OPPORTUNITIES AND CHALLENGES IN THE RESTRUCTURED ELECTRICITY SYSTEM : POSSIBLE STRATEGIES FOR DEALING WITH THEM presentation by George Gross University of Illinois at Urbana-Champaign Seminar “Electric Utilities Restructuring” Institut d’Electricité Montefiore Université de Liège December 8, 1999 © Copyright George Gross, 1999

OBJECTIVES OF THE PRESENTATION Review the principal thrusts of electricity restructuring Provide some results in the California restructuring Identify key challenges and issues of concern in monitoring and control Define the scope of research and possible strategies required to meet the needs of real-time control in the restructured environment Throw some light on the complexities of congestion management

OUTLINE Review of restructuring impacts The unbundled open access transmission system Example : California restructuring Scope of issues, challenges, and opportunities in monitoring and control Re-examination of control laws Analytical and software tool enhancement Concluding remarks

THE EXISTING ELECTRIC INDUSTRY STRUCTURE Customers Customer Service Customer Service Distribution Distribution Transmission Transmission Self- generation IPP Generation Generation

THE EXISTING ELECTRIC INDUSTRY STRUCTURE Self- generation IPP Generation Generation Transmission Transmission Distribution Distribution Customer Service Customer Service Customers

THE VERTICALLY INTEGRATED UTILITY AND SERVICE BUNDLING All services are bundled The basic design was for the entire system to meet the utility’s own customers’ needs: transmission loading and voltage specified in such a way as to supply all the customers’ load and energy demands under all including peak demand conditions; generation capacity installed was sized for the same purposes; voltage regulation, frequency control, VAr support, generation and VAr reserves were all bundled into this single design for those very purposes

MAJOR THRUSTS OF RESTRUCTURING Customer choice Open access transmission Unbundled services Development of distinct markets Establishment of new structures and new restructuring paradigms Congestion management

BASIC REQUIREMENT IN COMPETITIVE MARKETS All players -- buyers, sellers, brokers -- require non-discriminatory transmission services to get products to markets or to acquire products competitively from the supplier of choice Each transmission customer needs to have service comparable to that available to native loads of the transmission service provider Transmission service is the most critical element in making competitive electricity markets work

“COMMON CARRIER” TRANSMISSION SERVICE Broker / marketer Transmission system Utility generation Other utility QF IPP EWG Self

ELECTRICITY SERVICE UNBUNDLING In the vertically integrated utility environment, electricity services were bundled The unbundling of services entails energy completely separated from transmission basic transmission service provision to all eligible entities engaged in wholesale markets ancillary services as separate services

VERTICALLY INTEGRATED UTILITY STRUCTURE IS DISINTEGRATING Distribution wires Customer Service Customer Service Marketing/ trading Transmission ownership Distribution Generation System Operations Transmission Ancillary services Generation Power exchange ISO

} * UNBUNDLING EXAMPLE Baggage Service Takeoffs Landings In-Air Pillow/Blanket Service Oxygen Bath rooms Backup Service FLY THE FRIENDLY SKIES WITH UNBUNDLING ‘R’ US * * Bundled service available upon customer request

ANCILLARY SERVICES : DEFINITION System support services that are essential for physical delivery of energy from a source point to a load point Fundamental and indispensable system services required for the provision of transmission service and in their absence instantaneous system collapse would result These services are provided mostly by generation sources

FERC ANCILLARY SERVICES

NERC LIST OF INTERCONNECTED OPERATIONS SERVICES Regulation Load following Energy imbalance Operating reserve -- spinning Operating reserve -- supplemental Backup supply System control Dynamic scheduling Reactive power / voltage control from generation sources Real power transmission losses Network stability services from generation sources System blackstart capability

OPEN ACCESS SAME-TIME INFORMATION SYSTEM (OASIS) RULE Transmission customers must have access to same information as the transmission provider at the same time Information must be disseminated electronically using real-time information networks and industry-wide communications protocols Display information on transmission services available, tariffs, schedules and available transfer capability estimates Establishment of Standards of Conduct to prevent preferential access to transmission prices and availability Biggest current challenge was thrown to utilities by FERC in the open access NOPR (Notice of Proposed Rulemaking) FERC will soon require the opening of all transmission networks to wholesale power providers. FERC will require that transmission customers have access to the same information as transmission owners at the same time as transmission owners do FERC is considering a requirement to have information disseminated electronically using real-time-information networks (RINs) An industry-wide protocol must be adopted for the RINs to allow for all interested utilities to invest in these systems

