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A NEW SWING-CONTRACT
DESIGN FOR WHOLESALE
POWER MARKETS
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A NEW SWING-CONTRACT
DESIGN FOR WHOLESALE
POWER MARKETS
Leigh Tesfatsion
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LibraryofCongressCataloging-in-PublicationData
Names:Tesfatsion,Leigh,author.
Title:Anewswing-contractdesignforwholesalepowermarkets/Leigh
Tesfatsion.
Description:Hoboken,NewJersey:Wiley-IEEEPress,[2021].|Series:IEEE
pressseriesonpowerengineering|Includesindex.
Identifiers:LCCN2020027003(print)|LCCN2020027004(ebook)|ISBN
9781119670124(hardback)|ISBN9781119670131(adobepdf)|ISBN
9781119670148(epub)
Subjects:LCSH:Electricutilities.|Electricutilities–Costs.|Options
(Finance)
Classification:LCCHD9685.A2T4662021(print)|LCCHD9685.A2(ebook)|
DDC333.793/23–dc23
LCrecordavailableathttps://lccn.loc.gov/2020027003
LCebookrecordavailableathttps://lccn.loc.gov/2020027004
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ThisbookisdedicatedtoHermanC.Quirmbachforhissteadfast
supportofthischallenging bookprojectandforhisinsistence,
bywordandexampleovermanyyears,thatreasoningbeboth
preciseandclear.
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CONTENTS
PREFACE xiii
AUTHORBIOGRAPHY xiv
ACKNOWLEDGMENTS xv
CHAPTER 1 INTRODUCTION 1
CHAPTER 2 USRTO/ISO-MANAGEDWHOLESALEPOWERMARKETS:OVERVIEW 9
2.1 ChapterPreview 9
2.2 GeneralGoalsforWholesalePowerMarketDesign 9
2.3 USRTO/ISO-ManagedMarketOperations 10
2.4 StressesFacedbyCurrentUSRTO/ISO-ManagedMarkets 14
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CHAPTER 3 MOTIVATIONFORCURRENTSTUDY 17
3.1 ChapterPreview 17
3.2 ProblematicDesignAspectsofUSRTO/ISO-ManagedWholesalePowerMarkets 17
3.2.1 ArtificialDistinctionBetweenEnergyandReserve 17
3.2.2 ProblematicuseofHedonicPricing 18
3.2.3 RevenueInsufficiencyandIncentiveProblems 19
3.2.4 ComputationalFragilityofLMPDerivations 20
3.2.5 PerformancePaymentinAdvanceofPerformanceDelivery 22
3.2.6 MinimalDirectRepresentationofRetailCustomerInterests 23
3.2.7 RelianceonOverlySimplisticCostConceptions 24
3.2.8 UseofSpot-MarketPricingforForwardMarkets 26
3.3 RelationofCurrentStudytoPreviousSwing-ContractWork 26
CHAPTER 4 SWINGCONTRACTSFORISO-MANAGEDWHOLESALEPOWER
MARKETS 29
4.1 SwingContractOverview 29
4.2 SwingContracts:GeneralFormulation 29
4.3 SwingContractsinFirmorOptionForm 31
CHAPTER 5 ILLUSTRATIVESWING-CONTRACTRESERVEOFFERS 35
5.1 ChapterPreview 35
5.2 ASimpleEnergy-BlockSwingContractinFirmForm 37
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viii CONTENTS
5.3 AnEnergy-BlockSwingContractinOptionForm 40
5.4 Swing-ContractImplementationofStandardSupplyOffers 41
5.5 ASwingContractOfferingContinuousSwing(Flexibility)inPowerandRamp 47
5.6 ASwingContractOfferingBatteryServices 49
5.7 Swing-ContractFacilitationofPrivateBilateralContracting 52
CHAPTER 6 SWING-CONTRACTMARKETDESIGN 55
