2nd IEEE International Conference on Power and Energy (PECon 08), December 1-3, 2008, Johor Baharu, Malaysia

Comprehensive model for simultaneous pricing of active and reactive power based on marginal cost theory
M. Aghazadeh Tabrizi * and M. E. Hamedani Golshan **
*

Isfahan University of Technology/ECE Department, Isfahan, Iran. Email: m_aghazadeh@ec.iut.ac.ir ** Isfahan University of Technology/ECE Department, Isfahan, Iran, Email: hgolshan@cc.iut.ac.ir

Abstract In this paper, a comprehensive problem for calculating active and reactive spot prices based on short run marginal cost theory is presented. In order to calculate marginal costs, an optimal power flow, including objective function and constraints, is solved, that is real and reactive power dispatch so as to minimize total operating cost of utilities, subject to the operational constraints. The goal of this paper is to complete the formulations which were proposed in literature. Therefore, the formulation adopts a synchronous generators steady-state model with nonlinear reactive power limits and two kinds of load modeling. The model is solved for five-bus and IEEE 30-bus test systems using the high-level programming platform GAMS and nonlinear programming solver MINOS. Furthermore, the effects of network constraints and power market parameters such as profit rate, on the marginal prices, have been investigated in detail. Keywords function Optimal power flow, Spot pricing, Demand

I. INTRODUCTION The important objectives such as improving reliability, facilitating economical operations, enhancing efficiency and promoting customer choices have led to move power systems from integrated industries to competitive markets. If there is no reasonable and fair structure for reactive and active power pricing in competitive electrical markets, investors will not have enough incentives to create active and reactive power sources. Therefore, independent system operator will have difficulty in supplying systems loads, ensuring appropriate level of voltage profile and other system constraints. Other objectives of a proper pricing structure are reduction of generation costs, preservation of system constraints, increase of various participants' benefits and implementation of load management. Different methods have been proposed for electricity and ancillary services pricing. Spot pricing is one of the these methods for electrical power systems pricing which does away with concepts such as demand charges, backup charges, block rates and so on. Instead, an energy market place for electrical power is established. The spot price for buying and selling electric energy and ancillary services such as reactive power services is determined by the supply and demand conditions at that instant. A brief survey of spot pricing based on long term marginal cost theory was proposed in [1]. Marginal cost is defined as an incremental cost for producing additional power. In [2], spot pricing concept and some of its

practical aspects were investigated by Shweppe. Berg pointed out the limitations of a reactive power pricing policy based on power factor penalties, and suggested the use of economic principles and spot pricing based on marginal theory [3]. Buaghman and Siddiqi [4] decided the active and reactive power spot prices at each bus by solving the bi-level optimization problem consisting of two parts. However, this formulation hardly represents uniform power factor demand, which is a common consumer's behavior. Also reactive power generation costs have not been considered in their formulation. In [56], different aspects of a model for real-time pricing of electricity including selected ancillary services and extended constraint were investigated, theoretically. In [7] active and reactive prices were obtained through a decoupled optimal power flow. This method leads to reduction of economic efficiency and careless prices. Two pricing methodologies for reactive power services based on performance requirements and local reactive power markets have been introduced by Hao [8]. Social benefit function can be used as an objective function in order to solving OPF instead of the cost function. By using this function, marginal social benefit of buses are obtained [9]. Economic costs of reactive power and concept of explicit and implicit costs are analyzed in [10]. Also in [10] different from previous objectives functions, a cost-based reactive power dispatch is presented which provides information only on the costing of reactive power. In this paper, a comprehensive optimal power flow is used to identify the active and reactive power spot prices in each bus. In comparison with previous works, the formulation is completed. It adopts a synchronous generator steady-state model with nonlinear reactive power limits and two kinds of load modeling. The model is solved for five-bus and IEEE 30-bus test systems using the high-level programming platform GAMS and nonlinear programming solver MINOS [11]. Furthermore, the effects of network constraints and power market parameters such as profit rate, on the marginal prices, have been investigated in detail. II. GENERALIZED OPTIMIZAION METHOD

A theory of spot pricing of active and reactive power that reflects the underlying physical and engineering properties of electricity is proposed below. It is assumed that a single welfare-maximizing public utility owns and operates the generating plants and transmission network of the electric power system under consideration and it sells active and reactive power to independent customers. The

