Transmission Congestion Impacts on Electricity Markets
George Gross
University of Illinois at Urbana-Champaign
Urbana, IL 61801, USA
Congestion in the transmission network has become a critical problem for electricity markets in the competitive power industry. Its wide range of impacts, ranging from the way the system is operated to the behavior of each market player in the congestion-modified market, may prevent the use of the lowest-priced resources to meet the demand and may, in addition, facilitate the attempt of a particular seller to exercise local market power. Many observers of the industry see congestion as a key barrier for the establishment of vibrant competitive markets. This presentation focuses on the impacts of congestion on the individual market players. The evaluation of key metrics for congestion management, including the congestion rents, requires the efficient allocation of transmission services and the calculation of appropriate locational marginal prices (LMPs). This requirement is particularly acute when there are bilateral transactions coexisting with the centralized pool markets. We propose a new formulation for this purpose, which captures more appropriately the contribution of the bilateral transactions to the social welfare than the conventional one. The solution of the proposed formulation not only leads to the efficient allocation of transmission services to both the pool players and the bilateral transactions, but also results in more realistic LMP signals than the evaluations done with the conventional tool. We assess analytically the capabilities of the proposed formulation and solution and quantify the improvements in the evaluations over those done using the conventional approach. Throughout the talk, we provide a good intuitive explanation of the impacts of congestion by explaining this phenomenon on a simple system. We also show the role of price-responsive demand in the mitigation of the possible exercise of market power. We illustrate with simulations the congestion impacts using different test systems of various sizes including the IEEE 118-bus network.