EQUAL INFORMATION AVAILABILITY Transmission Provider Transmission Customer OASIS RIN For Sale For Sale Wanted Wanted Transmission Service: Palo Verde to Midway Palo Verde to Midway Four Corners to Midway Transmission Service: Transmission Service: 200 MW at $4/MWh Four Corners to Midway Call SCE 200 MW at $4/MWh Call SCE Call SMUD 200 MW at $3/MWh Call SMUD 200 MW at $3/MWh Transmission Service: Transmission Provider Transmission Customer

THE OASIS NETWORK to another OASIS node Internet OASIS node TC TC TP TSIP TC TP OASIS node TP Operational since January 3, 1997 Network comprised of 23 nodes operated by 175 transmission providers One of the first large-scale Internet applications for business to business

SCHEDULING COORDINATOR(SC) Agent of transmission customers providing interface with the transmission system operator May be a transmission customer, a generator, another utility, a marketer/broker or a bilateral contracts manager Scope of responsibilities may include: contracting for supply-side and demand-side portfolios to meet direct access customers’ requirements scheduling supply to meet its customers’ load on a monthly/daily/hourly basis and to respond to contingencies/curtailments submission of balanced schedules to the operator contracting for adequate ancillary services participation in the settlement process

. . . . . . . . . . THE POWER EXCHANGE $ $ $ $ $ $ PX Seller 1 Seller i Seller M MWh MWh MWh $ $ $ PX MWh MWh MWh $ $ $ . . . . . . Buyer 1 Buyer j Buyer N

MARKET CLEARING PRICE market clearing price market clearing quantity

INDEPENDENT SYSTEM OPERATOR ESP end user load aggregator D I S T R I B U T I O N (W I R E S) ISO power exchange scheduling coordinator ancillary services market ... ... ... G G G G G G G G G G G G G G G G G G G G G

MOTIVATION FOR THE INDEPENDENT SYSTEM OPERATOR The implementation of the open access regime makes the “transmission and...” business considerably more difficult, problematic and possibly of more limited strategic value The increasing volumes of transactions in each region have made critically important the need to solve transmission problems on a regional basis Transmission owning entities realize that independent decision making on transmission service and pricing issues necessitates the removal of control of the transmission system from the owners who also control other sectors of the electricity business Facilitation of the commercial market by an independent entity that would remove impediments to access the grid and provide transmission service

PRINCIPAL ROLES OF THE ISO Provision of non-discriminatory open access to the grid with all users subject to the same access protocols and tariffs Coordination of the day-ahead scheduling and real-time load/resource balancing Maintenance of system reliability/security compliance with NERC - reliability council operating and reliability standards control/dispatch of the ISO’s transmission facilities management of emergency response

PRINCIPAL ROLES OF THE ISO Management of transmission network congestion and constraints Specification, competitive acquisition and management of unbundled ancillary services Settlement of accounts Provision of information to market participants Participation in system expansion

THE ANCILLARY SERVICES MARKET customer service load aggregator end user D I S T R I B U T I O N (W I R E S) ISO ancillary services market power exchange scheduling coordinator ... ... ... G G G G G G G G G G G G

ANCILLARY SERVICE CHARGES All customers connected to the grid except those who are self providers are deemed to be users of ancillary services and are charged for those services by the ISO The ISO allocates the costs it incurs in procuring reserve capacity to all non-self-provider entities in an amount proportional to their scheduled/metered loads

UNIT/PLANT SALE CHOICES Energy Payments balancing market energy ( including AGC) Capacity Allocation reserved for real-time balancing market spinning reserve hour-ahead energy market hour-ahead market AGC downward capability day-ahead energy market day-ahead market

METERING REQUIREMENTS Unbundling brings about new measurement and metering needs A primary requirement is the quantification of each service Each service introduces its own specific needs in measurement: nature, level of detail, frequency and accuracy Specialized communications may be required to transmit measurement data to interested parties Metering may be offered as an unbundled service

METERING DATA Major challenges in effective data management: collection storage extraction compression utilization dealing with data overwhelm data visualization Key Issue: ownership of metering data

SETTLEMENT AND BILLING Similar to metering, settlement and billing become an unbundled service Data collection required for MWh injected by each generator MWh withdrawn by each load MVArh of reactive energy support by each generator other ancillary service measurements -- capacity and energy transmission network usage and contract information transmission congestion information Settlement and billing entail the production of periodic bills for all providers and consumers of services