1-4244-2405-4/08/$20.00 2008 IEEE

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2nd IEEE International Conference on Power and Energy (PECon 08), December 1-3, 2008, Johor Baharu, Malaysia

utility is assumed to be able to set and communicate prices instantly, and can set a different price for each customer location at each moment. In our formulation, the customers are modeled in two ways: with constant load or with price-dependent loads. However, in each two ways, the customer responses to these prices are assumed to be known. It is also assumed that demands are independent of past and future prices and, correspondingly, for generating costs. Therefore, the model can be solved as a single period model. In addition the electricity consumer competition is neglected. A. Objective Function The objective of the pricing policy is to maximize social welfare, that is, to maximize consumers' plus producers' surplus, subject to the operational constraints. This is accomplished by setting prices of real and reactive power at each bus at a particular time equal to the marginal costs of supplying real and reactive power, respectively, at that bus and that time, where the marginal costs are determined on the basis of an optimal load dispatch, that is, real and reactive power dispatch so as to minimize total operating costs of the utility, subject to the operational constraints. The pattern of optimal load dispatch is dependent on the real and reactive power demands, and on the other hand, real and reactive power demands may be dependent on the prices, that is, marginal costs determined from the optimal load dispatch. Thus, considering price-dependent loads, this is a bi-level problem consisting of an upper and a lower level. The upper level problem is to consider demand functions, while the prices are implicitly determined by the lower level problem, which is to minimize total operating costs subject to the operational constraints. The demand functions are assumed to be of log-linear form with constant price elasticity and cross-price elasticity [4]. The demand functions may be mathematically written as follows:
PDi = D pi MC pi

management and system maintenance will not be included in the objective function, which should be considered independently. With regard to the above statement, the objective function takes the form:
Min C pgi (PGi ) + COCi (QGi ) + iG iG

C (Q )
Tj Tj jC

(3)

Where {G} is the generator set; {T} is the reactive sources set in the transmission system; Cpgi(PGi) is the active power production cost of generator i; COCi(QGi) is the reactive power production cost of generator i; CTj(QTj) is the equivalent production cost of reactive power source j to be explained below; PGi and QGi are the active and reactive power output of the generator on bus i; and QTi is the reactive power output of reactive power source j. The production cost of active power is dominated by fuel cost function which is modeled by a quadratic function where a, b and c are predetermined coefficients:

C pgi ( PGi ) = a + bPGi + cPGi

(4)

QDi = Dqi

( )E (MCqi )E (MC ) (MC )

pi

pqi

i {L}

(1) (2)

The reactive power cost of generator, i.e. the second item in (3), is dominated by opportunity cost. A generator's capacity constraint, which is usually called the loading capability diagram, plays an important role in calculating its opportunity cost. The capacity constraint is the restriction on the operation of a generator, which is limited by the synchronous generator armature current limit, the field current limit, and the under excitation limit. Because of these limits, the production of Q will reduce its active power generation capability. The corresponding implicit financial loss to generator is referred as opportunity cost [10]. Actually it is difficult to determine the real value of opportunity cost. The market conditions, the cost of productions and the profit obtained by selling active power affect opportunity cost. For simplicity, the opportunity cost is taken as follows [12]:
2 2 COCi (QGi ) = C pgi (S Gi,max ) C pgi S Gi ,max QGi * k

Eqpi

Eqi

pi

qi

i {L}

(5)

The parameters of the (1) and (2), which are Dpi, Dqi, Epi, Eqi, Epqi and Eqpi, vary with customer classes, time under consideration and other exogenous factors. Alternatively, the active and reactive loads can be assumed to be known from load forecasting and kept constant during optimization. In other words, in this case the price elasticity and cross-price elasticity factors are set to zero. Taking the power flow equations as constraints along with other operational constraints, the lower level problem becomes a typical optimal power flow problem which has the objective of minimizing the total cost operation. The objective function in this OPF includes total cost including active and reactive power production costs of generators consisting of fuel cost and opportunity cost for reactive power generation and capital investment of capacitors referred to as an equivalent production cost. Since the operating cost of producing reactive power is much less than that of real power where the capacity exists, the operating cost of generating reactive power is assumed to be negligible. In addition, the cost of network

Where SGi,max is the nominal apparent power of the generator i; K is the profit rate of active power generation and is usually between 0 and 10%. The third item of (3) represents the production cost of reactive power compensators which must include the capital investment return, which is expressed through a depreciation rate depending on its lifetime [10]. B. System Constraints The equality constraints are load flow equations:

