ISO Net Surplus Collection and Allocation in Wholesale Power Markets Under LMP

Abstract

Abstract-This study uses 5-bus and 30-bus test cases to explore ISO net surplus (congestion rent) collections and allocations in wholesale power markets with grid congestion managed by locational marginal prices (LMPs). Price-sensitivity of demand and generator learning capabilities are taken as experimental treatment factors. A key finding is that conditions resulting in greater generator capacity withholding, hence higher and more volatile LMPs, also result in greater ISO net surplus collections that can be substantial in size. A key conclusion is that ISO net surplus collections should be used pro-actively to mitigate the conditions encouraging generator capacity withholding and hence high and volatile LMPs rather than to provide ex post support for LMP payment offsets and LMP volatility risk hedging as is currently the norm.

Co-learning patterns as emergent market phenomena: An electricity market illustration

“…12 At the end of each day D the ISO settles the day-ahead market for day D+1 by receiving all purchase payments from LSEs and making all sale payments to GenCos based on the LMPs for the day-ahead market for day D+1, collecting any difference as ISO net surplus. As explained and demonstrated in Li and Tesfatsion (2011), this ISO net surplus is guaranteed to be nonnegative and, under congested grid conditions, will typically be strictly positive due to the separation of bus LMPs.…”

“…8 As detailed in Li and Tesfatsion (2011), TNS is the sum of GenCo net surplus, LSE net surplus, and ISO net surplus. In an attempt to attain this objective, the ISO operates a day-ahead energy market settled by means of Locational Marginal Prices (LMPs), the pricing of electric power in accordance with the timing and location of its injection into, or withdrawal from, the transmission grid.…”

“…Tesfatsion (2008,2009) explore the emergence of spatially correlated price patterns supported by seller co-learning when sellers can learn to exercise economic capacity withholding. Li and Tesfatsion (2011) explore the effects of seller co-learning on total net surplus (efficiency) and the distribution of surplus among sellers, buyers, and the ISO when sellers can learn to exercise economic capacity withholding.…”

Variously worldwide types of deregulated electricity markets and their respective transmission congestion management schemes

“…Before calculate the LMP, the SO uses optimal power flow (OPF) to calculate dispatch of each generator [14]. OPF is the integration of power flow calculation and minimization of economic objective function subject to the equality and inequality constraints.…”

“…When congestion happens, LMPs between different nodes will become distinct due to transmission lost and congestion [14]. At one node, generator will be paid from LMPs and customer will pay for the LMPs and both actions will be implemented by the SO.…”