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TRANSMISSION PLANNING AND INVESTMENT IN THE COMPETITIVE ENVIRONMENT. PS ERC Seminar Presentation by George Gross Department Of Electrical and Computer Engineering University of Illinois at Urbana – Champaign April 5, 2005. © 2005, George Gross, UIUC. OUTLINE.

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transmission planning and investment in the competitive environment

TRANSMISSION PLANNING AND INVESTMENT IN THE COMPETITIVE ENVIRONMENT

PSERC Seminar Presentation

by

George Gross

Department Of Electrical and Computer Engineering

University of Illinois at Urbana – Champaign

April 5, 2005

© 2005, George Gross, UIUC

outline
OUTLINE
  • The changed utilization of transmission
  • Planning in the competitive environment
  • The sorry state of transmission investment
  • Key challenges and complexities
  • An analytic framework for transmission investment
  • Illustrative examples
  • Concluding remarks
open access impacts
OPEN ACCESS IMPACTS
  • Power system restructuring fosters the development of competition in wholesale electricity markets
  • Markets bring about changes in the way power systems are operated and planned
  • The vertically integrated structure is slowly disintegrating into many new parts
  • New structures and players have important roles and result in decentralized decision making
the vertically integrated utility industry structure
THE VERTICALLY INTEGRATED UTILITY INDUSTRY STRUCTURE

customers

customer service

Customer Service

distribution

Distribution

transmission

Transmission

self-

generation

IPP

generation

Generation

the vertically integrated utility industry structure5
THE VERTICALLY INTEGRATED UTILITY INDUSTRY STRUCTURE

self-

generation

Generation

generation

IPP

transmission

Transmission

distribution

Distribution

Customer Service

customer service

customers

vertically integrated utility structure is disintegrating
VERTICALLY INTEGRATED UTILITY STRUCTURE IS DISINTEGRATING

distribution wires

customer

service

customer

service

distribution

transmission ownership

marketing/

trading

transmission

generation

ancillary

services

generation

markets

ISO

centrality of transmission in restructuring
CENTRALITY OF TRANSMISSION IN RESTRUCTURING
  • A common thread in the restructuring of electricity around the globe is the unbundling of transmission from the generation and the distribution of sectors
  • The role of transmission in evolving wholesale competition in electricity is critical
  • The provision of the nondiscriminatory transmission access and services to all market players under the open access transmission regime entails the establishment of independent transmission entities
planning under competition
PLANNING UNDER COMPETITION
  • Major shift in the planning paradigm
    • cessation of the centralized integrated planning of the past
    • role of regional planning under the independent grid operator
    • unclear responsibility for implementation under the ownership/control separation
    • role of decentralized decision making
planning under competition9
PLANNING UNDER COMPETITION
  • Planning, to the extent it is performed in the new environment, is an asset management problem
    • investment under uncertainty
    • critical importance of effective risk management
    • subject to regulations in a continuous state of flux
transmission usage under competition
TRANSMISSION USAGE UNDER COMPETITION
  • Frequent congestion situations result whenever too many customers compete for transmission services that the grid is capable of providing
  • Despite the more intense utilization of the grid by the many established and new players, develop-ments in transmission planning have failed to keep pace with the increases in demand
the sorry state of transmission investment
THE SORRY STATE OF TRANSMISSION INVESTMENT
  • As demand increases, significant additions of new generation are being made in virtually every region
  • The reserve margins in capacity are improving year after year
  • Transmission investments have failed to keep up with the increases in demand and the additions in new generation
demand and transmission capacity growth
DEMAND AND TRANSMISSION CAPACITY GROWTH

%

30

25

electricity

demand

20

15

transmission

capacity

expansion

10

5

0

1988 – 98

1999 – 09

Source: EPRI

the nerc capacity margin forecasts
THE NERC CAPACITY MARGIN FORECASTS

25

2002

20

2001

15

percent

2000

10

1999

5

1999

2001

2003

2005

2007

2009

2011

year

Source: NERC Reliability Assessment,2002 – 2011

projected generation growth in 1998 2007
PROJECTED GENERATION GROWTH IN 1998 – 2007

change in %

40 and higher

20 to 40

0 to 20

Each percentage is with respect to the 1998 installed capacity

Source: EPRI

230 kv and above transmission
230 kV AND ABOVE TRANSMISSION

+2.2%

+2.7%

< .49% / yr

218.2

thousands of miles

213.5

207.9

2009-2013

2003

2004-2008

Source: NERC 2004

severe stressing of the grid
SEVERE STRESSING OF THE GRID
  • Large number of new and existing players
  • Proliferation in the number of transactions
  • Increasing load demand
  • Simultaneous accommodation of pool and bilateral transactions
  • Markedly different and more intense utilization of the grid than in the way that it was planned and designed
  • Low level of investment in transmission improvement
severe stressing of the grid18
SEVERE STRESSING OF THE GRID
  • Severe stressing of the grid leads to frequent

congestion situations with customers competing for the scarce and heavily constrained transmis-sion services

