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1 Nodal Pricing Basics Drew Phillips Market Evolution Program

Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Page 1: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

1

Nodal Pricing Basics

Drew PhillipsMarket Evolution Program

Page 2: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

2

Agenda

§ What is Nodal Pricing?§ Impedance, Power Flows Losses and Limits§ Nodal Price Examples

• No Losses or Congestion• Congestion Only

– Impact of Transmission Rights• Losses Only

§ How DSO Calculates Nodal Prices

Page 3: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

3

What is Nodal Pricing?

§ Nodal Pricing= Locational Marginal Pricing (LMP)= Locational Based Marginal Pricing (LBMP)

§ Nodal Pricing is a method of determining prices in which market clearingprices are calculated for a number of locations on the transmission gridcalled nodes• Each node represents the physical location on the transmission

system where energy is injected by generators or withdrawn by loads

§ Price at each node represents the locational value of energy, whichincludes the cost of the energy and the cost of delivering it, i.e., lossesand congestion

§ IMO publishes nodal prices for information purposes; they are referredto as shadow prices

Page 4: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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What causes locational differences?

Losses§ Due to the physical characteristics of the transmission system,

energy is lost as it is transmitted from generators to loads§ Additional generation must be dispatched to provide energy in

excess of that consumed by load

Transmission congestion§ Prevents lower cost generation from meeting the load; higher

cost generation must be dispatched in its place

In both cases, the associated costs are allocated to each node in amanner that recognizes their individual contribution to/impact onthese extra costs

Page 5: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Impedance, Power Flows, Losses and Limits

Page 6: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Impedance and its effect on power flows

Impedance§ Is a characteristic of all transmission system elements§ Signifies opposition to power flow§ A higher impedance path indicates more opposition to power flow and

greater losses

Impedance between two points on the grid is related to:§ Line length§ Number of parallel paths§ Voltage level§ Number of series elements such as transformers

Impedance will be lower where there are:§ Shorter transmission lines§ More parallel paths§ Higher voltage§ Fewer series transformers

Page 7: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Relative Impedance and Power Flow

115 kV

230 kV

Gen Load

Energy will flow preferentially on the 230 kV path:• Higher voltage• More lines in parallel• Fewer transformers

Transformer

Page 8: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Power Flows

§ Power will take all available paths to get from supplypoint to consumption point§ Power flow distribution on a transmission system is a

function of:• Location and magnitude of generation• Location and magnitude of load• Relative impedance of the various paths between generation

and load

§ The following examples ignore the effect of losses

Page 9: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Power Flows

§ All lines have equal impedance§ Path W-S-E-N has three times the impedance of path W-N§ Flow divides inversely to impedance§ If W Gen supplies N Load, flow W-S-E-N is one third flow W-N§ If N Load is 100 MW, 75 MW flows on path W-N, 25 MW flows on

path W-S-E-N

N Load

W Gen

N

W

S

E

75 %

25 %

E Gen

Page 10: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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What if E Gen supplies N Load?

§ Path E-S-W-N has three times the impedance of path W-N§ Flow divides inversely to impedance§ If E Gen supplies N Load, flow E-S-W-N is one third flow E-N§ If N Load is 100 MW, 75 MW flows on path E-N, 25 MW flows on

path E-S-W-N

N Load

N

W

S

E

25 %

75 %

E Gen

Page 11: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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40 MW60 MW

Superposition

§ What if W Gen supplies 60 MW and E Gen supplies40 MW to N Load?§ Both W Gen and E Gen’s output will flow in proportion

to the impedance of the paths to N Load§ Resulting line flows represent the net impact of their

flow distribution

N Load

W Gen

N

W

S

E E Gen

100 MW

40 MW10 MW

30 MW

45 MW

15 MW

60 MW60 MW

5 MW(15 – 10) 5 MW (15 – 10)

45 MW55 MW (15 + 30)(45 + 10)

Page 12: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Loss Comparison for 100 km Lines

115 kV

230 kV

500 kV

90 MW

90 MW

90 MW 79.5 MW

88.5 MW

89.9 MW180 A

390 A

780 A

• Losses are:• proportional to Current2 x Resistance (I2R)• lower on higher voltage lines because resistance

is lower and current flow is lower for a given MWflow

Current (Amps) A

Page 13: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Loss Comparison

§ Losses are higher on a line that is heavily loaded for the same increasein current

Current (I)

Loss

es (M

W)

=

Page 14: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Security Limits

§ Security limits are the reliability envelope in which themarket operates§ Power will take all available paths to get from supply

point to consumption point§ Transmission lines do not control or limit the amount

of power they convey§ Power flows are managed by dispatching the system

(normally via dispatch instructions and interchangescheduling)§ Must respect current conditions and recognized

contingencies

Page 15: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Nodal Price Examples

Page 16: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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How are nodal prices derived?