THE NEW TRANSMISSION BUSINESS Customer choice Vertical unbundling and horizontal consolidation Increasing volume in inter-regional energy transfers Proliferation in the number of transactions “Instantaneous” changing of suppliers and buyers Independent grid operators without generation resources Decentralized decision-making 5 5

NEW PARADIGMS FOR ELECTRICITY Basic requirements compatibility with the physics/engineering of electricity customer choice economic efficiency goals market innovation Prime mover is the introduction of free markets Principal design issues accommodation of economic decisions made by individual suppliers and users attainment of economic efficiency goals through the appropriate level of centralization/decentralization

NEW PARADIGMS FOR ELECTRICITY Key issues maintenance of system security/reliability availability of firm transmission rights meeting coordination requirements in a competitive environment new structures rules of the road

MARKET STRUCTURE Central issue : role and level of authority of central institutions vs. those of decentralized decision making by individual market players General agreement on the need for coordination of the power system The two emerging paradigms Pool model Bilateral model

THE POOL MODEL The pool is the sole buyer and seller of electricity The pool uses the offers of the suppliers and the bids of the demanders to determine the set of successful bidders whose offers and bids are accepted The pool determines the “optimum” by solving a centralized economic dispatch model taking into account the network constraints

THE BILATERAL TRADING MODEL Players arrange the purchase and sale transactions among themselves Each schedule coordinator (SC) and each power exchange (PX) are responsible for ensuring supply/demand balance The independent system operator (ISO) has the role to facilitate the undertaking of as many of the contemplated transactions as possible subject to ensuring that no system security and physical constraints are violated

THE POOL PARADIGM Centralized control with a single entity in charge of markets and operations “Pool” concept merges grid operator’s coordination role with a centralized dispatch function Grid operator as both air traffic controller and central scheduler for a mega-airline in charge of coordinating the number of flights, determining the prices for all landing rights and the commodity prices for all airline seats

THE POOL MODEL customer customer customer retail merchants distribution wires businesses Independent System Operator (ISO) including power exchange and ancillary services market multi-lateral transaction markets marketers / brokers generation entities

THE BILATERAL TRADING PARADIGM Coordination between one or more markets and an independent grid operator Independent grid operator in charge of system reliability/security Bulk energy market consisting of one or more “power exchanges” Basic requirement : effective coordination among all players in a decentralized decision-making environment Grid operator as air traffic controller in charge of take-offs, landings, congestion but not of prices for airport landing rights or seats on planes

THE BILATERAL TRADING MODEL customer customer customer retail merchants distribution wires businesses Independent System Operator (ISO) multi-lateral transaction markets ancillary services markets power exchanges marketers / brokers generation entities

scheduling coordinator ancillary services market THE CALIFORNIA SYSTEM ESP end user load aggregator D I S T R I B U T I O N (W I R E S) ISO bilateral contracts power exchange scheduling coordinator ancillary services market ... ... ... G G G G G G G G G G G G G G G G G G G G G

THE DISTINCT ELECTRICITY MARKETS ISO PX transmission congestion management market short- term forward energy markets real-time balancing market ancillary services markets

THE ISO BALANCING MARKET ISO administers a real-time market to ensure exact supply-demand balance: purchases from generators energy not supplied to the grid but demanded by the loads The balancing market is strictly a physical delivery mechanism; it provides load following and frequency control services The balancing market compensates for random unit outages forecasting errors shortfalls in PX and bilateral contract commitments

THE ISO BALANCING MARKET The balancing market is the only truly physical electricity market and is the basis for all other markets While the ISO has the responsibility to track load, it may not have direct control over the generators except under emergency conditions; responsibility of each SC is to bring its units to the desired level of operation ISO charges out-of-balance SC’s for balancing energy; payments for balancing energy by the ISO are based on the prices and amounts specified by the units

THE PX MARKETS The PX conducts two distinct markets day-ahead market hour-ahead market The PX markets are essentially short-term forward markets in which generators bid for the right to serve load and loads bid for the opportunity to have their demands satisfied auction mechanism establishes the required prescheduling schedules are financially binding on generators and loads commitments are virtually physical since widespread violation of PX commitments may bring about disruption of system integrity

THE PX AUCTIONS The day-ahead market is 24 separate double auctions, one for each hour These auctions operate without considering transmission; all transmission constraints and congestion management issues are ignored [“unconstrained” PX] Auctions are iterative with prescribed activity rules designed to provide progressive price discovery The PX sets a maximum price and buyers may submit price-insensitive demand bids for noncurtailable loads they must serve representing their willingness to pay up to that price

