Ivar Wangensteen

Optimal investments in power generation under centralized and decentralized decision making

This work presents a novel model for optimization of investments in new power generation under uncertainty. The model can calculate optimal investment strategies under both centralized social welfare and decentralized profit objectives. The power market is represented with linear supply and demand curves. A stochastic dynamic programming algorithm is used to solve the investment problem, where uncertainty in demand is represented as a discrete Markov chain. The stochastic dynamic model allows us to evaluate investment projects in new base and peak load power generation as real options, and determine optimal timing of the investments. In a case study, we use the model to compare optimal investment strategies under centralized and decentralized decision making. A number of interesting results follow by varying the assumptions about market structure and price response on the demand side.

Thermal power generation scheduling by simulated competition

This paper presents a new method for solving the unit commitment problem by simulation of a competitive market where power is traded through a power exchange (PX). Procedures for bidding and market clearing are described. The market clearing process handles the spinning reserve requirements and power balance simultaneously. The method is used on a standard unit commitment problem with minimum up/down times, start-up costs and spinning reserve requirement taken into account. Comparisons with solutions provided by Lagrangian relaxation, genetic algorithms and Chao-an Lis unit decommitment procedure demonstrate the potential benefits of this new method. The motivation for this work was to design a competitive electricity market suitable for thermal generation scheduling. However, performance in simulations of the proposed market has been so good that it is presented here as a solving technique for the unit commitment problem.

Experience with the Nord Pool design and implementation

The electricity industry of the Nordic countries went through a major restructuring during the 1990s. A wholesale market with significant competition has been established. Nord Pool was established in 1993 as a Norwegian electricity exchange, and extended its trade to Norway and Sweden in 1996. It thus became the worlds first multinational exchange for trade in electric power contracts, and presently it is the only truly international electricity market. There is one market operator, and there are five system operators. Each country has its own regulatory agency. There are no general cross border tariffs. In 2001, power contracts worth nearly NOK 412 billion, about 55 billion Euro, were cleared by Nord Pool, and the combined volume of contracts traded was 2769 TWh, that is more than seven times the physical consumption. An open market with a common framework has made the Nordic market the most liquid electricity market in the world. Three of the countries have full retail market access. Since deregulation of the electricity industry started, restructuring has taken place in all countries resulting in mergers and acquisitions. There is an ongoing concentration of ownership in the wholesale market, and the concentration of the production side causes concern.

Assessing climate change impacts on the Iberian power system using a coupled water-power model

Climate change is expected to have a negative impact on the power system of the Iberian Peninsula; changes in river runoff are expected to reduce hydropower generation, while higher temperatures are expected to increase summer electricity demand, when water resources are already limited. However, these impacts have not yet been evaluated at the peninsular level. We coupled a hydrological model with a power market model to study three impacts of climate change on the current Iberian power system: changes in hydropower production caused by changes in precipitation and temperature, changes in temporal patterns of electricity demand caused by temperature changes, and changes in irrigation water use caused by temperature and precipitation changes. A stochastic dynamic programming approach was used to develop operating rules for the integrated system given hydrological uncertainty. We found that changes in precipitation will reduce runoff, decrease hydropower production (with accompanying increases in thermal generation), and increase irrigation water use, while higher temperatures will shift power demand from winter to summer months. The combined impact of these effects will generally make it more challenging to balance agricultural, power, and environmental objectives in the operation of Iberian reservoirs, though some impacts could be mitigated by better alignment between temporal patterns of irrigation and power demands.