§ Marginal cost is the cost of the next MW; the marginal generator is thegenerator that would be dispatched to serve the next MW• This is the basis of our current unconstrained market clearing price

§ A nodal price is the cost of serving the next MW of load at a givenlocation (node)

§ Nodal prices are formulated using a security constrained dispatch andthe costs of supply are based upon participant offers and bids

§ Nodal prices consist of three components:

Nodal Price

MarginalCost of

Generation

MarginalCost ofLosses

MarginalCost of

TransmissionCongestion

= + +

Page 17: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Current Pricing Scheme

NodalPrices

Currently calculated for information purposes only

IMOMarket Participants

UnconstrainedCalculation

• ignores physical limitations

MarketSchedule

UniformPrice

ConstrainedCalculation

• considers physical limitations

DispatchSchedule

Bids/Offers CMSCBids/

Offers

Dispatchableresources

produce or consume MWs

$

Page 18: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Nodal Price Calculations

§ No Congestion or Losses§ With Congestion§ With Losses

Process:§ Determine least cost dispatch to serve load§ Determine resulting power flows to ensure security limits are

respected§ Calculate prices by determining the dispatch for one additional

MW at each node (while still respecting all limits)

Page 19: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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No Congestion or Losses

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Transmission Limit = 85 MW

No Congestion or Losses: Dispatch

§ Least cost solution would have W Gen supply all 100 MW to NLoad, based on W Gen’s offer price§ Resultant flow is within limits§ Nodal price is the cost of serving the next MW§ What are the prices at each node?

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen

100 MW

Dispatch

0 MW

Dispatch

125 @ $35

Offer

25 MW

75 MW 25 MW

25 MW

Page 21: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Limit = 85 MW

No Congestion or Losses: Node N Price

§ Price at Node N is the cost of supplying next 1 MW to N§ Least cost solution would have W Gen supply the next MW to N, based

on W Gen’s offer price§ Resultant flow would be within limits (net of existing flow and increment

to serve additional 1 MW at Node N)§ W Gen is the marginal generator and Node N price = $30

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen 125 @ $35

Offer

$30

+ 1 MW

0 MW

Dispatch

100 MW

Dispatch

+1 MW

25.25 MW

75.75 MW 25.25 MW

25.25 MW

(25 + .25)(75 + .75)

(25 + .25) (25 + .25)

Page 22: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Limit = 85 MW

No Congestion or Losses: Node W Price

§ Price at Node W is the cost of supplying next 1 MW at W§ Least cost solution would have W Gen supply the next MW to W,

based on W Gen’s offer price§ Resultant flow would be within limits (net flow change is zero)§ W Gen is the marginal generator and Node W price = $30

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen

100 MW

Dispatch

+1 MW

0 MW

Dispatch

125 @ $35

Offer

25 MW

75 MW 25 MW

25 MW

$30

+ 1 MW

Page 23: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Limit = 85 MW

No Congestion or Losses: Node E Price

§ Price at Node E is the cost of supplying next 1 MW to E§ Least cost solution would have W Gen supply the next MW to N, based

on W Gen’s offer price§ Resultant flow would be within limits (net of existing flow and increment

to serve additional 1 MW at Node E)§ W Gen is the marginal generator and Node E price = $30

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen

100 MW

Dispatch

+1 MW

0 MW

Dispatch

125 @ $35

Offer$30

+ 1 MW

25.5 MW

75.5 MW 24.5 MW

25.5 MW

(25 - .5)(75 + .5)

(25 + .5) (25 + .5)

Page 24: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Limit = 85 MW

No Congestion or Losses: Node S Price

§ Price at Node S is the cost of supplying next 1 MW at S§ Least cost solution would have W Gen supply the next MW to S, based

on W Gen’s offer price§ Resultant flow would be within limits (net of existing flow and increment

to serve additional 1 MW at Node S)§ W Gen is the marginal generator and Node S price = $30