ISO CONGESTION MANAGEMENT The PX and other SC’s submit their proposed schedules to the ISO -- preferred schedules SC’s submit adjustment bids--incs and decs--for their units specifying amount and price for changing a unit’s output -- up or down -- to mitigate congestion If the preferred schedules lead to interzonal interface congestion, the ISO prepares an advisory redispatch with suggested modifications based on the adjustment bids and publishes a uniform interzonal congestion price or transmission usage charge for all SC’s and the PX PX and SC’s may submit revised schedules to the ISO ISO then determines final redispatch and usage charges by either accepting the revised schedule submitted if there is no congestion or repeating the procedure in the advisory redispatch preparation

RESERVES Reserves are unloaded capacity which is available within a prescribed amount of time The reserves constitute an option to generate The distinguishing characteristics of the three reserves

ISO’s RESERVES AUCTION Each bidding unit provides a capacity reservation price – $/MW an energy strike price – $/MWh The winning bidders are selected on the basis of the capacity reservation price bid; all winning bidders receive a uniform payment per MW Energy supplied is paid according to the balancing market price

THE RESERVES AUCTION required reserves $/MW uniform price paid for reserve capacity MW the winning bidders the losing bidders required reserves

RETAIL ENERGY COSTS 4/1/98 - 3/31/99 public purpose 5% transmission 4% wholesale energy 21% distribution 30% stranded costs 23% rate reduc- tion bonds 13% ISO costs 5% total costs = $ 28 billion CA ISO estimates

THE 4/23/98 REAL-TIME MARKET 2 5 2 GWh 1 5 1 5 1 2 3 4 5 6 7 8 9 1 1 1 1 2 1 3 1 4 1 5 16 17 18 19 20 21 22 23 24 ISO forecast actual load forward market load

THE ANCILLARY SERVICES AUCTIONS the sequence of ancillary services auctions schedules energy non-spinning reserves AGC spinning reserves replacement reserves

REAL TIME MARKET ENERGY SOURCES 3% 12% 4% 81% supplemental energy spinning reserves non spinning reserves replacement reserves CA ISO estimates

CALIFORNIA PX AND ISO PRICE CAPS 1 The price floor is 0 but under certain conditions negative prices are allowed at specific scheduling points

THE TRANSMISSION NETWORK UNDER OPEN ACCESS Transmission systems are being used in a manner and asked to do tasks not contemplated when they were planned and designed greater volume and variety of transactions involving transmission higher frequency of hitting transmission constraints increasing tendency to reserve firm transmission service Open access impacts include heavier loading of transmission lines increased loop flows wider variability of transmission pricing as a result of increased use of constrained interfaces need for more detailed transmission planning studies arising from constrained interfaces

THE TRANSMISSION NETWORK UNDER OPEN ACCESS Multi-system transactions require increased communications and expanded system oversight Generation is being added, but not always at the most appropriate location from the transmission point of view Management of transmission resources has become very challenging: coordination, allocation, specification of the rules of the road

OPEN ACCESS AND TECHNICAL CONSIDERATIONS The physical characteristics of the electric transmission system -- the lines, transformers and substations -- remain unchanged under open access Transmission lines and transformers must be protected against high currents which would cause damage; this need becomes particularly critical during system disturbances The system must be protected against violations of its electrical limits and operational limits

SYSTEM SECURITY REQUIREMENTS Under open access, the system security monitoring, analysis and control function remains unchanged but may be placed in hands different than those in the vertically integrated utility The protection of the system from overstress due to the proliferation of transactions, the large number of players and the new rules of the road, remains a basic requirement for reliable electricity

POWER SYSTEM SECURITY Power system security refers to the ability of the system to withstand contingencies Security is an instantaneous condition and is a function of time and system robustness with respect to all imminent disturbances; in general, the power system is continually subject to disturbances encompassing a wide range of conditions Security of power system operations is the analogue of reliability in power system planning

POWER SYSTEM SECURITY Security is defined with respect to a set of credible next contingencies; security analysis requires that a set of contingencies be specified. An operating state is secure if under each of the postulated contingencies the system continues to maintain secure normal operations An operating state is insecure if a specified contingency transitions the state into emergency. Security assessment analyzes the vulnerability of the system to a set of postulated contingencies on a real - or near-real-time - basis. Aim of security control is to prevent the system state from transitioning from secure operation into emergency

