Table Of ContentPOWER SYSTEMS RESTRUCTURING:
Engineering and Economics
THE KLUWER INTERNATIONAL SERIES
IN ENGINEERING AND COMPUTER SCIENCE
Power Electronics and Power Systems
Consulting Editors
Thomas A. Lipo and M. A. Pai
Other books in the series:
CRYOGENIC OPERATION OF SILICON POWER DEVICES, Ranbir
Singh and B. Jayant Baliga, ISBN: 0-7923-8157-2
VOLTAGE STABILITY OF ELECTRIC POWER SYSTEMS, Thierry
Van Cutsem and Costas Vournas, ISBN: 0-7923-8139-4
AUTOMATIC LEARNING TECHNIQUES IN POWER SYSTEMS, Louis A.
Wehenkel, ISBN: 0-7923-8068-1
ENERGY FUNCTION ANALYSIS FOR POWER SYSTEM STABILITY,
M.A. Pai, ISBN: 0-7923-9035-0
ELECTROMAGNETIC MODELLING OF POWER ELECTRONIC
CONVERTERS, J. A. Ferreira, ISBN: 0-7923-9034-2
MODERN POWER SYSTEMS CONTROL AND OPERATION, A. S. Debs,
ISBN: 0-89838-265-3
RELIABILITY ASSESSMENT OF LARGE ELECTRIC POWER SYSTEMS,
R. Billington, R.N. Allan, ISBN: 0-89838-266-1
SPOT PRICING OF ELECTRICITY, F. C. Schweppe, M. C. Caramanis, R. D.
Tabors, R. E. Bohn, ISBN: 0-89838-260-2
INDUSTRIAL ENERGY MANAGEMENT: Principles and Applications,
Giovanni Petrecca, ISBN: 0-7923-9305-8
THE FIELD ORIENTATION PRINCIPLE IN CONTROL OF INDUCTION
MOTORS, Andrzej M. Trzynadlowski, ISBN: 0-7923-9420-8
FINITE ELEMENT ANALYSIS OF ELECTRICAL MACHINES, S. J. Salon,
ISBN: 0-7923-9594-8
POWER SYSTEMS RESTRUCTURING:
Engineering and Economics
by
MARIJA ILIC
Massachusetts Institute of Technology
Cambridge, MA
FRANCISCO GALIANA
McGill University
Montreal, Quebec, Canada
LESTER FINK
Kema-ECC, Inc., Retired
Fairfax, VA
'~·'
SPRINGER SCIENCE+BUSINESS MEDIA, LLC
Library of Congress Cataloging-in-Publication Data
Ilic, Marija D., 1951-
Power systems restructuring engineering and economics / by
Marija Ilic, Francisco Galiana, Lester Fink.
p. cm. -- (The Kluwer international series in engineering and
computer science ; SECS 448. Power electronics and power systems)
Includes bibliographical references and index.
ISBN 978-1-4419-5038-3 ISBN 978-1-4757-2883-5 (eBook)
DOI 10.1007/978-1-4757-2883-5
1. Electric power systems--Control. 2. Electric utilities--Cost
control. 3. Electric utilities--Deregulation. 4. Electric
utilities--Technological innovations. 1. Galiana, Francisco D.
II. Fink, Lester H. III. Title. IV. Series: Kluwer international
series in engineering and computer science ; SECS 448. V. Series:
Kluwer international series in engineering and computer science.
Power electronics and power systems.
TKlO07.I45 1998
333.793 . 2--dc21 98-6642
CIP
Copyright ® 1998 by Springer Science+Business Media New York
OriginaUy published by Kluwer Academic Publishers in 1998
AU rights reserved. No part of this publication may be reproduced, stored in a retrieval
system or transmitted in any form or by any means, mechanical, photo-copying, recording,
or otherwise, without the prior written permission of the publisher, Springer Science+Business
Media, LLC.
Printed an acidlree paper.