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen

100 MW

Dispatch

+1 MW

0 MW

Dispatch

125 @ $35

Offer

$30

+ 1 MW

24.75 MW

75.25 MW 24.75 MW

25.75 MW

(25 - .25)(75 + .25)

(25 + .75) (25 - .25)

Page 25: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Summary

§ The previous examples demonstrate the method used to derive nodalprices

§ As we would expect, the nodal prices at all nodes on a transmissionsystem will be the same in the absence of losses and congestion

§ Unfortunately, no such transmission system exists§ The following examples will apply the same method to illustrate the

calculation under conditions of congestion and then losses§ Examples:

• are not representative of how the IMO-controlled grid is dispatchedand therefore the impact on nodal prices is entirely fictitious; thesescenarios were designed to illustrate a concept while keeping thecalculation as simple as possible

• are for illustrative purposes only and do not imply a settlement basisfor a nodal pricing methodology for Ontario

Page 26: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Congestion, No Losses

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Transmission Limit = 75.2 MW

Congestion (No Losses): Dispatch

§ Assume the transmission limit is reduced; dispatch can be solvedas in the no congestion case, but what is the effect on nodalprices?

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen

100 MW

Dispatch

0 MW

Dispatch

125 @ $35

Offer

25 MW

75 MW 25 MW

25 MW

Page 28: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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0 MW

Dispatch

+1.1 MW

100 MW

Dispatch

-.1 MW

Transmission Limit = 75.2 MW

Congestion (No Losses): Node N Price

§ An increase in output of 1 MW by either W Gen or E Gen alone willincrease the W-N line flow over the limit; we must redispatch the systemusing both generators

§ If we reduce W Gen output by 0.1 MW (75% of the reduction will appearon W to N flow) and increase E Gen output by 1.1 MW (25% flows fromN to W), net effect is on line W-N is a flow increase of .2 MW

§ This is the lowest cost way to meet an additional 1 MW at N§ Node N price = $35.50 (1.1 X $35 – 0.1 X $30)

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen 125 @ $35

Offer

24.7 MW

75.2 MW 25.8 MW

24.7 MW

$35.50

+ 1 MW

Page 29: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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100 MW

Dispatch

+.4 MW

0 MW

Dispatch

+.6 MW

Transmission Limit = 75.2 MW

Congestion (No Losses): Node E Price

§ An increase in output of 1 MW by either W Gen or E Gen alone willincrease the W-N line flow over the limit; we must redispatch the systemusing both generators

§ If we increase W Gen output by 0.4 MW (50% flows from W to N) andincrease E Gen output by .6 MW (0% flows from N to W), net effect ison line W-N is a flow increase of .2 MW

§ This is the lowest cost way to meet an additional 1 MW at E§ Node E price = $33 (0.6 X $35 + 0.4 X $30)

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen 125 @ $35

Offer

25.2 MW

75.2 MW 24.8 MW

25.2 MW

$33

+ 1 MW

Page 30: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Limit = 75.2 MW

Congestion (No Losses): Node S Price

§ An increase in output of 1 MW by either W Gen or E Gen alone willincrease the W-N line flow over the limit; we must redispatch the systemusing both generators

§ If we increase W Gen output by 0.8 MW (25% flows from W to N) andincrease E Gen output by .2 MW (25% flows from N to W), net effect ison line W-N is a flow increase of .2 MW

§ This is the lowest cost way to meet an additional 1 MW at E§ Node S price = $30.50 (0.1 X $35 + 0.9 X $30)

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen 125 @ $35

Offer

24.7 MW

75.2 MW 24.8 MW

25.7 MW $30.50

+ 1 MW

0 MW

Dispatch

+.1 MW

100 MW

Dispatch

+.9 MW

Page 31: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Limit = 75.2 MW

Congestion (No Losses): Node W Price

§ Least cost solution would have W Gen supply the next MW to W,based on W Gen’s offer price§ W Gen can meet the additional MW at Node W without affecting

the transmission system (net flow change is zero)§ W Gen is the marginal generator and Node W price = $30

