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1, February 1991
23
ABSTRACT
An analysis is made of real-time pricing policies of reactive
power using a modification of the OPF model. The theory of realtime pricing of reactive power is presented, followed by a case study
illustrating the magnitudes and ranges that real-time prices of
reactive power might take on under different circumstances. The
efficiency implications of real-time pricing of reactive power are
compared with traditional power factor penalties. It is concluded
that real-time pricing of reactive power should develop
simultaneously with that of active power for maximum economic
efficiency and smooth operation of the electricity marketplace.
I INTRODUCTION
Real-time pricing of electrical energy is an area of intense
research at present. Real-time pricing of reactive power is closely
related to that of active (orreal) power.
The development of spot pricing theory and the analysis of
the practice of spot pricing for real power have been carried out by
Caramanis, Bohn and Schweppe [1],[2], among others. Schweppe,
et. al. [3] see spot pricing becoming more attractive in a competitive
electricity market, especially at the generation stage where
independent power producers would adjust their generation levels
according to the spot prices paid to the producers for their power
production.
An extensive discussion on the implementation and
functioning of a spot price based energy marketplace is made in [4].
It includes topics ranging from spot price based rates and revenue
reconciliation to optimal investment conditions. a summary of
existing rates that are related to real-time prices and load
management schemes that reflect real-time pricing policies is
provided in [5]. A utility perspective on spot pricing is given in [6].
Most discussions on spot pricing of real power are equally relevant
to real-time pricing of reactive power.
Unfortunately, the pricing of reactive power has received
very little attention. A reason for this negligence is the inherent
difficulty in understanding the concept, especially by economists.
Berg, et. al. [7] point out the inconsistency and inadequacy of the
present pricing policies based on power factor penalties. They
suggest that, given the present high cost of additional investments
by electric utilities, prices should be derived from economic
principles, which support a pricing approach that has price equal
marginal costs, that would also reflect today's technological
constraints.
As power system margins are reduced because of emphasis
on the greater use of generation and transmission, power systems
dispatchersmust operate their systems much closer to their technical
limits. Real-time prices for reactive power provide information to
both users and dispatchers of electricity about the cost and value of
reactive power usage, flows, and sources.
90 SM 466-3 PWRS
A paper recommended and approved
by t h e IEEE Power System Engineering Committee of the
IEEE Power Engineering Society for presentation a t the
IEEE/PES 1990 Summer Meeting, Minneapolis, Minnesota,
J u l y 15-19, 1990. Manuscript submitted February 1,
1990; made available f o r p r i n t i n g April 24, 1990.
24
(1)
wi= %i (MQi)E4ph(MCqi)'1
(2)
which give the demand of real and reactive power at Bus i as a
function of prices of real and reactive power at that bus, for all i E N.
The parameters of the equations, which are Dpi, Dqi, Epi,
Eqi,. Epqi, and Ewi, vary with customer classes, time under
consideration, and other exogenous factors. For example, they may
differ for residential and commercial customers, the time of day, the
season, weather conditions, etc.
The prices of real and reactive power, which are equal to
marginal costs MCpi and MCqi, respectively, when load is
dispatched optimally, are implicitly defined by the following lower
level problem.
Lower-levelObjective Function:
The lower level problem is basically the optimal power flow
problem which has the objective of minimizing the total cost of
operating the spatially separated generating units subject to the set of
equations that characterize the flow of power throughout the system
and all operational constraints. Since the operating cost of producing
reactive power is much less than that of real power where the
capacity exists, the operating cost of generating reactive power is
assumed to be negligible compared to that of real power in the
analysis to follow. Thus, the objective function may be expressed in
the following form:
Minimize C =
Ci ( Pgi)
(3)
ieG
Qg;
j E N
(5)
jeN
Ci(Pgi)
i E G
- Qdi +
[ operating costs I
( M Q i ) [Pgi - Pdi N~INjITY~~ICos(8i$6J-6i)]
iE
'
jeN
25
I V I~wj I
ai- wi +
( M C ~i ~
i EN
jEN
ieG
+
C
iEG
hi,min(pgi-Pgi,min)
[ min. active power generation limit ]
hi,max ( Pgi- Pgi,max)
[ max. active power generation limit ]
iEG
+
C
iEG
Wi,max
c 'f
iEN JEN
Vi,min (
I - Vi,min)
iEN
+
I - Vi,max)
iEN
(13)
Qdi= mi (MCPi)Egp'(MCqi)'g'
for all i E N.