6.1 ChapterPreview 55
6.2 GeneralSwing-ContractMarketFormulation 55
6.3 FinancialandPhysicalFeasibilityofSwing-ContractOffers 58
6.4 ReserveBids 58
6.5 HandlingofFixedReserveBidsandNon-DispatchedPower 60
6.6 PerformancePenaltiesandIncentives 60
6.7 ISOCostAllocation 61
CHAPTER 7 SWING-CONTRACTMARKETOPTIMIZATION:BASE-CASEMILP
FORMULATION 67
7.1 ChapterPreview 67
7.2 GeneralAssumptionsandNotation 68
7.3 DiscretizationoftheISO’sOptimizationProblem 69
7.4 ISOObjectiveFunction 73
(cid:2) 7.5 CompleteAnalyticalMILPFormulation 74 (cid:2)
7.6 AdditionalDiscussionofOptimizationAspects 76
7.7 Five-BusTestCase 78
7.8 ThirtyBusTestCasewithAdaptiveReserveZones 81
CHAPTER 8 INCLUSIONOFRESERVEOFFERSWITHPRICESWING 85
8.1 ChapterPreview 85
8.2 CostFunctionPreliminaries 86
8.3 MILPTractableformofReserveOfferswithPriceSwing 87
CHAPTER 9 INCLUSIONOFPRICE-SENSITIVERESERVEBIDS 93
9.1 ChapterPreview 93
9.2 IncorporationofBenefits 94
9.3 ModelingofPrice-SensitiveReserveBids 96
9.3.1 StandardDemandFunctionFormulation 96
9.3.2 ReserveBidswithTime-of-UsePricing 97
9.3.3 ReserveBidswithPriceSwing 97
9.3.4 ReserveBidsDirectlyExpressedasBenefitFunctions 99
9.4 MILPTractableApproximationofBenefitFunctions 100
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CONTENTS ix
CHAPTER10 THELINKEDSWING-CONTRACTMARKETDESIGN 105
10.1 ChapterPreview 105
10.2 MultistageOptimizationandTimeInconsistency 107
10.3 SettlementTime-ConsistencyofSwing-ContractMarkets 109
10.4 Swing-ContractLong-TermForwardMarkets 111
10.5 Swing-ContractShort-TermForwardMarkets 112
10.6 Swing-ContractVeryShort-TermForwardMarkets 113
10.7 Swing-ContractDeploymentinReal-TimeOperations 114
CHAPTER11 ILLUSTRATION:LINKEDDAY-AHEADANDHOUR-AHEAD
SWING-CONTRACTMARKETS 117
11.1 ChapterPreview 117
11.2 Hour-AheadMarketwithReserveOffersConsistingofSwing-ContractPortfolios 117
11.3 SCEDSolutionforHour-AheadSwing-ContractMarket 122
11.3.1 Overview 122
11.3.2 PowerBalance 122
11.3.3 CoverageoftheISO’sUncertaintySet 123
11.3.4 ConstrainedMinimizationofExpectedCost 125
11.4 LinkedDay-AheadandHour-AheadMarkets 126
CHAPTER12 STANDARDMODELINGOFACOMPETITIVEMARKET 131
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12.2 KeyDefinitions 131
12.3 StandardCompetitiveMarketAssumptions 132
12.4 LawofOnePriceforCommodities 132
12.5 CompetitiveMarket:BasicFormulation 133
12.6 NetSurplusExtraction 136
12.7 MarketEfficiencyMetric 137
12.8 MarketEfficiencyandPricingRules 139
12.9 StrategicTradeBehaviorandTraderMarketPower 140
CHAPTER13 USRTO/ISO-MANAGEDMARKETS:EFFICIENCYANDMARKET
POWER 143
13.1 ChapterPreview 143
13.2 DailyMarketOperations 144
13.3 IllustrativeAnalyticalDAMFormulation 146
13.4 NetSurplusExtractionintheIllustrativeDAM 147
13.5 MarketPowerintheIllustrativeDAM:Type-IError 152
13.6 MarketPowerintheIllustrativeDAM:Type-IIError 156
13.7 MarketInefficiencyintheIllustrativeDAM 160
