Physical clearing mechanisms in power industry

Abstract

Abstract-This paper studies the performance of several different physical clearing mechanisms in the electricity market. The study is done using the simulation tool, Marketecture, developed at the Los Alamos National Laboratory. Two cities, Portland and Chicago, are used for simulating the physical clearing algorithms. The algorithms were chosen according to their ability to serve as a proxy for some of the well known policies. Our results show that, based on the economic measures chosen, both cities perform very similarly under the different physical clearing mechanisms. I. INTRODUCTION AND MOTIVATIONThe electricity literature provides abundant information on issues related to the deregulation of energy sector and its impact on generation of electricity, market power, market efficiency, consumption, etc. [23] and the references therein. However there have been relatively fewer papers addressing the issues of transmission network constraints, physical clearing and the optimal use of the electrical grid. This study aims to fill such a gap by analyzing the impact of different physical clearing mechanisms in a bilateral market. Deregulation has been designed to decouple the controllers of the network from the power producers, making it difficult to regulate the levels of power on the network. In practice, deregulation is complicated by the fact that all power companies have to share the same power network and the network's capacity is limited. To overcome these problems, most U.S. states have set up an ISO (independent system operator): a non-profit governing body to arbitrate the use of the network. The basic questions facing ISOs are how to decide which contracts to deny (due to capacity constraints), and who is to bear the costs accrued when contracts are denied. Several criteria/policies have been proposed and/or are being legislated by the states as possible guidelines for the ISO to select a maximum-sized subset of contracts that can be cleared simultaneously [21]. These include: (a) Minimum Flow Denied: The ISO selects the subset of contracts that denies the least amount of proposed power