The Kuhn-Tucker conditions for the minimization problem
along with the demand functions can be solved simultaneously to
obtain the real-time prices of active and reactive power at each bus
that maximizes overall social welfare along with the generation,
demand, voltage magnitude and angle at each bus and the power
flow in each line.
Definition of Real-time Prices:
The real-time price of real power based on marginal cost at
Bus i and at a particular time is given by,
6Pd
= MCpi
6Qdi
= MCqi
111. CASE STUDY
Generating Unit
- e m
Pgi - Pdi - ~ N i I N j I N i , i C ~ ~ ( 8 i j + 6 j =
- 6 0i )
j=l
ai- ai+ C N , I N ~ I N ~ ~ I =S o~ ~ ( ~ ~ , + ~ , - ~
j=1
for i = 1,2,3,4.
Generation Limits:
0.0 I Pgl I 6.3
0.0 5 Pg2 I 2.0
-1.0 I Qgl I 3.5
-0.8 I Qg2 S 3.0
-0.05 I Qg3 2 0.2
Transmission Limits:
Pij I 1.8
for all i = 1,2,3,4, j = 1,2,3,4 and i # j.
Voltage Limits:
I v1 I = 1.0
I v2 I = 1.0
0.95 I I V3 I I 1.05
0.95 I I V41 2 1.05
Demand Functions:
Pd, = Dpl ( MCpl)-0'2(MCql)o'a
Y
~
Pd2 = Dp2 ( M Q J ~ ) - ("MCq2)O.O
-0.0001
Pd3 = D P 3 ( MCP3
MCq3 1
Pd4 = Dp4 ( MCp4)-'.05 ( MCq4 )-0'04
Qd,
Qd2 =
D q 2 ( MCp2
( MCq2 )O"
26
Results:
The model formulated in the previous section was solved on
the CDC Dual Cyber 170/750 using GRG2 [9], a program which
solves nonlinear programming problems using generalized reduced
gradient methods. The results obtained from the analysis are
presented below.
Flat-rates
pi,-
+ pisnax
(15)
6Qgi
Since the function L is minimized with respect to Pgi and
12
18
24
Hours
ii
w,
"1
Bus1
Bus2
(18)
0
(19)
50
100
150
Power Generationat Bus 1
200
Flat-rates
+ Real-time rates
Bus3
+ Bus4
50
100
150
Power Generationat BUB1 (MW)
200
12
18
24
Hours
27
-0.0
-0.2
-0.4
-0.6
Busl
Bus2
Bus3
Bus4
-0.8
10
20
40
30
Busl
Bus2
9 Bus3
+ Bus4
+b
cz
321+ 31:
0
.
10
20
d
I
40
30
4
-'
-5
0.8
P,
10
20
40
30
+-
Busl
Bus2
9 Bus3
+ Bus4
0
Bus3
Bus4
Profit
cost
Rev.
0.6
cz
0.4
,0.2+
0
10
20
30
40
-lo!
0
10
20
30
40
28
V. CONCLUSION
The importance of an efficient reactive power pricing policy
is beginning to be recognized by the utility industry. Accurate price
signals are essential for proper investment planning by the utility and
the customers so as to maximize overall social welfare.
Real-time pricing of active and reactive power are necessary
ingredients for a successful marketplace of electricity. Such a market
would treat VARs like other market "mcdities, thus providing a
market mechanism for buving and selling VARs. This would
facilitate marketplace transactions of reactive power including
buying and selling of VARs to neighboring utilities, large industries
and independent power producers as well as to cletermine wheeling
charges for VARs.