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13.8 DAMPerformance:GeneralAssessment 163
13.9 SchedulingofBilateralContracts 165
CHAPTER14 COMPARISONSWITHSWING-CONTRACTMARKETS 167
14.1 ChapterPreview 167
14.2 ProductDefinitioninUSRTO/ISO-ManagedMarkets 168
14.3 WholesalePowerandtheLawofOnePrice(Not) 170
14.4 Differentialvs.UniformPricing 171
14.5 ComparisonofSCandCurrentUSDAMDesigns 172
CHAPTER15 ADVANTAGESOFTHELINKEDSWING-CONTRACTMARKETDESIGN175
15.1 ChapterPreview 175
15.2 SCMarketsarePhysically-CoveredInsuranceMarkets 176
15.3 Longer-TermSCMarketsSupportNewInvestment 177
15.3.1 Energy-OnlyMarket 179
15.3.2 CentrallyManagedCapacityMarket 181
15.3.3 LSEBilateralContractObligations 182
15.4 SCMarketsEnsureRevenueSufficiency 183
15.5 SCMarketsAmeliorateMerit-OrderConcerns 184
15.6 SCMarketsareRobust-ControlMechanisms 185
15.7 SCMarketsReduceRuleComplexity 186
(cid:2) 15.8 SCMarketsReduceGamingOpportunities 187 (cid:2)
15.9 SCMarketshaveSmaller-SizedOptimizations 189
15.10 AdditionalAdvantagesofSCMarkets 190
15.10.1 EnsureaLevelPlayingFieldforResourceParticipation 190
15.10.2 PermitCo-OptimizationofDiverseReserve 191
15.10.3 AppropriatelyRemunerateDiversityandFlexibility 191
15.10.4 EncourageAccurateForecastingandDispatchFollowing 191
15.10.5 EnsureSettlementTime-Consistency 191
CHAPTER16 GRADUALTRANSITIONTOLINKEDSWING-CONTRACTMARKETS 193
16.1 ChapterPreview 193
16.2 ADAMFormulationPermittingGradualTransition 195
16.3 CostFunctionPreliminariesfortheTransitionalDAM 197
16.4 MILPSCUC/SCEDOptimizationfortheTransitionalDAM 201
CHAPTER17 SWING-CONTRACTSUPPORTFORINTEGRATEDTRANSMISSION
ANDDISTRIBUTIONSYSTEMS 209
17.1 ChapterPreview 209
17.2 TransactiveEnergySystemDesignforITDSystems 211
17.3 RoleofDistributionUtilities 215
17.4 AnIDSO-ManagedBid-BasedTESDesignforHouseholds 216
17.5 IDSOsasGrid-EdgeResourceAggregators 219
17.6 Swing-ContractSupportforIDSOParticipationinWholesalePowerMarkets 220
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CONTENTS xi
CHAPTER18 DESIGNEVALUATIONVIATHEITDTESPLATFORM 221
18.1 ChapterPreview 221
18.2 DesignReadinessLevels 222
18.3 AnITDTESPlatformPermittingTESDesignEvaluation 223
18.4 IllustrativeTestCases:Overview 226
18.5 IllustrativeTestCases:Report 229
18.5.1 IDSOPeak-LoadReductionCapabilities 229
18.5.2 IDSOLoad-MatchingCapabilities 229
18.5.3 HouseholdITDTestCases:Discussion 233
CHAPTER19 POTENTIALFUTURERESEARCHDIRECTIONS 235
19.1 EffectiveuseofOptionSwingContracts 235
19.2 RepresentationofReserveBids 236
19.3 CompensationforStorageServices 236
19.4 CompensationforReliabilityServices 236
19.5 RepresentationofPower-Paths 237
19.6 ImplementationofContract-ClearingOptimizationsforSwing-ContractMarkets 237
19.7 GradualTransitiontoaSwing-ContractMarket 238
CHAPTER20 CONCLUSION:THEDOTSKEEPCONNECTING 239
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APPENDIXA APPENDICES 241
REFERENCES 249
INDEX 259
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