Contents
Preface vii
1. Setting the Stage 1
Leonard Hyman
Part 1: Theoretical Challenges in Real-Time 1 3
Operation
2. Power Systems Operation: Old vs. New 1 5
Marija /lie and Frank Galiana
3. Framework and Methods for the Analysis of Bilateral 1 0 9
Transactions
Frank Galiana and Marija /lie
Part II: Industry Experiences and Challenges 1 2 9
4. The Political Economy of the Pool 1 3 1
Richard Green
5. Practical Requirements for ISO Systems 1 6 7
Ralph Masiello
Part Ill: Markets of the Future 1 8 5
6. Agent Based Economics 1 8 7
Gerald Sheble
7. One-Part Markets for Electric Power: Ensuring the Benefits 2 4 3
of Competition
Frank C. Graves, E. Grant Read, Philip Q. Hanser, and
Robert L. Earle
Part IV: Planning In the New Industry 2 81
8. System Planning Under Competition 2 8 3
Ray Coxe and Marija 1/ic
9. Transmission Networks and Market Power 3 3 5
Ziad Younes and Marija 1/ic
10. Competitive Electric Services and Efficiency 3 8 5
Stephen R. Connors
Part V: Power Systems Control in the New 403
Industry
11 . New Control Paradigms for Deregulation 4 0 5
Lester H. Fink
12. The Control and Operation of Distributed Generation in a 4 5 1
Competitive Electric Market
Judy Cardell and Marija 1/ic
13. Application of Dynamic Generation Control for Predatory 5 1 7
Competitive Advantage in Electric Power Markets
Thomas Gorski and Christopher DeMarco
Contributors 54 7
Index 553
Preface
The writing of this book was largely motivated by the ongoing
unprecedented world-wide restructuring of the power industry. This
move away from the traditional monopolies and toward greater
competition, in the form of increased numbers of independent power
producers and an unbundling of the main services that were until now
provided by the utilities, has been building up for over a decade. This
change was driven by the large disparities in electricity tariffs
across regions, by technological developments that make it possible
for small producers to compete with large ones, and by a widely held
belief that competition will be beneficial in a broad sense. All of this
together with the political will to push through the necessary
legislative reforms has created a climate conducive to restructuring
in the electric power industry.
Consequently, since the beginning of this decade dramatic changes
have taken place in an ever-increasing list of nations, from the
pioneering moves in the United Kingdom, Chile and Scandinavia, to
today's highly fluid power industry throughout North and South
America, as well as in the European Community. The drive to
restructure and take advantage of the potential economic benefits has,
in our view, forced the industry to take actions and make choices at a
hurried pace, without the usual deliberation and thorough analysis of
possible implications.
We must admit that to speak of "the industry" at this juncture is
perhaps disingenuous, even misleading. The traditional power
industry is fragmenting with the emergence of independent
generation, transmission, and distribution entities, and new parties
such as "independent system operators," marketers, traders, and
large industrial customers (retail customers thus far seem to have
no effective representation). The debate, moreover, also includes
participation, and ultimately dicta, from regulators and legislators.
Among all these disparate parties, there is a wide variety of
sometimes conflicting interests, and no unanimity as to the best path
to follow in this restructuring exercise, or about the models for and
degree of competition, about the regulation of and tariffs for the use
of transmission networks, and about the mechanisms for maintaining
high levels of reliability, both on-line and in the long term.
The multilateral debate has been extensive, boisterous and
inconclusive, often lacking a clear vision. The various parties have,
in varying degree, consulted with economists and power systems
viii
engineers. The abundant and growing literature, accordingly but
unfortunately, is fragmented and spread between the two quite
distinct disciplines of engineering and economics. Unfamiliarity,
within each of them, with basic concepts, methods, and terminology
of the other has made communication and dissemination of knowledge
difficult. More importantly, basic assumptions on each side of the
debate are just that, and not subject to analytical proof or disproof.
The only way such assumptions can be discussed or evaluated is i n
terms of their implications, which often can be worked out only by
experience or, in some cases, by simulation.
What are the major areas of agreement and disagreement? What
are the basic reasons for the latter? In what respect are they at the
level of axiomatic assumptions? To what extent do they reflect
misunderstanding of basic principles - of economics by engineers, of
electric systems by economists? This book does not attempt to
develop a consensus view, an Hegelian synthesis, but to discuss
rather than to assert, to sort out areas (or items) of agreement and
disagreement, and to clarify the basic nature of the latter. The main
focus is on formal problem posing, including statement of critical
assumptions. The main goal is to narrow the gap separating the fields
of power systems engineering and economics in the context of the
restructuring of the power industry.