  • The transmission-bottleneck-caused congestion situations significantly impact both the reliability and the economics of electricity supply
transmission bottlenecks western interconnection
TRANSMISSION BOTTLENECKS: WESTERN INTERCONNECTION

size of transmission paths

< 1 GW

> 3 GW

1 GW ££ 3 GW

50% and greater

40% to 49%

30% to 39%

20% to 29%

10% to 19%

percentage of hours congested

Source: DoENational Transmission Grid Study, May 2002

transmission bottlenecks eastern interconnection
TRANSMISSION BOTTLENECKS: EASTERN INTERCONNECTION

size of transmission paths

< 1 GW

> 3 GW

1 GW ££ 3 GW

80% and greater

60% to 79%

40% to 59%

20% to 39%

10% to 19%

percentage of hours congested

Source: DoENational Transmission Grid Study, May 2002

congestion impacts
CONGESTION IMPACTS
  • Decreased reliability
  • Reduced competition
  • Increased consumer prices
  • Creation of enhanced opportunities for market power exercise
  • Increased infrastructure vulnerability
congestion economic signals
CONGESTION : ECONOMIC SIGNALS
  • LMPs provide short-term congestion signals
  • The translation ofLMPs into long-term investment signals is complicated
  • LMPs create the need for the effective integration of financial hedging instruments: FTRs and flowgate rights
transmission expansion
TRANSMISSION EXPANSION
  • Network expansion is by its very nature a very complex multi-period and multi-objective optimi-zation problem
  • Its nonlinear nature and the inherent uncertainty in future developments constitute major compli-cations
transmission investment key barriers
TRANSMISSION INVESTMENT : KEY BARRIERS
  • Transmission is a regulated service: tariffs are cost based and not value based
  • Uncertainty about the recovery of transmission investments due to
    • long-term revenue stream needs
    • lack of clarity in regulatory pricing policy
transmission investment key barriers25
TRANSMISSION INVESTMENT : KEY BARRIERS
    • conflicting goals of federal and state regulators
  • Difficulty of recovering investment costs due to free rider problem
  • Organizational complexities in the new industry structure
complications in transmission expansion
COMPLICATIONS IN TRANSMISSION EXPANSION
  • Every transmission improvement impacts the transfer capabilities in the interconnected network covering a large geographic region
  • Each transmission investment affects market participants differently
  • Free rider problem creates a problem in the investment recovery
  • Lumpiness of transmission investments is a key complication
complications in transmission expansion27
COMPLICATIONS IN TRANSMISSION EXPANSION
  • A long-time horizon with the sequence of appropriate decisions needs to be considered
  • Economies of scale encourage overbuilding
  • Imperfect electrical markets provide opportunities for market power exercise
complications in transmission expansion28
COMPLICATIONS IN TRANSMISSION EXPANSION
  • Short-run marginal costing information from the hourly LMPs need to be translated into long-run marginal cost for investment decisions
  • FTR/FGRintegration into the investment decision is needed
  • The explicit consideration of wide ranges of uncertainty in all aspects, including regulatory, environmental and player behavior, is required
analytic framework
ANALYTIC FRAMEWORK
  • A four-layer structure consisting of
    • physical
    • commodity market
    • financial
    • investment

layers

  • The interrelationships between layers represen-ted through information flows
the framework structure
THE FRAMEWORK STRUCTURE

investment layer

financial market layer

commodity market layer

physical network layer

the physical layer
THE PHYSICAL LAYER
  • Represents the physical flows in the transmission network including real power line flows, nodal injections and physical network/operational constraints
  • Models congestion and allows the evaluation of congestion impacts on the transmission customers/market participants
the commodity market layer
THE COMMODITY MARKET LAYER
  • Models the purchases/sales in both the day-ahead hourly and the bilateral transaction markets
  • Represents the RTO decision making process to establish feasible transmission schedules
  • Interacts with the physical layer and the financial layer through information transfers
the financial layer
THE FINANCIAL LAYER
  • Models the financial instruments used to provide hedging against congestion changes
  • Models Financial Transmission Rights (FTR) and flowgate rights
  • Represents the salient aspects of rights issuance and trading
transmission investment layer
TRANSMISSION INVESTMENT LAYER
  • Models the transmission investment decision making process and determines the
    • location
    • quantity
    • timing

of the transmission assets

  • Evaluates the impacts of the investment decisions on the investor, system operator and the transmission customers and assesses their financial aspects
the information flows
THE INFORMATION FLOWS

investment layer

topology

change

social welfare

financial market layer

LMPs

feasible FTR

SFT

result

commodity market layer

desired

FTR

market outcomes

system states

physical network layer

rto transmission planning problem formulation
RTO TRANSMISSION PLANNING PROBLEM FORMULATION
  • Maximize aggregate social welfare:
    • pool
    • bilateral contracts

subject to:

    • power flow balance equations
    • line flow equations
    • generator and demand limits
    • line flow limits
basic problem formulation
BASIC PROBLEM FORMULATION

s.t.