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen

100 MW

Dispatch

+1 MW

0 MW

Dispatch

125 @ $35

Offer

25 MW

75 MW 25 MW

25 MW

$30

+ 1 MW

Page 32: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Limit = 75.2 MW

Congestion (No Losses): Summary

§ System is congested on line W-N§ Combination of W Gen and E Gen redispatch is necessary to meet

incremental loads at Node N,E and S§ If W Gen and N Load are settled at their respective nodal prices, the

difference will result in a settlement surplus§ Surplus due to the congestion component of different nodal prices is

used to fund transmission rights

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen

100 MW

Dispatch

0 MW

Dispatch

125 @ $35

Offer

25 MW

75 MW 25 MW

25 MW

$30

$30.50

$33

$35.50

Page 33: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Rights

§ Provide a hedge against congestion charges between two locations§ Transmission rights holders receive the difference in congestion charges

between the two locations defined by the transmission right§ Using our example:

• Price at N - Price at W = Congestion Charge• $35.5 - $30 = $5.50/MW

§ If N load holds 100 MW of transmission rights, they will receive100 x $5.50 = $550

§ N Load:• Pays 100 x $35.50 = $3550 for energy• Receives 100 x $5.50 = $550 for transmission rights• Net = $3000

§ W Gen is paid 100 x $30 = $3000

Page 34: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Limit = 25 MW

Exercise One

§ Assume the transmission limit is on line S-E (for simplicity we’ll allowflow to equal the limit, although in reality flow must be less than the limit)

§ The load at N is being served by W Gen with flows on the transmissionsystem as shown

§ What are the nodal prices at N and S?

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen

100 MW

Dispatch

0 MW

Dispatch

125 @ $35

Offer

25 MW

75 MW 25 MW

25 MW

Page 35: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Limit = 25 MW

Exercise Answer: Node N Price

§ W Gen cannot be used as sole supply as any increase in output willincrease the S-E line flow; must redispatch the system

§ Must increase W Gen output by 0.5 MW (25% flows from S to E) andincrease E Gen output by 0.5 MW (25% flows from E to S)

§ Resultant flow would be within limits§ Node N price = $32.50 (0.5 X $35 + 0.5 X $30)

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen 125 @ $35

Offer

$32.50

25 MW

75.5 MW 25.5 MW

25 MW

(25 +.125 – .125) (25 +.125 – .125)

(25 +.125 + .375)(75 +.375 + .125)

+ 1 MW

100 MW

Dispatch

+.5 MW

0 MW

Dispatch

+.5 MW

Page 36: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Transmission Limit = 25 MW

Exercise Answer: Node S Price

§ W Gen can be used as sole supply; the increase in output toserve Node S will decrease the S-E line flow§ Increase W Gen output by 1.0 (75% flows from E to S)§ Resultant flow would be within limits§ Node S price = $30

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen 125 @ $35

Offer

$30

+ 1 MW

0 MW

Dispatch

100 MW

Dispatch

+1 MW

24.75 MW

75.25 MW 24.75 MW

25.75 MW

(25 + .75) (25 - .25)

(25 - .25)(75 + .75)

Page 37: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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Losses, No Congestion

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Losses (No Congestion): Dispatch

§ Least cost solution would have W Gen supply all 100 MW to NLoad due to its lower offer price, but due to losses must generate104 MW§ Resultant flow is within limits§ Nodal price is the cost of serving the next MW§ What are the prices at Node N?

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen

104 MW

Dispatch

0 MW

Dispatch

125 @ $35

Offer78 MW

75 MW

26 MW

25 MW

Page 39: Nodal Pricing Basics - iemo.com · 3 What is Nodal Pricing? §Nodal Pricing = Locational Marginal Pricing (LMP) = Locational Based Marginal Pricing (LBMP) §Nodal Pricing is a method

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104 MW

Dispatch

+1.04 MW

Losses (No Congestion): Node N Price

§ Price at node N is the cost of supplying next 1 MW§ W Gen must generate an additional 1.04 MW to N to deliver 1 MW at

Node N§ Resultant flow would be within limits§ Node N price = $31.20 (1.04 X $30)§ Prices at Nodes E and S would be similarly calculated§ Price at Node W = $30 as an increment of load can be supplied from W

Gen with no impact to transmission flows

N Load

W Gen

N

W

S

E

100 MW

125 @ $30

Offer

E Gen E Gen

0 MW

Dispatch

125 @ $35

Offer78.9 MW

75.75 MW

26.3 MW

25.25 MW$31.20

+ 1 MW

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Summary

§ When more than one generator is on the margin, prices may be:• higher than any offer• lower than any offer (and could even be negative)

For additional examples see the Market Evolution Day Ahead Market web pageand in particular:http://www.theimo.com/imoweb.pubs/consult/mep/dam_wg_2003sep16_LMPexamples.pdf

