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EEN/L-671:
RESTRUCTURED POWER
SYSTEMS
LECTURE 14: Distinguishing features of
electricity
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Distinguishing features of electricity and

its effect on market modelling
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Distinguishing features of electricity as a

commodity
Real time
demand-
supply
balance

Unusual
variations
in prices
Generator
product Power flows
compatibility obey laws of
and physics
interactions
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Real time demand and supply balance

• Real time supply demand balance is a must
• Forward trades are the estimates of real time scenario
• Imbalances are exposed only during real time
• Criticality is involved in speed of operation
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Real time demand and supply balance

Cause Effect

Day-ahead/
just ahead of
Scheduling and Dispatch real time

Real time supply-demand

balance
Imbalances

Real
time
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Scheduling and Dispatch

• SO has to be in-charge of fluctuating needs and
imbalances, the congestion and interdependencies
• SO has to tell producers in advance when to produce and
how much to produce and when to stop
• This is called scheduling and dispatch - to be coordinated
by SO through scheduling of contracts and real time
production-consumption balance
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Effects of scheduling and dispatch activity

• SO’s portfolio should be balanced!
• Price variation
• Market power under contingency situations
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Effects of Imbalances
• Security problem
• SO needs to deploy its own resources to achieve balance
• Acts as default service
• Suppose a generator sells power in forward market and does not
generate in real time – generator buys power in real time
• Imbalance service needs to provide for this
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Power flow obeys laws of physics

• You can’t give electricity an injection and drawal point and
ask it to follow a path decided by you!
• Flow of electricity is obeyed by laws of physics
• The state variables determine the power flow
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Power flow obeys laws of physics

Cause Effect

System operator can

Power flow obeys laws of Network
not arrange arbitrary
physics congestion
set of transactions

Blackouts
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Power flow obeys laws of physics

G1 18 G1 13.5

6 12 3 10.5

6 7.5

18 18
G2 0 G2 4.5

Economic consequences!
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Generator product compatibility and

interactions

Energy

Generator MW Reserve

MVAR
Regulation

Voltage
control
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Generator product compatibility and

interactions
Maximum
Unused
Regulation

Reserve

Energy

Minimum

0 MW
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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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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