5 1
-15
0
10
20
30
40
100
0
0.90
1
0.92
0.94
0.96
0.98
3F
E
d
f
-200
0.90
0.92
0.94
0.96
0.98
29
1-2
1-4
2-3
2-4
3-4
64.4
48.3
48.3
128.7
80.5
40
30
30
80
50
8
6
6
16
10
32
24
24
64
40
R
X
perunit perunit
0.042
0.031
0.031
0.084
0.053
0.168
0.126
0.126
0.336
0.210
Charging
MVAR
4.1
3.1
3.1
8.2
5.1
REFERENCES
1) Caramanis, M. C., R. E. Bohn, and F. C. Schweppe, "Spot
Pricing of Electricity: Practice and Theory", IEEE Transactions
on Power Apparatus and Systems, Vol. PAS-101, No. 9,
September 1982, pp. 3234 - 3245.
2) Bohn, R. E., M. C. Caramanis, and F. C. Schweppe, "Optimal
Pricing in Electrical Networks Over Space and Time", The Rand
Journal of Economics, Vol. 15, No. 3 (Autumn 1984), pp. 360
- 376.
3) Schweppe, F., et al, "Homeostatic Control for Electric Power
Usage", IEEE Spectrum, July 1982, pp. 44 - 48.
4) Schweppe, F. C., Caramanis, M. C., Tabors, R. D., and Bohn,
R. E., Spot Pricing of Electricity, Kluwer Academic Publishers,
Boston, MA, 1988.
5) Tabors, R. D., F. C. Schweppe, and M. C. Caramanis, "Utility
Experience with Real Time Rates", IEEE Summer Power
Meeting, 1988.
6) Garcia, E. V., and J. E. Runnels, "The Utility Perspective of
Spot Pricing", IEEE 1984 Summer Power Meeting, Seattle,
Washington, July 15 - 20, 1984. Paper 84-SM-:54-2.
7) Berg, Sanford V., J. Adams and B. Niekum, Power Factors
and the Efficient Pricing and Production of Reactive Power",
The Energy Journal, Vol. 4, Special Electricity Issue, pp. 93 102.
8) Ray, D., and F. Alvarado, "Use of an Engineering Model for
Economic Analyses in the Electric Utility Industry", Department
of Electrical and Computer Engineering, University of
Wisconsin-Madison, 1988, presented at the Advanced
Workshop on Regulation and Public Utility Economics, Rutgers
University, May 25-27, 1988.
9) Lasdon, L.S. and Waren, A.D., "Generalized Reduced Gradient
Software for Linearly and Nonlinearly Constrained Problems",
in Design and Implementation of Optimization Software, H.
Greenberg, ed., Sijthoff and Noordhoff, pubs., 1979.
Martin L. Baughman (S, 72) was
bom on February 18,1946 in
Paulding, Ohio. He received his BS
in Electrical Engineeringfrom Ohio
Northem University in 1968 and his
MSEE and PhD degrees in electrical
engineering at MIT in 1970 and 1972,
respectively.
Dr. Baughman was a Research
Associate at Massachusetts Institute of
Technology from 1972 to 1975, at
which time he joined the University
of Texas at Austin as a Senior
Research Associate. In 1976 he
joined the faculty of the Department of Electrical and Computer
Engineering as an Assistant Professor. In 1979 he coauthored a
book with Paul Joskow on electricity supply planning entitled
Electricitv in the U n i w s : Models and Policv Analv&. From
1984 to 1986 he chaired the National Research Council Committee
on Electricity in Economic Growth. He has served as a consultant
to several agencies, including Edison Electric Institute, the MIT
Energy Laboratory, the Economic Council of Canada, and the
Ministry of Planning in Saudi Arabia, and the Electric Power
Research Institute.
Dr. Baughman is a member of the Intemational Association
of Economists and registered ProfessionalEngineer in the state of
Texas.