PGi PDi ViV j Yij cos (

ij

ij

QGi QDi ViV jYij sin(

jN

jN

)= 0

(6) (7)

ij

ij

)= 0

Where N is the total number of buses; PDi and QDi are the active and reactive power demand on bus i; Yij ij is the element in the bus admittance matrix; Vi = Vi i is

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2nd IEEE International Conference on Power and Energy (PECon 08), December 1-3, 2008, Johor Baharu, Malaysia

the bus voltage at bus i and ij=. i- j. The inequality constraints used are: Generation limits: PGi ,min PGi PGi ,max , where i {G} Active and Reactive power output limit of reactive power compensator: QTj,minQTjQTj,max and PTj=0 for j {c} Thermal limits lead to apparent power flow constraints for transmission lines: |Sij|Sij,max where:
S ij = V i V i V j y ij

L ( P G ,Q G ,V , + C T j (Q T j
j c

)=

)

Gi

i G

pgi

( PG i ) + C O C i (Q G i )
c o s ( ij ij ) s in ( ij ij )

(1 3 )

i N

(M C ) P
pi

PDi

j N

V
j N

V jY V jY

ij

i N

(M C

qi

g i , m in ( PG i PG i , m in
i G

)Q Gi Q

Di

V
i G

ij

)+

g i , m a x ( PG i PG i , m a x

[(

) ]*

* ' y + V i V i ij 2

(8)

+ g in , m a x Q G i
i G

g in , m in
i G

( (Q

S G2i , m a x PG2i S
2 G i , m ax

Gi

2 Gi

) )
)

In which yij and y'ij are line series and charging admittance, respectively. Voltage limits for generator buses i.e. |Vi|=constant where i {G}, for load buses i.e. Vi,min|Vi|Vi,max where i {L} and slack bus: |Vi|=constant, i = constant, which i represents a slack bus. Stability limits, which are dominant for longer lines in transmission network, are expressed for lines between bus i and j as ij,min i- j ij,max Tap of transformers limits which are expressed as tij,mintijtij,max where tij,min, tij and tij,max are the maximum, current and minimum values of the tap of the transformer between bus i and j. The limits of the generated reactive power with respect to the maximum armature current Iaimax are given as:
max QGi Vti I ai

T i , m in (Q T i Q T i , m in
i C

)+

i C

T i , m a x (Q T i Q T i , m a x

i N

i j

ij , m a x

j N i j

(S

ij

S ij , m a x

)
i N J N

i N

j N

ij , m in ( ij ij , m in ) +
i

i j

ij , m a x ( ij ij , m a x
V
i , m ax

i , m in (V
i L

i , m in

)+
i L

i , m ax

(V

i j j N

i N

ij , m in (t ij t ij , m in ) +
2

i N

(V

i j

j N

ij , m a x (t ij t ij , m a x l
E
m ax af i

+ g if
i G

, m ax

V ti 1 Q Gi + X si X si

ti

(X

si

PG i

)
2

g iu , m in
i G

PG i V 2 + ti Q Gi ' tan m a x X si

QGi

( (V

ti

max I ai

) P ) P
2
2

2 Gi

i { G }
i { G }

(9) (10)

2 Gi

Where Vti and Iaimax are the terminal voltage and maximum armature current for generator at bus i, respectively. The maximum field heating limit for synchronous generators can be derived as follows:

QGi

Vti2 1 2 max 2 + VtiEafi ( XsiP ) Gi Xsi Xsi

i { G }

(11)

In which Eafimax and Xsi are the magnitude of maximum internal voltage and synchronous reactance for generator at bus i, respectively. The under excitation limit restricts the maximum ' ( 'max) in order to prevent the loss of synchronism of the generator at bus i as :
min QGi ,underexitation =

According to the theory of micro economics, in the above lagrangian function, the active and reactive power marginal prices on bus i are the lagrangian multiplier values of the equality constraints, which are MCpi and MCqi, respectively, and will be taken as the corresponding spot prices in electricity markets [4, 7, 9]. The lagrangian multiplier values are calculated by solving the first order condition of the lagrangian. Therefore, there is a relation between the lagrangian multipliers, MCpi and MCqi, and other multipliers relating to inequality constraints and cost functions. In other words, lagrangian multipliers of inequality constraints and different kinds of objective functions can affect the active and reactive power marginal prices. III. VERIFICATION ON TEST SYSTEMS Two test systems, a simple five-bus and IEEE 30-bus test system, have been used to test the proposed methodology for analysis of the active and reactive power marginal prices. The comprehensive model is a nonlinear programming problem and is solved using the high-level programming platform GAMS and nonlinear programming solver MINOS. A five-bus system [14] diagram is shown in Fig. 1,. There are two generators on buses 1 and 2. The nominal apparent power of each generator is 125 MVA. The lower and upper limits of power generation are 20 and 125 MW. The fuel cost function of each generator is given as: Cgpi (PGi) = 75+ 750PGi+ 420PGi2 (14)

