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IN A DEREGULATED POWER
system, the main responsibility of an
independent system operator (ISO) is
to maintain system reliability and security by using ancillary services. To
maintain the power flow limits on transmission lines as well as voltage limits
at bus bars, sufficient reactive power is
vital for the power system. In the vertically integrated utility (VIU) structure,
generation, transmission, and distribution were owned by a single entity, and
consequently reactive power provision
and voltage support were bundled with
other services in supplying electricity to
the customers. However, in the deregulated environment of the United States,
like many other deregulated electricity
industries, reactive support and voltage
control from generation source, according to FERC order 888, is known as one
of the six ancillary services. In the new
open access environment, in pursuit
of profit, the power producer has the
incentive to sell active power as much
as possible. A generator can sell its active power if only there is enough reactive power to support it. Otherwise, the
generator is no longer able to sell active
power due to system security constraints
(e.g., the voltage stability limits). So, it
is essential to establish a mechanism for
financial compensation of the reactive
power ancillary service.
The reactive power market mechanisms are not the same in all deregulated systems. In the United Kingdom, the
National Grid Company (NGC), like
Digital Object Identifier 10.1109/MPE.2008.930483
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Reactive power is one of the least understood ancillary services in the competitive markets. Reactive power is necessary to balance the total demand with the
least amount of power flowing in the transmission lines. The line limits and the
line losses are a function of the total current, both the real and the imaginary.
Minimal power factor correction at the demand increases the reactive source
requirements on the transmission system as more distant reactive sources are
used. Reactive power is a balance between the capacitance and the inductance of
the system components as energy is alternatively stored in electric and magnetic
fields. Thus, reactive power is a localized commodity, and the goal of any system
is to reduce the size of the local community as much as possible. The goal is to enable real power flows without causing congestion and without increased losses.
The selection of reactive power sources can cause congestion and thus can be
used as a tool to increase the use of more expensive generation. Reactive power
is an integrated market with the real power market as discussed in the following
word. This work shows the dependency of real power on reactive power and
discusses alternative implementations.
Gerald B. Shebl
Associate Editor, Business Scene
the ISO, arranges the tenders of reactive support services. The generator bid
reactive power support includes capacity and utilization components. These
components are (price per MVAr and
quantity on offer) and (MVAr-h price
curve), respectively. The bidder that
is selected is paid for both the capacity and utilization components through
annual bilateral contracts with NGC.
Eliminating the power pool, the United
Kingdom instituted the NETA (New
Electricity Trading Arrangements) on
27 March 2001 to deal in the wholesale
market. NETA is based on long-time
bilateral trade, and it also includes a
short-time balancing market that settles
in bidding strategy. In the newly struc-
tured market, NETA, the reactive power market is changing, and it is expected
that the reactive power market will become an exclusively tender market and
the obligatory provision of capability of
generators will be eliminated.
In Australia, the National Electricity
Market Management Company (NEMCO) mandates that generators provide
reactive power in the power factor range
of 0.9 lagging to 0.93 leading. If a generator operates in a power factor beyond the
mandatory range, it is known as ancillary
service component, and the generator
will be compensated financially based
on the lost opportunity cost (LOC).
In the Nordic Electricity Market,
including Norway, Sweden, Finland,
1540-7977/09/$25.002009 IEEE
january/february 2009
and Denmark, due to the large distance between the generator and loads,
the reactive power is provided locally.
In fact, reactive power service in Nordic countries is on a mandatory basis.
In Sweden, for example, there is not
any organized reactive power market;
in Norway, the generators are paid for
reactive power service if only the generator operates in a power factor beyond the mandatory operating range
of 0.92 lagging to 0.98 leading.
In the New York system, the ISO
(NYISO) provides reactive power
support service at embedded costbased prices. The NYISO directs the
generators that are operating within
their capability limits to produce or
absorb reactive power to control voltages within their limits. Furthermore,
the generator will receive an LOC for
the amount of revenue it loses from
the lost generation and energy trading
to produce more reactive power.
Software
Reactive Power
Related Issues
Reactive power is one of the most important ancillary services. One of the main
reasons for recent major outages in the
power systems around the world, such
as those occurred 23 September 2003
in Sweden and Denmark, 28 September 2003 in Italy, and also the August
2003 blackout in the United States and
Canada, was reported as insufficient reactive power of the system resulting in
the voltage collapse. So reactive power
is essential for the integrity of the power
system and for maintaining the system
with an acceptable margin of security
and reliability required for trading in
the electricity market. The remainder
of this section deals with the special
characteristic of reactive power.
The amount of reactive power
losses, due to the inductive nature of
transmission lines, is significant. It can
be about ten times greater than active
Training
power losses. Even in heavy load conditions, the total amount of reactive
power losses may exceed the reactive
demand of system loads. Accordingly,
reactive power losses should be considered in the evaluation of the systems
total reactive power requirement. Reactive power cannot travel very far in
the network (due to its losses), and consequently it must be produced close to
the place it is needed.
The requirement to locally produce reactive power, on one hand, and the extreme
dependence of system stability to reactive
power, on the other hand, may encourage the reactive power producers to benefit from the situation and maximize their
own profit. In other words, market power
is another serious challenge that should
be solved in the reactive power market. In
economics, market power is the ability of
a firm to alter the market price of a good
or service. A firm with market power can
raise prices without losing all customers to
Consulting
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Different Aspects
of Reactive Power Pricing
A proper pricing mechanism needs absolute identification of the power system
and also sources of active and reactive
power. An accurate model of active and
reactive costs results in fair pricing and,
consequently, ensures that the producers
will participate with enough incentive
as well as the consumers to utilize as
much electrical energy as required. Accordingly, this situation facilitates power
system improvement and development
in addition to optimizing social welfare.
If the reactive power price is considered
lower than its actual value, there would
be no incentive to produce reactive power and almost the whole capacity of the
generator would be specified to active
power production. On the other hand,
the consumers, because of low price, increase their reactive demand. The inadequate reactive power of the system and
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Reactive Power
Pricing Mechanisms
Profit maximization is the main principle
used in microeconomics. In a perfectly
competitive market, the profit is maximized if the marginal revenue (MR) is
equal to marginal cost (MC). Spot pricing, the actual MC, provides the correct
economic signals and clarifies both generator and consumer states in the power
market while balancing demand and supply in the power system. The spot pricing
theory can be used for real-time reactive
power pricing by using modified optimal
power flow (OPF). In 1991, Baughman
and Siddiqi, for the first time, determined
the marginal price of active and reactive
power on an arbitrary bus of system by
means of the Lagrange multiplier. However, the application of marginal reactive
pricing may not be practical, owing to
the volatility and erratic behavior of such
prices. Moreover, MC pricing is subject
to the problem of reconciling MC prices
with the requirement to recover costs.
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