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2003-04 Seminars

A Multi-Layered Approach to Transmission Provision and Pricing in the Electric Power Networks

Marija Ilic
CEIC, Engineering and Public Policy and Electrical and Computer Engineering

Abstract
In this talk, I review three qualitatively different mechanisms of delivering electric power under open access.  The first approach is based on optimizing power dispatch under transmission constraints, and providing a bundled electricity price signal which incorporates both energy and systems support charges. This approach is based on the original notions of spot electricity prices [1] underlies today’s spot markets in several parts of the U.S. electric grid and is recommended  by Professor Hogan at Harvard [1a]. The second approach allows for the electricity trading process to be separate from the transmission system support needed to deliver the traded power. This was introduced by several Berkeley faculties in [2].  The only constraint is that the market participants trade under the technical constraint that the transmission limits are not exceeded. There is no transmission price signal in this method. Finally, the so-called two-level transmission provision and pricing was introduced by Ilic et al at MIT in [3]. This method is based on iterative information exchange between the market participants and the transmission system provider: The market participants inform a system provider concerning the location and amount of power they wish to inject into particular locations within the electric grid, and the system provider, based on all given requests, optimizes use of the available transmission capacity and sends the transmission price signal to the market participants. The market participants adjust their requests, the delivery price gets adjusted, and the transactions are implemented. It is documented in [3] that at the equilibrium all three schemes result in the same optimum under several simplifying assumptions.

In this paper we review the assumptions under which these transmission provision and pricing schemes are designed and compared to:

• Analyze current industry proposals for transmission provision and pricing in light of the three methods.
• Propose a generalization of the method   described in [3] which allows for a multi-layered reliability-related risk management and valuation of system support.
• Summarize recent simulation   results [4, 5, 6]   illustrating typical outcomes of the multi-layered transmission provision and pricing.