PGi tan
' max

Vti2 X si

i {G}

(12)

Where ' is the angle between the terminal voltage and the quadrature axis. Iaimax and Eafimax have values of 5 and 10% above the nominal values, respectively. On the other hand, 'max normally has a value between 70 and 85 [13]. Based on the above mathematical model the corresponding lagrangian Function of this optimization problem takes the form:

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2nd IEEE International Conference on Power and Energy (PECon 08), December 1-3, 2008, Johor Baharu, Malaysia

G
1

TABLE I.
3 4 COEFFICIENTS OF DEMAND FUNCTIONS

Dpi

Dqi

Epi

Eqi

Epqi

Eqpi

bus
2 5

2 3 4 5

0.34 0.6 0.5 0.7

0.17 0.29 0.18 0.28

-0.2 -0.1 -0.1 -0.05

0 0 -0.1 -0.1

0 0 -10
-4

-0.2 -0.1 -0.05 -0.02

Figure 1. A five-bus test system diagram

All the parameters stated here are in per unit on a 100 MVA base. The capacity of installed capacitors on bus 4 is 50 MVAr. The other data of this system are in [14]. The other system operation limits used are transmission power limit: Sij2, voltage limit: 0.95Vi1.05 and swing bus settings: V1=1.05 and 1=0. In order to solve the model for five-bus test system and investigate the impacts of various constraints two cases are considered. In the first case the loads are modeled by demand functions. There is no active and reactive power demand on bus 1. The coefficients of demand functions for other four buses are given in Table . With regard to the above data, active and reactive power prices for five-bus test system and for the first case are calculated and given in Table II. Table II shows that the reactive power prices in comparison with active power prices are very low and variable from one bus to another bus. Generally in non-stressed power systems in which no variables reach their upper and lower limits, the active power marginal price is much higher than reactive power marginal price. In the second case whose purpose is to investigate the impacts of various constraints on prices, the loads are assumed to be known from Load forecasting and are constant. The system loads in this case for buses 1 to 5 are 0, 0.2, 0.45, 0.4 and 0.6 per unit with power factor of 0.9. Fig. 2, shows that when the load power factor reduces from 1.0 to 0.6 on bus 5, since the bus voltages reduce and become closer to the voltage limits, the MCqi increases greatly which can be used as an index of the urgency of the reactive power supply and voltage support on that bus. However, Fig. 3, shows that when the local reactive source is used up at the power factor of 0.85 on bus 4, the load bus voltage will reduce along with the power factor reduction and the pertaining MCqi will increase significantly. Fig. 4, is obtained from the stressed test system in which the active and reactive loads are two times higher than the normal test system and shows that even with high power factors, the reactive power marginal prices may rise significantly. Also it indicates that at poor power factor, the reactive power marginal price can even be higher than the active power marginal price. The relationship between reactive power prices and voltage limits can be seen in Fig. 5,. This figure indicates that any change in voltage limits can affect reactive power prices. The effect of reactive power generation limits at bus 4 on reactive power prices is shown in Fig. 6,. Generally, if the system operation margins reduce, active and reactive marginal prices may vary significantly due to the fact that lower and upper limits of variables might be reached more quickly with any change in system demands.

-0.04

TABLE II. MCPI AND MCQI FOR FIVE-BUS TEST SYSTEM- FIRST CASE Bus price
MCpi MCqi

1 14.48

2 14.76

3 15.25

4 15.30

5 15.45

0.0708 0.1508 0.1803 0.1324 0.4065

Voltage Bus, Reactive power Marginal Price ( $/ MVArh)

3 2.8 2.6 2.4 2.2 2 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 0.6 0.65 0.7 0.75 0.8 0.85 0.9 0.95 1 Marginal Price Voltage Bus

Power factor at Bus 5

Figure 2.
Voltage Bus (pu), Reactive power marginal Price ( $/ MVArh)
1.1

Voltage and reactive power price vs. power factor for bus 5

Marginal Price Voltage Bus

0.9

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1 0.6

0.65

0.7

0.75

0.8

0.85

0.9

0.95

power factor at Bus 4

Figure 3.
50

Voltage and reactive power price vs. power factor for bus 4

Active Power Marginal Price Reactive Power Marginal Price 45

Active & Reactive Marginal Price

40

35

30

25

20

15

10

0 0.7

0.75

0.8

0.85

0.9

0.95

Power factor at Bus 5 (Heavy Load)

Figure 4.

