07_HW_EEE598

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Homework 07 EEE 598 – Electric Energy Markets Professor Kory Hedman Homework 7: Due Tuesday, April 16 by 5pm AZ time. You are always required to show your work. AMPL can be used in this assignment (or another solver that is capable of handling the mathematical optimization problems, i.e., determining optimal solutions). Download the HW and type the responses where required. If you derived something by hand, attach that to your submission (everything in one file). If you wrote any code, you must paste that in an appendix. 1. (30 points) Questions on congestion This answer must be typed. a) (10 points) Often, congestion is viewed as a negative, as to say we don’t want any congestion in our system whatsoever. However, congestion rent is a part of the social welfare. If congestion is purely bad, why is it a part of the social welfare calculation? Is congestion bad? Is it good? What is our goal of optimizing the system? Is our goal to minimize congestion (you should think of this as congestion rent)? Discuss all of these issues (no more than 2 paragraphs). Answer: b) (15 points) People will often assume that if you have less congestion in the system, then the system operates more efficiently. (interpret congestion here as congestion rent). Is this true? Prove or disprove. Either prove that if you decrease the congestion rent that you are guaranteed to decrease the total cost of the system. Or disprove this to be true, that it is possible for the congestion rent to decrease while the total cost may increase (you can show this with an example). Answer: c) (5 points) Often, people will state that our goal in transmission expansion planning is to have a network that is free of congestion. Is this what our goal should be with transmission investment planning? If not, what is our goal with transmission planning? (no more than 1 paragraph) Answer: Page 1 of 4

Homework 07 2. (20 points) Virtual Bidding This answer must be typed. Virtual bidders are market participants that are purely financial (for instance, Banks). They speculate on the price difference between day-ahead markets and real time markets. If they expect the real time price to be higher than the day-ahead price then they will buy X MWh in the day-ahead market and then they will sell X MWh in the real time market. If they expect the day-ahead price to be higher than the real-time price, then they will sell X MWh in the day-ahead market and then they will buy X MWh in the real time market. Since they are not actually selling or buying anything their net position must always be zero (what they buy (or sell) in the day-ahead market must equal what the sell (or buy) in the real time market). One problem, or at least the virtual bidders think it is a problem, regarding uplift payments is that virtual bidders are charged uplift payments (since they either buy in the day-ahead market or they buy in the real-time market so they are charged an uplift just like consumers are charged an uplift). The following link is a document from CAISO where a virtual bidder (a firm/company) is complaining about CAISO’s market design, specifically the firm is stating that virtual bidders should not be charged uplift payments. http://www.caiso.com/207b/207ba15819b70.pdf Review the source above and write (type) two paragraphs on this topic and whether you think virtual bidders should be charged uplift payments like consumers. You should use the above source and you are encouraged to use any other source that you may find online. You are required to list all sources that you use. Besides your two paragraphs, specifically answer the question: do virtual bidders influence the amount of uplift in a solution (this is based on the claim that there is no cost causation by virtual bidders, within the document)? Page 2 of 4

A B C z z z Ga Gb Gc 20 120 P1 P2 P3 $80/MWh $50/MWh $70/MWh Limit: 50MW Limit: 50MW Limit: 40MW Homework 07 3. (50 points) a) (15 points) Period 1: Solve the following three bus example. Determine the Generator outputs, the flows on each line, and the LMPs. You may do this by hand or through AMPL. If you use AMPL, you must provide your code. Assume the generators have a lower bound of 0 but they do not have an upper bound. Gen A: P1: LMP A: Gen B: P2: LMP B: Gen C: P3: LMP C: b) (20 points) Generator A holds a contract for difference with Load B for $60/MWh for 20MW. Generator A holds a contract for difference with Load C for $75/MWh for 60MW. Determine the FTRs that Generator A should buy to create a perfect hedge with Load B and the FTRs that Generator A should buy to create a perfect hedge with Load C (in connection to both of these contracts for differences). List the FTRs (their source, their sink, and their quantity). The FTRs that you choose must pass the Simultaneous Feasibility Test. Type your answer below. Demonstrate that the FTRs provide a perfect hedge for both of these contracts for differences by filling in the following table. For the Column representing Production or Consumption, only reference the quantity of production from the generator that is associated with this contract for differences. For instance, Generator A may produce more than 20MW but only base that calculation on the 20MW. In this table, list revenues received as positive and payments as negative. For instance, Generator A will be paid by the ISO for producing (positive) but if Generator A has to make a payment to Load B based on its contract for difference with Load B that will be negative. Page 3 of 4

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Homework 07 Category Production or Consumption FTR Payments Contract for Differences Add up the other 3 values Total $: Calculate the $/MWh in associated with the contract Payment to (negative) or from (positive) the ISO: FTR Payment from ISO (positive) or to ISO (negative) Payment to (negative) or from (positive) the other party involved in the Contract for Differences Generator A Load B Zero Generator A Load C Zero c) (15 points) Period 2: In this period, the load values are the same as in period 1; however, line P3 is out of service due to maintenance. Calculate the optimal dispatch with P3 out of service due to maintenance. Calculate the flows on the lines and calculate the LMPs. Gen A: P1: LMP A: Gen B: P2: LMP B: Gen C: P3: LMP C: Suppose that the FTRs you define in part B are the only FTRs for this market during Period 2. Given the dispatch solution above for period 2, what is the payment for each FTR (type below)? What is the total congestion rent for this period (type below)? Show how you calculate the total congestion rent (you can hand write). Is the system revenue adequate (type)? If not, why? Explain (type). Page 4 of 4