On the Economics of Power System Security in Multi-Settlement Electricity Markets

Abstract

<para xmlns:mml="http://www.w3.org/1998/Math/MathML" xmlns:xlink="http://www.w3.org/1999/xlink"> The tight coupling between system and market operations implies that there are strong interrelationships between system security management and market performance. Therefore, the assurance by the regional transmission organization (<emphasis emphasistype="boldital">RTO</emphasis>) of secure system operations strongly depends on, and directly impacts, electricity markets. Typically, electricity is traded in a sequence of markets that are cleared at different frequencies and with different lead times. In this paper, we focus on the hourly day-ahead markets (<emphasis emphasistype="boldital">DAM</emphasis>s) and their associated real-time markets (<emphasis emphasistype="boldital">RTM</emphasis>s) that clear, typically, every 5 to 10 min. The <emphasis emphasistype="boldital">DAM</emphasis>s' clearing impacts the nature and the extent of the participants' responses to real-time conditions and, therefore, the real-time system operations, which, in turn, impact system security. The basic thrusts of this work are to quantitatively characterize the linkages between the real-time system security and the day-ahead markets as well as to investigate the role of the financial entities in a multi-settlement system. We develop a systematic approach that allows us to quantify the auction surplus attained through the multi-settlement system and evaluate the impacts of the <emphasis emphasistype="boldital">DAM</emphasis>s on market participants' bid/offer surpluses as well as on improving the ability to facilitate real-time secure power system operations. We illustrate the application of the approach on the large-scale ISO-NE multi-settlement system using the historical 2005–2006 data—the system model and the bids/offers submitted—and the actual market clearing methodology. The studies bear out the well known fact that the participation of financial entities leads to the convergence of the <emphasis emphasistype="boldital">DAM</emphasis> and the associated <emphasis emphasistype="boldital">RTM</emphasis> prices. Moreover, these studies also illustrate that such participation leads to improved forecasts of the real-time system operations, and consequently results in improving the assurance of system security. </para>