Active and reactive power marginal price vs. power factor at bus 5 for stressed test system

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2nd IEEE International Conference on Power and Energy (PECon 08), December 1-3, 2008, Johor Baharu, Malaysia

0.6 Bus1 Bus 2 Bus 3 Bus 4 Bus 5

0.6

reactive power price ($ / MVArh)

Bus1 Bus2 Bus4

0.5
Reactive Pow er Generation (pu)

0.5

0.4

0.4

0.3

0.3

0.2

0.2

0.1

0.1

0 0.98

0.99

1.01

1.02

1.03

1.04

1.05

upper voltage limit on bus 3 (pu)

-0.1

10

K (%)

Figure 5. Reactive power price vs. upper voltage limit at bus 3

0.7 Bus1 Bus2 Bus3 Bus4 Bus5

Figure 8. Reactive power output of generators and capacitors vs. profit rate

reactive power price ($ / MVarh)

0.6 0.5 0.4 0.3 0.2 0.1 0 0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

upper limit of reactive power generation on bus 4 (pu)

Figure 6. Reactive power marginal price vs. upper limit of reactive power generation on bus 4

Opportunity cost of reactive power is strongly dependent on the profit rate of selling active power. In all the previous results it is assumed that the profit rate k in (5) is 5%. In Fig. 7, and 8 it is assumed that the profit rate changes from 0 to 10%. Fig. 7, indicates that reactive power marginal prices at bus 2 and 5 are affected more than that at bus 3 and 4. The reason is that the consumers at buses 3 and 4 mainly use reactive power produced by capacitors whose price are not affected by k. Fig. 8, shows the reactive power output of generators and capacitors while the profit rate changes. In this figure when profit rate increases, which implies higher opportunity cost of reactive power produced by generators, the system tends to use the capacitors at bus 4 as much as possible. In other words, when k nears zero, the system tends to use reactive power produced by generators as much as it can, which is reasonable.
0.4 Bus2 Bus3 Bus4 Bus5

Also the comprehensive model is solved for 30-bus IEEE test system with load factor equal to 1.25. Data on this system are in [13-15]. Active power prices for this system are plotted in Fig. 9,. It is well known that active power marginal prices depend on electrical distance. If a consumer bus is distant from the generator, the active marginal price will rise. Results of reactive power pricing and bus voltages are displayed in Fig. 10,. Bus 26, a PQ bus, has the minimum voltage magnitude and maximum reactive power marginal price which can be an indicator for the installation of new reactive power sources and consequently the bus voltage profile and power quality may be enhanced. It is evident that the active and reactive power marginal prices provide economic signals to reduce the reactive power consumption. In all the above cases the local characteristic of the reactive power pricing is obvious. Hence, solving the modified optimal power flow for large power systems may be not advisable. Some alternatives are recommended to solve this problem.
50

Active power price ($/ MWh)

45

40

35

30

10

15

20

25

30

Bus
0.35

Reactive Power Marginal Price ($/MVarh)

Figure 9. Active power marginal prices for 30-bus IEEE system

1.4

0.3

Reactive power price($/ MVarh) & bus voltage( pu)

0.25

Reactive power price 1.2 1 0.8 0.6 0.4 0.2 0 0

Voltage

0.2

0.15

0.1

0.05

10

k (%)

Figure 7. Reactive power marginal price vs. profit rate

10

15

20

25

30

Bus

Figure 10. Reactive power marginal prices & bus voltages for 30-bus IEEE system

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2nd IEEE International Conference on Power and Energy (PECon 08), December 1-3, 2008, Johor Baharu, Malaysia

IV. CONCLUSION A comprehensive problem for simultaneous calculation of the active and reactive power marginal prices was presented. This problem is an optimal power flow in which the active and reactive power production costs is minimized. Electrical characteristic and capability curve of synchronous machines have been considered in system constraints. In addition, two kinds of load modeling along with the effects of network constraints and market parameters on the marginal prices have been investigated in detail. The model has been solved for two test system. It was observed that there are some factors which may have significant impacts on active and reactive power marginal prices especially when certain system operation limits are reached. Some advantages and disadvantages of marginal prices have been discussed. REFERENCES
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