§ Even when there is no congestion on the transmission system directlyconnecting them, prices may be different between two nodes due to:• losses and/or• their differing impact on congested paths elsewhere in the system

§ If a generator is partially dispatched: nodal price = offer price§ If a generator is fully dispatched: nodal price > than offer price§ If a generator is not dispatched: nodal price < than offer price

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How the Dispatch Scheduling Algorithm (DSO)Calculates Nodal Prices

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Dispatch Scheduling Optimizer (DSO)

§ Two methods are available to calculate nodal prices:1) calculate nodal prices at each node directly (as in previous

examples)2) calculate a reference node price then derive prices at all other

nodes

§ The DSO uses method 2 as it requires less computing power andis faster:• It yields the same results as method 1• It does not matter which node is chosen as the reference bus

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MarginalCost of

Generation?s

System Marginal Cost atReference Node

Marginal Cost ofLosses

Marginal Costof

TransmissionCongestion

Cost of transmission limitsincurred for the next MW ofload at the node

S ank*µk

Calculate Nodal Prices

LMP

NodalPrice

?n = + +

Cost of losses incurred for thenext MW of load at the node

(DFn - 1)* ?s

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Inputs

§ Offers and bids§ Forecast demand for the next interval based upon a snapshot of

current demand modified by the expected +/- in the next interval§ Load profile based upon the current system snapshot§ Physical model of the transmission system§ Security limits§ Penalty Factors (losses)

• represent losses between nodes and the reference bus• IMO uses fixed losses for each node based on historical

power flows

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Penalty Factors

§ Represent incremental impact on losses for generation or load ateach node based on a representative power flow distribution onthe grid§ If PF > 1: losses are incurred for each MW delivered to Richview§ If PF < 1: losses are reduced for each MW delivered to Richview

Gen D

Gen C

Richview

Gen AGen B

PF = .95

= - 5.3% lossesPF = 1.01

= 1% losses

PF = .9

= - 11.2% losses

PF = 1.3

= 23% losses

Load Z

PF = .97

= - 3.1% losses

Non-dispatchable

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Nodal Price Calculation in DSO

DSO Calculation 1

• Bids and Offers• Forecast Load• System Limits

• Penalty Factors

• Transmission Model• Load Profile

• Congestion Impact

• Richview Nodal Price

• Dispatch Instructions

DSO Calculation 2

• Richview Nodal Price• Congestion Impact

• Penalty Factors

• All Other Nodal Prices

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Reference Bus Merit Order

Delivery Point Offer/Bid Stack

Gen C 100 MW @ $60

Gen B 100 MW @ $70

Gen A 100 MW @ $75

Gen D 100 MW @ $50

.95

1.01

.90

1.3

PenaltyFactors

Gen C 100 MW @ $57

Gen B 100 MW @ $70.7

Gen A 100 MW @ $67.5

Gen D 100 MW @ $65

Richview EquivalentOffer/Bid Stack

Subsequent calculation addresses quantity differences due to theeffect of losses

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Effective Price

Delivery Point Offer/Bid Stack

Gen D 100 MW @ $50 1.3

PenaltyFactors

Gen D 100 MW @ $65

Richview EquivalentOffer/Bid Stack

If we generate 100 MW at Gen D, only 100/1.3 or 76.9 MWshows up at Richview due to losses

100 MW at Gen D costs 100 x $50 = $5,000, which onlyyields 76.9 MW at Richview, resulting in an effective price of$5000/76.9 MW = $65 /MW

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Determine Unconstrained Economic Solution

Current system demand +/-forecast change in next interval

Richview EquivalentOffer/Bid Stack

Gen C 100 MW @ $57

Gen B 100 MW @ $70.7

Gen A 100 MW @ $67.5

Gen D 100 MW @ $65Forecast Demand

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Introduce Physical Network

§ Allocate forecast demand to nodes based on load profile ofcurrent system§ Run load flow to solve power balance using offers and bids at

appropriate nodes, physical characteristics of transmissionsystem and system limits§ Determine System Marginal Cost at Richview

1%

2%6%5%

3%

3%

10%

2%

4%

4%

5%4%Richview

Gen D

Gen CGen A

Gen B

Load Z

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System Marginal Cost: No Congestion

§ If power balance is solved without any need to redispatch torespect limits; there is no congestion and the system marginalcost will equal that determined in the purely economic merit orderi.e., Gen D will set the system marginal cost