CLASSIFICATION OF STATES NORMAL EMERGENCY RESTORATIVE VIOLATED CONSTRAINTS SYSTEM LOADS SYSTEM CONSTRAINTS some of the loads are not met (partial to total blackout) none some operating limits on line overloads, underfrequency and/or overvoltages partial system is in normal state

CONTROL ACTIONS Principal task of operations is to ensure that the generation tracks the load around the clock A broad range of control actions is deployed to ensure that this supply-demand balance is met reliably and cost effectively The response times of the control actions to the onset of a disturbance provide a basis for their classification

REAL-TIME CONTROL ACTION TIME SCALE market price update operator - initiated/ manual control ULTC voltage control AGC governor control underfrequency load shedding exciters and PSS FACTS response time after the onset of an event in seconds protective system 10-2 10-1 1 10 100 1000 1 cycle 1 cycle

SYSTEM VOLATILITY The multiplicity of the players results in the proliferation of transactions of typically shorter duration and larger variety This leads to increased volatility in the system characterized by: more frequent changes in system conditions and flows more volatile pattern of generator commitment unpredictable and more frequently varying structure/configuration greater variability in controllers marked price variability

KEY IMPACT: PRICE-DRIVEN FEEDBACK LOOPS New dynamic phenomenon: response of generators and loads to market signals that are impacted by grid conditions which, in turn, are influenced by the generator and load response This price-driven feedback path must be explicitly modeled for analysis and control design

CONTROL UNDER UNBUNDLING Under restructuring the providers of the control actions and the controling authority are separately owned There is a need to specify procedures -- rules of the road -- for the acquisition and deployment of control services Key challenges: integrated control of unbundled generation and transmission information availability due to competitive market considerations maintenance of system security without unduly affecting the market measurement and metering control performance assessment

ADDITIONAL CHALLENGES AND OPPORTUNITIES UNDER UNBUNDLING Determination of static and dynamic limits Protection system reliability The changing nature of EMS Advances in measurement instrumentation and communications technology Hybrid controls

THE DATA OVERWHELM PROBLEM Vast amounts of data are required for monitoring and control in large-scale power systems under open access The data problem is exacerbated in the restructured industry by: the marked increase in the total number of players the increasing role of markets the proliferation in the number of transactions the impacts of increased volatility in the system the greater region covered by an IGO the challenges brought about by advances in computing and communications

KEY ISSUE: DATA AVAILABILITY AND MANAGEMENT Two principal aspects: data acquisition: the availability of all data required for monitoring and control data overwhelm problem: the effective management of the increasing volumes of data Availability of data is critical due to the potential for conflicts between physical data and market data Effective schemes for data storage, extraction, compression, and display are daunting challenges

REEXAMINATION OF CONTROL LAWS The need to ensure the security of the power system under new paradigms established in the restructured environment will continue to require improved controls The reexamination of control laws needs to take advantage of the opportunities from incorporating new advances in electrotechnology -- substation automation, FACTS devices and dispersed resources control theory, particularly in the area of robust control communications technology for the deployment of faster controls

WAMS The use of the global positioning system (GPS) enables the measurement of the relative phase angles of geographically dispersed sinusoidal voltages in the grid The wide area measurement system or WAMS makes extensive use of the GPS in various phase measurement units which are interconnected by data concentrators WAMS provides the capability to time stamp measurements and communicate the data over large distances with acceptable latency WAMS implementation to cover a wide region such as the Western Interconnection in the US is underway

IMPACTS OF ADVANCES IN COMMUNICATIONS Special protection schemes such as remedial action schemes integrate very fast acting controls with protective relays and operate on the same time scale as the protection system The deployment of such schemes will allow WAMS to make possible the effective implementation of faster controls for security enhancement

ENHANCEMENT OF ANALYTICAL AND SOFTWARE TOOLS Data visualization Analytical tools for information management, state estimation, voltage security analysis and available transfer capability Software engineering Model development and validation Training simulators

SUMMARY Identification of the critical research needs to meet the vast scope of challenges in control to ensure reliable and cost effective electricity in the future The effective integration of technology advances in the areas of computers, communications, control and power electronics advances is a major challenge The coming to grips with the data overwhelm issues , the formulation of new control laws and the development of new enhanced analytical tools/software in the areas of automatic controls, security monitoring and security enhancement are key elements of the research agenda

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