Note: all parameters and variables are hourly quantities

evaluation of metrics
EVALUATION OF METRICS

consumer surplus

dead-

weight

loss

market efficie-ncy loss

producer surplus

$/MWh

congestion rents

MWh/h

appropriate metrics for transmission investment
APPROPRIATE METRICS FOR TRANSMISSION INVESTMENT
  • RTO metrics:
    • social welfare: aggregated value
    • loss of efficiency: decrease in social welfare due to transmission constraints
    • congestion rents: money collected by the system operator because of congestion
appropriate metrics for transmission investment40
APPROPRIATE METRICS FOR TRANSMISSION INVESTMENT
  • Producer metrics:
    • producer surplus: difference between what the producer collects from the system and the real costs
    • redispatch costs: difference in the produ-cers’ costs with and without congestion
appropriate metrics for transmission investment41
APPROPRIATE METRICS FOR TRANSMISSION INVESTMENT
  • Consumer metrics:
    • consumer surplus: difference between the demand bids and the demand payments
    • load payment costs: difference in demand payments with and without congestion
three bus system example
THREE – BUS SYSTEM EXAMPLE
  • One-hour horizon
  • Lossless network
  • Quadratic functions for the costs and benefits
  • No bilateral transactions
network topology
NETWORK TOPOLOGY

1

2

lossless system

3

offer representation
OFFER REPRESENTATION
  • Cost function:
  • Offer function:
offer parameters
OFFER PARAMETERS

$/MWh

generator

offer

si

si

MWh/h

bid representation
BID REPRESENTATION
  • Benefit function:
  • Bid function:
bid data
BID DATA

bj

bj

bj

bid parameters
BID PARAMETERS

$/MWh

demand

bid

bj

bj

MWh/h

pre expansion results
PRE – EXPANSION RESULTS

total production = 1056.57 MW

post expansion results
POST – EXPANSION RESULTS

total production = MW 1092.60

multi period analysis
MULTI – PERIOD ANALYSIS

topology

change

topology

change

investment layer

social welfare

social welfare

market

outcomes

market

outcomes

. . .

financial market

layer

financial market

layer

feasible FTR

feasible FTR

LMPs

LMPs

. . .

commodity market

commodity market

desired

FTR

market

outcomes

SFT

market

outcomes

system

states

system

states

. . .

physical network

physical network

. . .

operational period H

operational period 1

ieee rts seven bus network example
IEEE RTS SEVEN – BUS NETWORK EXAMPLE
  • Study horizon of one year; typical week day and week end day for each of four seasons
  • Lossless network
  • Quadratic functions representation for costs and benefits
  • No bilateral transactions
  • Hourly computations
study scenarios
STUDY SCENARIOS
  • Reference scenario: the pre-expansion system
  • Scenario 1: addition of line ( 3 , 4 )
  • Scenario 2: addition of line ( 5 , 6 )
  • Scenario 3: addition of lines ( 3 , 4 ) and ( 5 , 6 )
network topology58
NETWORK TOPOLOGY

bus 1

bus 2

S1

~

B2

B1

bus 4

B4

bus 5

~

S3

~

B5

S4

bus 7

bus 6

bus 3

B7

B6

~

~

B3

S2

S5

bid data61
BID DATA

bj

bj

bj

nodal prices for a summer weekday
NODAL PRICES FOR A SUMMER WEEKDAY

nodal prices, reference scenario

nodal prices, scenario 1

$/MWh/h

$/MWh/h

nodal prices, scenario 2

nodal prices, scenario 3

$/MWh/h

$/MWh/h

nodal price differences for a summer weekday
NODAL PRICE DIFFERENCES FOR A SUMMER WEEKDAY

nodal price differences, reference scenario

nodal price differences, scenario 1

$/MWh/h

$/MWh/h

nodal price differences, scenario 2

nodal price differences, scenario 3

$/MWh/h

$/MWh/h

seven bus system results
SEVEN – BUS SYSTEM RESULTS
  • Best overall solution is scenario 3 with the lines ( 3, 4 ) and ( 5, 6 ) added
  • Scenario 1 results in the highest congestion results
  • Scenarios 2 and 3 are characterized by flat nodal price differences and lower average LMPs than in the reference scenario and scenario 1
concluding remarks
CONCLUDING REMARKS
  • Multi-layer analytic framework for transmission expansion planning
  • Framework capability to deal with the complex issues in transmission investment
  • Appropriate metrics to determine the best investment policy
  • Scenario analysis allows the identification of optimal strategy and investigation of what if questions
future work
FUTURE WORK
  • Transmission service pricing on a value rather than cost basis
  • Formulation of effective incentives for transmis-sion investment
  • The formulation and solution of the individual investor problem