Deregulated Power Markets

Since the nineties decade, many electric utilities world-wide have been restructuring their systems from vertically integrated functioning to deregulated open-market ones. In the erstwhile vertically integrated utilities, the system operator sought to maximize the social welfare with distributional equity (meeting the load at all time) as the main criteria, for the system as a whole. The operating paradigm was based on achieving the system solution while meeting reliability and security margins. This often led to investment in such generating capacity that operated at very low load factors. Decommissioning of generating capacity, particularly those operating at low load factors, was thus an expected outcome when such vertically integrated utilities moved over to deregulated market operations. The erstwhile objective of maximizing social welfare with distributional equity was then replaced by a profit-maximizing objective, which was nothing but maximizing social welfare with efficiency as the main criteria for the generating companies. As a consequence, power producers are no longer obliged to provide for the system reliability margin in deregulated markets. Additionally, new investments in generating capacity are not easily forthcoming since these are prerogative of private investors who look for a high internal rate of return on a project, and that becomes increasingly difficult to ensure in the competitive markets. The above mentioned problems associated with deregulation has triggered a need for the research and implementation of interruptible load management ILM (which basically offers the much needed demand reduction during the system critical conditions within a short notice to avoid system security problem) in deregulated system operations. Though this concept is not new, but it has been proved justifiable to use it now. Hence, this thesis. This thesis proposed a market structure for interruptible load customers where they can offer to sell part of their demand as part of the ancillary service market procured by the independent system operator. The operational objective of the market is minimizing the total ILM procurement costs while satisfying all the system constraints. The thesis also examines the operational roles of interruptible load in cases of contingencies and in cases of high demand in the power systems, especially the ability of the interruptible load market in providing transmission congestion relief. In order to provide a comparison of the economic viability of ILM over the generating option, a cost-benefit analysis of the long-term investment on a fast start-up generator as part of the system operating reserve has been studied.