The effect of contingency analysis on the nodal prices in the day-ahead market

Frederic H. Murphy, Murthy Mudrageda, Allen L. Soyster, Andrija T. Saric and Aleksandar M. Stankovic

Energy Policy, 2010, vol. 38, issue 1, 141-150

Abstract: We look at the effect of modeling branch-outage contingencies on locational marginal prices. To model contingencies in the day-ahead auction, we formulate a two-stage stochastic program. Rather than follow the current practice of including a list of possible contingencies that must be satisfied, we incorporate a larger set of contingencies in the model and allow contingencies to result in load reductions/outages at a cost. The model can be used and interpreted in two ways. One is to look at the tradeoff between reliability and outage costs. Another is to consider the load losses resulting from a contingency to be consumer offers of load reductions in response to line outages as part of the day-ahead auction. In analyzing the model structure, we find that the prices in the model closer in definition to those currently used in the day-ahead auction do not maximize expected surplus because the day-ahead auction produces prices that assume shortages will never occur. This raises issues with the design of auctions with important stochastic elements in the market. We present results for a 68-node grid with 86 branches (lines and transformers) to illustrate how prices and expected values change as the costs of outages are varied.

Keywords: Electricity; markets; Auction; Uncertainty (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:38:y:2010:i:1:p:141-150

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