system operation would be
Fig. 2: Case Study, where all 3 units are operating on addressed in this proposal; the problem of unit
the same gas fuel. commitment and economic dispatch of thermal units. At
present the priority list schemes are being used to
generate a 10 day schedule for the simulated conditions.
At an example load of 925 MW, the result of economicThsreacwolbinaluitonieadcret
This research would bring all units on line and current
disptchperaionis a folows
economic status would be available to the operators in
real time in the central dispatch office. It has been
Total Load = 925 MW estimated in a previous study that for a dispatch of 3
Units operating on fuel = Sui gas thermal units with a total capability of approximately
1200 MW, a saving ranging from Rs.0.6 Million to Rs.6.5
The.liits.o increentalfuel
Thellmtsof creenal ue cot cost (IFC)
(FC i Million is possible in a 24 hour operation, supplying
valaone
energy of about 22,000.0 MWh to the load. $ (1I =Rs.63
each generating unit are given below. (63 Rs. = n S)Approximately) US$)

GT-I1 1035.458 to 1208.985 Rs/MWh Power system network is to be represented as an

GT-21118.556
GT-2
1118556
= to 127.604Rs/MWhinformation
1276.604 Rs/MWhsystems wouldnetwork where client-server database
be installed at all thermal plants for

Authorized licensed use limited to: INTERNATIONAL ISLAMIC UNIVERSITY. Downloaded on July 29,2020 at 09:57:17 UTC from IEEE Xplore. Restrictions apply.
logging the economic parameters into suitably designed
database system. IEEE 30 bus network can serve as a
good starting point. The generation sites in the network
would be replaced by thermal plants comprising from six
to ten thermal units. The data for the fuels used by the
WAPDA for its thermal plants would be utilized in this
research whereas the heat-input characteristics for each
unit in each plant would be generated on the test bench
under simulation [30, 31].
Distributed database computing techniques would be
developed for completion of economic dispatch under no
transmission loss. These distributed database systems
would communicate over the internet.
To incorporate the effect of transmission losses the
network would be partitioned into different parts.
Partitioning rules has to be developed for that purpose and
would be a major contribution to knowledge.
Acknowledgements
5. 5.Acknowledgements
The authors are indebted to Chief Engineer, Natural Gas
Thermal Power Station, Guddu, Pakistan. The authors are
especially thankful to the University of Engineering &
Technology, Lahore for providing the necessary funding
for this research.
6. References:
1. Aslam M. Farooq, Tehzeb Hassan, and Tabrez A.
Shami, "Reengineering of Systems Operation; A
Solution to the Challenges in the Deregulated Market
Environment - I", WSEAS Transactions on Systems,
Issue 8, Vol. 4, August 2005
2. Joskow, P. L. The Difficult Transition to Competitive
Electricity Markets in the U.S. Conference on
"Electricity Deregulation: Where From Here?", Bush
Presidential Conference Center. Texas A&M
University, April 4, 2003.
3. Joskow, P. L. California's Electricity Crises,
Working Paper # 8442, National Bureau of Economic
Research, Massachusetts Avenue, Cambridge,
August 2001.
4. S. Stoft, PJM's Capacity Market in a Price-Spike
World, University of California, Energy Institute,
May 2000.
5. Joskow, P. L. and R. Schmalensee, Markets for
Power, MIT Press, 1983.
6. Joskow, P. L. Restructuring, Competition and
ReultryRfom nth .S letrctySctr
Journal of~~~~~~~
Ecnoi Prpcie, 113,Sme
1 997, pp. 1 19-138.
Authorized licensed use limited to: INTERNATIONAL ISLAMIC UNIVERSITY. Downloaded on July 29,2020 at 09:57:17 UTC from IEEE Xplore. Restrictions apply.
7. M. E. El-Hawary, Electrical Power Systems Design
andAnalysis, Virginia, Reston, 1983, pp. 701-716
8. Miao S., S. Wang, P. Liu, S. Cheng, The Design and
Implementation of the GPS based Real-time
Monitoring System for the State of Power Network,
Inentoa Jou l P e d r S m
Vol.21, No.3, 2001.
9. Pinheiro Raul, Zita A. Vale, Electrical Distribution
Network Measurement Data Pre-Processing for
Knowledge Discovery: Preliminary Results, Proc. of
IASTED International Conference on Power &
Energy System, EuroPES-03, Marbella, Spain, Sep-
03 - 05, 2003
10. Aslam, M. F., An Expert System for Optimal
Economic Operation of Mixed Hydro-Thermal Power
Systems, Ph.D. Dissertation, University of
Engineering and Technology, Lahore, 2004.
Distributed DatabaseLidgate
System for EconomicShami,
11. Aslam M. F., D. and T. A. A
Dispatch
of Thermal Plants, Proc. of IASTED International
Conference on Power and Energy Systems, EuroPES-
03, Marbella, Spain, Sep 03 - 05, 2003.
12. Aslam M. F. and T. A. Shami, Power System
Operation in Information Technology Era, Proc. of
the 2nd International Electrical Engineering
Congress, Lahore, Pakistan, Feb. 2001.
13. Talukdar, S. N. and Cardozo, E., Leao, L., Banares
R., and Joobbani R., A System for Distributed
Problem Solving, Workshop on Coupling Symbolic
and Numerical Computing in Expert Systems,
Bellevue, Washington, 27 - 29 August 1985
14. Kirchmayer, Leon K., Economic Control of
Interconnected Systems, New York: Wiley, 1959
15. Allen J. Wood and Bruce F. Wollenberg, Power
generation operation & control (New York: Wiley,
1984)
16. Catherine D. Wolfram, Strategic Bidding in a Multi-
Unit Auction: An Inperical Analysis of Bids to
Supply Electricity in England and Wales, Working
Paper 6269, National Bureau of Economic Research,
Cambridge, Nov 1997
17. Aslam M. Farooq, D. Lidgate and Tabrez A. Shami,
A Coupled Knowledge Based System for Online
Economic Dispatch of Multiple Fuel Units in a
Thermal Plant, Proc. 39th International Universities
Power Engineering Conference", UpecO4, Sep-06 to
Sep-08, 2004, University of West England, Bristol,
UK
18. R. A. Ansari, 450 MW Combined cycle power station
Guddu, technical & statistical data, Water and Power
Development Authorityv (Pakistan, 1995)
19. Aslam M. F., D. Lidgate and Tabrez A. Shami, Fuel
Cost Characteristics of CCP and Simple Cycle
Multiple Fuel Units, Proc. of 38th International
Universities Power Engineering Conference,
UpecO3, Thessaloniki, GREECE, Sep-01 - 03, 2003

Authorized licensed use limited to: INTERNATIONAL ISLAMIC UNIVERSITY. Downloaded on July 29,2020 at 09:57:17 UTC from IEEE Xplore. Restrictions apply.