The book has brought together an international group of experts to
create a broad and incisive coverage of the main issues. The intent has
been to provide the reader with a good deal of depth but without
excessive specialization, to avoid a purely qualitative treatment by
including some analytical and numerical methods, and to offer,
whenever possible, discussions of real cases, simple examples and
tutorial explanations. The book is intended for power engineers,
economists, investment analysts, marketers, system operators and
managers, planners and graduate students.
Basic organization of this volume
Chapter 1 by Hyman sets the stage by providing an overall
perspective of the ongoing changes. Part I of this book is concerned
with the theoretical challenges of power systems operation. In
Chapter 2, llic and Galiana revisit the main tasks of power systems
operation in today's industry, and provide preliminary formulations
ix
for, and possible approaches to, performing these tasks in the new
industry. In Chapter 3, they introduce a new approach to the
modeling and analysis of bilateral markets; a bilateral market
structure creates a significant challenge to the present operating
paradigms based on coordinated generation scheduling. In Part II,
Chapters 4 and 5, by Green and Masiello, respectively, present a
comprehensive experience with the UK industry restructuring and
the challenges ahead as software is being developed for future ISOs in
the United States.
Part Ill provides views of the future primary electricity markets.
Chapter 6 by Sheble summarizes the new trend of experimental
economics for competitive electricity markets and describes agent
based economics for the new industry. Chapter 7 by Graves et a/
describes the role of forward markets in ensuring reliable service at
efficient and nonvolatile electricity prices.
In Part IV, planning aspects of the new industry are treated. Coxe
et a/ in Chapter 8 provide a semi-tutorial review of the underlying
planning principles in today's power industry, and how are these
likely to change. In Chapter 9, Younes et a/ define possible market
power problems related to weak transmission provision, and the
implications of this situation on the price of electricity. In Chapter
10, Connors looks at the impact of competition at the customer level.
Finally, in Part V of this volume, the topic of power systems
control is revisited. Fink quite forcefully suggests what should be
obvious but is not given much attention at the present stage of the
industry debate: power systems control should be designed as a
function of market structure, and one should not assume more or less
identical operating and control paradigms as the industry structure
undergoes a drastic change. Cardell et a/ illustrate in Chapter 12 the
role of price feedback for effective use of distributed generation. In
Chapter 13, the team from Wisconsin provides us with a warning
that strictly technical control design could be used to disable
competitors from active participation in power delivery.
The book as a whole suggests that we must develop tools f o r
modeling, designing technical and price feedback and analyzing
performance of different designs for the expected system conditions,
much in the same way as we strive to do for today's industry.
X
Although technical and economic processes evolve at different rates,
they influence each other. The opinion, too often expressed, that the
market would be responsible for efficiency and that the independent
system operators, in forming, are responsible for technical
performance, leads to a dangerous disconnect. Competitive
electricity markets must have carefully designed technical and
economic feedback so that they can be adjusted to changes and
converge to a near optimal long-term performance.
Acknowledgments
Our plans for this book solidified in 1996, a period during which we
had the opportunity to discuss and work on many of the issues
included here. The importance of the subject matter, the absence of
general textbooks integrating its principal notions and methods, and
the great interest on the part of the power and economics community,
including graduate students, led us to carry this project through.
We very much appreciate the willingness of all the authors to
write their chapters. Without them, this book would not exist.
Ms. Sara Wolfson was in charge of compiling the volume as
different parts were sent to her. We very much appreciate her
interaction with individual contributors, graduate students and the
publisher, and her work in taking on the technical responsibility for
this effort.
Particular thanks for helping prepare this volume go to Yong Tae
Yoon and Ziad Younes. They have worked very closely with Sara on
creating this volume in its present form.
Last but not least, we thank our families for yet another stage of
patience and love as we continue our quest to understand the new
world of the industry that between the three of us we have been part
of for a total of nine decades.
Marija llic, Francisco Galiana and Lester Fink
MIT, Cambridge, MA