§ System Marginal Cost (?s) = $65

Gen C 100 MW @ $57

Gen B 100 MW @ $70.7

Gen A 100 MW @ $67.5

Gen D 100 MW @ $65Forecast Demand

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Nodal Prices: No Congestion

OfferPrice

Gen C

Gen B

Gen A

$60

$70

$75

0.95

1.01

0.90

$3.42

-$0.64

$7.22

PenaltyFactor

LossesCost

0

0

0

CongestionCost

$68.42

$64.36

$72.22

Gen D $50 1.30 -$15.00 0 $50.00

NodalPrice

Richview = ?s $65.00

Load Z N/A 0.97 $2.01 0 $67.01

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$68.42

$50.00

Nodal Prices and Dispatch: No Congestion

Offer prices:§ Gen A $75§ Gen B $70§ Gen C $60§ Gen D $50Which generators should be dispatched?

$65.00Gen D

Gen C

Richview

Gen AGen B $64.36

$72.22

√Fully dispatched

Partially dispatched

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Congestion

§ If a transmission limit on the line from Gen D prevents itseconomic dispatch another more expensive resource must bedispatched to meet demand§ This congestion will raise the system marginal cost and affect

nodal prices throughout the system

Gen D

Gen C

Richview

Gen AGen B

Binding Transmission Limit

Line 1

Load Z

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System Marginal Cost: Congestion

§ Congestion on Line 1 from Gen D: redispatch fromeconomic merit order to respect limit§ System marginal cost is now set by Gen A§ System Marginal Cost (?s) = $67.5§ There is a cost associated with the Line 1 transmission

limit

Gen C 100 MW @ $57

Gen B 100 MW @ $70.7

Gen A 100 MW @ $67.5

Gen D 90 MW @ $65 Forecast Demand

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Line 1 Transmission Limit Cost

§ Determine transmission limit cost by relaxing constraint by 1 MWand measuring impact on total system costs§ Note: results are rounded on the following diagrams

Binding Transmission Limit

Gen D

Gen C

Richview

Gen AGen B

Line 1

Load Z

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Line 1 Transmission Limit Cost

§ Increase Gen D by 1 MW results in +.7692 MW at Richview dueto losses§ To maintain the generation/load balance we must reduce Gen A

by .6923 MW§ Net cost is $50 x 1 MW - $75 x .6923 MW = -$1.92

Gen D

Gen C

Richview

Gen AGen B

- 11.2% losses

+1 MW 23% losses

+.77 MW

-.69 MW

Load Z

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Nodal Prices: Congestion

Richview = ?s

OfferPrice

Gen C

Gen B

Gen A

Gen D

$60

$70

$75

$50

0.95

1.01

0.90

1.30

$3.55

-$0.67

$7.50

-$15.58

PenaltyFactor

LossesCost

0

0

0

-1.92

CongestionCost

$71.05

$66.83

$75.00

$50.00

NodalPrice

$67.50

Load Z N/A 0.97 $2.09 0 $69.59

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$71.05

$50.00

Nodal Prices and Dispatch: Congestion

Offer prices:§ Gen A $75§ Gen B $70§ Gen C $60§ Gen D $50Which generators should be dispatched?

$67.50Gen D

Gen C

Richview

Gen AGen B $66.83

$75.00

Binding Transmission Limit

Line 1

Partially dispatched

Partially dispatchedFully dispatched

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Nodal Price Comparison

Gen C

Gen B

Gen A

Gen D

$68.42

$64.36

$72.22

$50.00

Nodal Price(No Congestion)

$71.05

$66.83

$75.00

$50.00

Richview = ?s $65.00 $67.50

Nodal Price(Congestion)

Load Z $67.01 $69.59

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Getting Nodal Price Information

§ Nodal prices available on IMO FTP site only (in .csv format)§ Go to Market Data page:

• http://www.theimo.com/imoweb/marketdata/marketData.asp§ Scroll down to hyperlink:

• ftp://aftp.theimo.com/pub/reports/PUB/§ Select DispConsShadowPrice folder§ Choose report date and hour i.e., Sept 20 for Hour 1:

• PUB_DispConsShadowPrice_2003092001.csv

1 6 RICHVIEW-230.G_SLACKA 36.13 1.12 0.77 0.77 DSO-RD;

Hour Interval NodeOperating Reserve

10S/10NS/30Energy