Testing the effects of power transfers on market performance and the implications for transmission planning

Since deregulation of the electric utility industry began in the USA, there has been a substantial increase in the quantity of power transferred over long distances. Both thermal and voltage constraints on transmission have been experienced in regions that previously were rarely congested. One solution to this type of problem is to expand the capacity of transmission networks, but it is likely that market forces will still cause congestion (in new locations) on an expanded network. The objectives of this paper are 1) to test how power transfers through a network affect congestion and market performance, and 2) to explain the implications of these results for transmission planning. The tests use graduate students to represent suppliers on an AC network in an electricity market. The nodal prices and optimum dispatch are determined by POWERWEB (a computer platform for testing different types of electricity auction). The results of the tests demonstrate that the students can respond effectively to changing conditions on the network and earn excess profits when they have market power. In particular, the tests show 1) power transfers can cause additional congestion in different parts of the network, 2) this congestion increases the market power of some suppliers, 3) these suppliers are able to identify and exploit the auction when they have market power, 4) average market prices are substantially higher when congestion occurs, 5) in most cases, the effects of power transfers are localized and the effects on different suppliers are highly varied, and 6) some power transfers can reduce congestion and lower prices. The results of the tests demonstrate that monitoring the physical effects of transfers on a network is complicated because additional congestion can occur in surprising locations. Even if the quantity of real energy transferred across a network remains constant, the severity and location of congestion change as native load patterns change. Consequently, it is gene- - rally impractical to try to distinguish "economic" investments from "reliability" investments in a network. It is also inappropriate to use a pipeline analogy to represent the role of a network, and to assume that the economic value of a transmission line is proportional to the power flowing on the line