Power System Planning and Operation in International Markets-Perspectives From the Nordic Region and Europe

This paper describes development and experiences from the Nordic region and the current status and trend toward an integrated and open electricity market comprising most of Europe. The paper describes practical experiences as well as theoretical investigations and modeling studies. We focus on the following subjects: Congestion management: There are a variety of arrangements for transfer across national borders and for congestion management in Europe. A common future system based on an improved version of the Nordic market splitting system can be a good alternative. Management of ancillary services: We see certain trends concerning ancillary services in the Nordic market: 1) more focus on cost effectiveness and a move toward market arrangements including cross border trade in ancillary services; 2) increased use of the demand side in the provision of ancillary services; and 3) increased flexibility in defining the demand for ancillary services. Investment incentives: Experience as well theoretical investigations indicate that investment in generating capacity is a problem in an open electricity market, where investors are exposed to high risk and uncertainty. One important conclusion from our studies is that end user response (elasticity) to electricity prices is important in an open market. We also discuss how additional incentive mechanisms can be used as a measure to achieve capacity adequacy, when the market fails to provide sufficient signals for new investments.

Regional congestion management and inter-TSO compensation in cross-border electricity trading

The paper describes the analysis relevant for the discussion on cross-border transmission lines in an integrated European electricity market. Since the subject issues (trading rules, congestion, transit, tariffs, investment) are interconnected and may influence each other, this represents an extensive and complicated set of problems. The influence of electricity trading, congestion and transit on market participants in each area has been discussed. Market participants are generators (traders), suppliers (customers), and TSOs. An example is given with four connected areas, where the benefits and losses for the involved parties are shown. Our findings illustrate how a coordinated trading mechanism (congestion, transit) increases market competition and interconnection usage and reduces market player risk and generates revenue employing market based methods.

Impact of cross-border electricity trading on market participants

In the paper, it is shown how electricity trading, congestion and transit is influencing on market participants in each area. Market participants are generators, suppliers (consumers), traders and TSOs. It is shown an example with four connected areas, where this benefits and losses for the involved parties are presented. Although there are still imperfect markets in Europe, we assume some prerequisites: the electricity market is fully opened, there is one power exchange in the region, a TSO model is implemented and there may be different price areas. Our findings illustrate that a coordinated trading mechanism (congestion, transit) leads to increase of market competition, increase of interconnection usage and reduction of market player risk as well as generation of revenue in market based methods. Strong cross-border interconnections have direct economic benefits and decreases generators possibility to exercise market power, increases the security of supply for all trading partners, and leads to more stable electricity prices and thereby lower risk on investments.

Optimization of costs and benefits in Inter TSO Compensation mechanism

Purpose of this paper is to specify the benefits in Inter TSO Compensation mechanism. The intension is to contribute to the future solution for transit in the European Power Market. Cross-border trading is influenced by several mechanisms (congestion management, transit, tariffs, investment) which need to be examined from technical and economical point of view. All mechanisms are interconnected and represent an extensive and complicated set of problems. Cross border exchange has direct economic benefits leading to increased competition, increased market liquidity, stabilized prices and increased security of supply. In the Regulation 714/2009/EC and Guidelines 774/2010/EC (838/2010/EC) for ITC there is no clear definition of the benefits-concept and elements that should be considered. We will discuss some of the principles that are suggested and/or applied and study possible consequences. Some illustrations and calculations were done in MATLAB based on full AC optimal power flow. The balance between benefits and costs are analyzed depending on inter-area conditions. In the end we have proposed general algorithm for compensation of losses which include calculation of benefits with detailed principles: real losses with transits minus estimated losses without transits minus estimated benefits with transits. These principles could be applied to any future solution for transit.

Effect of losses on area prices in the Norwegian electricity market

This paper contributes to the understanding of how bus and area prices are affected by losses and congestion. Recent papers have described area pricing to include bus prices that are equal within in a price area or zone. According to present Norwegian practice, the bus prices within a price area differ by an amount that is due to losses. We use a full AC optimal power flow model to illustrate this. Moreover, we demonstrate that the combined effect of transmission congestion and losses may yield a substantial change in individual bus and area prices compared with a situation with no congestion or losses.

A market for reserve capacity: experience and simulation

This paper addresses the market for reserve capacity that was introduced in Norway in 2000 as a consequence of a narrowing capacity margin. The new element introduced by this market is a market-based payment for availability. A simulation model is developed to show how this market interacts with the spot and regulating markets and leads to an equilibrium. We study how changed spot demand and changed demand for capacity reserves affect the joint equilibrium and the probability for load shedding.