Outline

1

Background

Need for reactive power compensation

Pricing methodologies and present practices

Need and suggestions for new market structures

Market power identification and possible mitigation strategies

Conclusions

• Supports voltage – Prevents voltage collapse.

• Enhances power transfer capability.

Need for Reactive Power in the System

Salient Features of Reactive Power• Locational in nature.

• Reactive power supports voltage, which is a public good – every consumer enjoys the benefits but not everybody pays for it.

2

Background

Sources and consumers of reactive power• Inductive loads, transmission line, etc

• Series and shunt capacitors – Cheap but unreliable

• Synchronous generators and condensers – Reliable but expensive

Value of reactive power

Gen A Cost : 40 $/MWhPmax: 800 MWPmin: 50 MW

Gen C Cost : 90 $/MWhPmax: 800 MWPmin: 50 MWCap C

Case I : 0.14 MVArCase II: 2 MVAr Load A B C

MW 100 300 150

MVAr 30 100 50

Line Limit A-B B-C C-A

MW 600 500 500

0.02+j0.08 p.u.

0.03+j0.12 p.u. 0.02+

j0.08

p.u.

Voltage criteria 04.196.0

busV *No lines are congested

3

Value of reactive power

4

Generator MW MVArTotal op.

costGen A 565 66.67

Gen C 11.35 203.86 23621 $/Hr

Voltage at bus B 0.96 p.u.

Generator MW MVArTotal op.

costGen A 578 65.5

Gen C 0 207.78 23120 $/Hr

Voltage at bus B 0.96 p.u.

Case I

Case II

•An additional 1.86 MVAr at bus B allows cheaper generator A to be dispatched more.•Reduces the system operating cost by 517 $/Hr

LMP A LMP B LMP C

40 $/MWh

201 $/MWh

90 $/MWh

LMP A LMP B LMP C

40 $/MWh

45.75 $/MWh

40 $/MWh

5

• Generator’s real power output is curtailed. It incurs monetary loss for supplying VArs due to ‘lost opportunity’.

Approximate capability curve

Need for reactive power compensation

(705.8, 111.4)

LOST OPPUTUNITY COST OF GENERATORS

Ove

rexc

ited

Und

er-

exci

ted

Field heating limit

Armature heating limit

End region heating

Capability curve

Present pricing methodologies• No compensation: Under this scheme no compensation is provided for

generators as long as they are operating within a specified power factor range (typically 0.95 leading or lagging).

• Locational prices: Locational prices for reactive power are developed based on an estimate of the costs.

• AEP Methodology:

– This method involves paying the generators for their reactive power capacity.

– This method will allocate fixed costs for the reactive power capacity, that are paid by the transmission system customers.

– These costs are however not related to the requirement of reactive power at that location.

6

Drawbacks of present practices

7

• Only generators are compensated for reactive power based on capacity and opportunity cost. Reactive power procured from generators is expensive.

• No incentive for cheaper/low operating cost sources like shunt capacitors/reactors, FACTs devices and possibly HVDC lines/links.

• Capacity based payments do not capture the actual cost of reactive power. Often times payment may be made to resources which are not utilized.

• No price signals are obtained. Price signals tend to increase the efficiency of the markets.

• In the absence of a competitive market structure there is no incentive for optimal utilization of dispatchable resource.

Suggestions for new market structures Spot markets• Market clearing price based on the highest opportunity cost of all

participants.

• Supply out of D-curve to remedy emergency conditions, need to be paid wear and tear rate on the unit.

• Zonal market: Each location has its own pricing standards.

8

Spot markets with forward contracts• Improves market efficiency and ensures reliability of system.

• Provides a better price signal and overcomes market power and price volatility issues.

• Incentivizes capacitor banks and FACTs devices for static support

9

Marginal Cost of reactive power:

MCQ = (ΔP x Δπ)/ΔQ

(ΔQ = (-m)*ΔP)

Sample bid curve based on LOC

Suggestions for new market structures

where,ΔP – decrease in real powerΔ π – profit lost for decreasing ΔPΔQ – Increase in reactive powerm – slope of capability curve

10

Identifying market power

• Opportunities to exercise market power can be identified with the help of market concentration measure.• Market concentration can be quantified with the help of Herfindahl Hirschman Index (HHI).• A heuristic method involves calculation of relative market share

of each generator from its voltage sensitivity factor and reactive power capacity to quantify the ability of a generator to influence voltage at a particular location (bus j).

max min( ) ( ) ( ) j

gen k i gen k ii

VMarket share gen k at bus i Q Q

Q

• HHI is calculated from the relative market share. High HHI indicates high market concentration and consequently generators which can exercise market power will have unusually high relative market share.

Identifying market power

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Area Buses in each area

Studied location

No. of generators

HHI

1 Bus# 1-20 Bus 5 8 0.482 Bus# 21-40 Bus 32 9 0.503 Bus# 41-60 Bus 51 7 1.004 Bus# 61-80 Bus 75 12 0.595 Bus# 81-99 Bus 86 9 0.976 Bus# 100-118 Bus 103 9 0.25

Mitigation of market power and VAr pricing to consumers

• Long-term contract and reliability-must-run based contract.

• Allow locational competition and cap suppliers’ bid.

• Relax the entry and exit policy.

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Var pricing to consumers

Feasible measures to mitigate market power

• All local consumers who are better off from the reactive power injection.

• Transmission utilities could be a potential customer in the market.

• Customers are encouraged to pay premium for power quality.

Conclusions• Reactive power support is essential for reliable operation of the power

system.

• Present compensation mechanisms for producing VArs does not incentivize participation from cheap resources such as capacitors or SVCs.

• A competitive market structure can result in a more efficient dispatch and provide proper economic price signals.

• Computational burden provide challenges in implementing such markets.

• Market power arising from locational nature of VAr support can be identified and mitigated.

• Consumers should be charged based on the benefits they gain. Identifying consumers is challenging and may lead to dissatisfaction.

13

References

14

[1] S. Hao and A. Papalexopoulos, “Reactive power pricing and management,” IEEE Trans. Power Syst., vol. 12, pp. 95 – 104, Feb. 1997.

[2] F. L. Alvarado, T. Overbye, and P. Sauer, “Measure reactive market power,” IEEE PES Winter Meeting, vol. 1, pp. 294 - 296 , Jan. 1999.

[3] P. W. Sauer, T. J. Overbye, G. Gross, F. Alvarado, S. Oren, and J. Momah, “Reactive Power Support Services in Electricity Markets: Costing and Pricing of Ancillary Services,” PSERC Publication 00-08, May 2001.

[4] J. Zhong and K. Bhattacharya, “Toward a competitive market for reactive power,” IEEE Trans. Power Syst., vol. 17, pp. 1206 – 1215, Nov. 2002

[5] Staff report, “Principles for efficient and reliable reactive power supply and consumption,” FERC Publication, Docket No. AD05-1-000, Feb. 2005.

[6] E. B. Fisher, “Spot markets for reactive power,” IEEE PES General Meeting, pp. 1 – 4, Jul. 2008.

[7] T.D.Mount, S.Videbaek, R.D.Zimmerman, “Testing alternative market designs for energy and VArs in a deregulated electricity market”, [online] available at: http://e3rg.pserc.cornell.edu/files/RutgersE06VAr.pdf\

Questions ?