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Transmission Pricing of Distributed Multilateral Energy Transactions to Ensure System Security and Guide Economic Dispatch

Maria Ilic, Eric Hsieh, and Prasad Ramanan

December 2002

Maria Ilic, Eric Hsieh, and Prasad Ramanan, December 2002

In this paper we provide a simulations-based demonstration of a hybrid electricity market that combines the distributed competitive advantages of decentralized markets with the system security guarantees of centralized markets. In this market, the transmission service provider (TSP) guides an electricity market towards the optimal power flow (OPF) solution, even when maximizing its own revenue. End users negotiate with each other to determine an energy price and then submit separate bids for transmission to the TSP. The TSP returns with prices for transmission, allowing end users to respond. In simulations, this hybrid-decentralized market approaches the near-optimal results of fully coordinated and constrained markets. Additionally, this market exhibits properties that remove incentives for the TSP to withhold capacity. This hybrid market leads a market towards the optimum while allowing the TSP and the end users to act out of self-interest. Index Terms—Electricity markets, transmission, optimum power flow.

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