The Economic Evaluation of System Security Criterion in a Competitive Market Environment

The tight coupling between system and market operations implies that there are strong inter-relationships between system security management and market performance. Therefore, the assurance by the regional transmission organization (RTO) of secure system operations strongly depends on, and directly impacts, electricity markets. We use the insights we developed into the tight coupling between market and system operations under restructuring to characterize analytically the inter-relationships between the way the power systems are operated and the performance of the electricity markets. Such characterization leads us to the development of a systematic approach that quantifies the market performance as a function of security criterion under diverse system and market conditions for single-settlement systems. We extend the approach to quantify the auction surplus attained through the multi-settlement system and evaluate the impacts of the day-ahead markets (DAMs) on market participants’ bid/offer surpluses as well as on improving the ability to facilitate real-time secure power system operations. We illustrate a set of applications of the proposed approach on the large-scale ISO-NE system using the historical 2005–2006 data—the system model and the bids/offers submitted—and the actual market clearing methodology. The ISO-NE DAM comparative study provides important insights into the role of price-responsive demand and that of the security control actions. In fact, a key finding of this study is that the economic efficiency of the electricity markets need not decrease when a power system is operated under a stricter criterion as long as there is effective price-responsive demand and appropriate control actions are deployed. In addition, the application studies on the ISO-NE multi-settlement system bear out the well known fact that the participation of financial entities leads to the convergence of the DAM and the associated RTM prices. Moreover, these studies also illustrate that such participation leads to improved forecasts of the real-time system operations, and consequently results in improving the assurance of system security.