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Transaction-based Techniques for Bulk Power Operation Will Be Useful in Distribution

The usual smart grid vision implies a huge increase in the number of entities that will communicate and interact in both the distribution systems and bulk power operation. This requires new methods of management and system operation. But, we need not start from scratch. Tools developed to run competitive wholesale electricity systems provide useful models.

The power systems of the near future will require coordinated management of a large number of distributed and demand-side resources, with a high degree of grid reliability and improved operational. Information will be exchanged among many entities and persons; between owners or controllers of demand-response resources, intermittent renewable generators, energy storage devices, and grid monitoring and control devices, on the one hand, and between markets, utility operations, customers and service providers, on the other. New methods will be needed for end-to-end management and real-time operation of such a complex system.

To address these challenges, we do not need to start from scratch. Many tools and techniques have been developed over the last two decades for the management of bulk power operations and wholesale energy markets. Such applications handle scheduling, pricing, transmission capacity reservation and auctions, congestion management—among many things—both in bilateral and centralized market environments. Lessons learned from transmission operations and wholesale energy markets can be applied to distributed resources, demand response, retail markets, and distribution system operations. What follows is a brief review of four areas in which existing bulk power transactive practices can be applied to retail markets and distributed resources.

Smart grid infrastructure that provides multi-level hierarchical information exchange and control may be used to aggregate schedule, and dispatch demand-side resources in a way that looks, from a system or market operator’s point of view, similar to scheduling and dispatch of conventional generation resources.

Dispatchable demand-side resources include: direct load control (where a utility can directly manage a customer’s demand-response resources, subject to agreed-upon rules), distributed generation, distributed storage, and electric vehicles. The central idea here is to aggregate these distributed assets in the form of virtual power plants (VPPs), which have characteristics similar to those of conventional power plants. In Europe, VPPs have been used mainly to aggregate distributed generation, but they also can be used to combine small loads such as residential water heaters.

From a system operator’s point of view, a VPP consisting of load that can be shed looks no different than a VPP comprising generators that can be ramped up. But account must be taken of the temporal and geographical attributes and constraints of these resources, distribution system constraints, and contractual limitations related to demand-side programs.

Parameters of a VPP change with time frequently compared to those of a conventional generation resource. For example, the net dependable capacity (Pmax) of a conventional power plant changes seasonally, whereas that of a VPP may change hourly or even sub-hourly. As another example, a VPP comprising a large number of residential electric water heaters may have a high Pmax in the morning hours but a low Pmax during the business hours of a weekday. The same may apply to other parameters such as Pmin, ramp rate, and so on. The scheduling and dispatch of a VPP must take these variations into account, but will otherwise be similar to conventional resources.

Congestion management is central to transmission open access. In bilateral markets transmission capacity reservations with different priority levels provide the mechanism for congestion management.

Similar concepts may be applied to the distribution system. For example, if plug-in electric vehicles (PEVs) become widely used, a distribution circuit may not be able to serve all electric vehicles in a neighborhood simultaneously. Distribution capacity reservations with different priority levels offer the means for the distribution system operator to manage congestion. A ranking may be established based on various criteria such as reservation time, reservation fee, and so on.

In large centrally organized wholesale markets, Independent Systems Operators and Regional Transmission Organizations (ISOs and RTOs) manage transmission capacity auctions. Financial transmission rights are auctioned and provide an economic advantage to the owner of the right, who can use it or sell it.

On that model, a distribution capacity auction mechanism may be put in place whereby limited distribution capacity is auctioned on a seasonal, monthly, or daily basis. However, such local distribution capacity markets may not be as liquid as their wholesale counterparts. For example, the limited capacity of a specific distribution feeder may be highly desirable only to the customers fed from that feeder; this may provide opportunities for others to buy those capacities in the auction and sell them later at a high price to those who need them. To avoid hording of limited distribution capacity, eligibility to participate in such auctions may be restricted to certain users. The auction winners may then bilaterally trade the capacity.

For example a PEV owner may bid to buy capacity during evening peak hours of the weekdays for a month in the auction and when the PEV is charged (or idle) sell the excess capacity to others using the same circuit elements.

Variable generation-like wind and solar is volatile and unpredictable. Fast, dispatchable demand-response resources (a special kind of VPP) may be used as part of scheduling and dispatch processes to mitigate variable generation by utilizing them as a source of ramping and balancing energy.

In present-day ramping systems, a more expensive ancillary generating service is used to provide regulation support for a few seconds or fraction of a minute. Here, the idea is to use a new cheaper source of ramping capacity rather than rely on demand-side resources.

In order to address the challenges of power system operation in the new paradigm, involving proliferation of variable generation and demand-side participation, it is possible to extend to distribution some of the existing transactive energy tools developed for transmission and bulk power markets. This leads naturally to an end-to-end seamless software, information, and communications solution replacing today's fragmented systems used by different business units within a utility and among different layers of system operation.


  • Farrokh RahimiFarrokh Rahimi, an IEEE senior member, is Vice President of Market Design and Consulting at Open Access Technology International, Inc. (OATI). He has a doctorate in electrical engineering from MIT and over 40 years of experience in electric power systems analysis, planning, operations, and control, including eight in a variety of positions in the Middle East. He is a member of the NERC Smart Grid Task Force, the NAESB Smart Grid Task Force, the WECC Variable Generation Subcommittee, and the Open Smart Grid Users Group

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  • Ali IpakchiAli Ipakchi has over 35 years of experience in the application of information technologies to power systems and electric utility operations. As the Sr. VP of Smart Grid and Green Power at OATI, he is responsible for product development and market strategy for distribution and smart grid areas. Prior to OATI, he was Vice President of Integration Services at KEMA, assisting utilities with technology roadmap, business and implementation strategies. Prior to KEMA, Dr. Ipakchi held various senior management positions at ABB and Alstom leading teams for power application and market systems development, and system solutions delivery. He has been actively involved in various industry and regulatory initiatives. He holds a PhD from University of California at Berkeley, and is co-holder of several US patents on power systems applications and instrument diagnostics.

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About the Smart Grid Newsletter

A monthly publication, the IEEE Smart Grid Newsletter features practical and timely technical information and forward-looking commentary on smart grid developments and deployments around the world. Designed to foster greater understanding and collaboration between diverse stakeholders, the newsletter brings together experts, thought-leaders, and decision-makers to exchange information and discuss issues affecting the evolution of the smart grid.


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