Overview: This course covers the fundamentals of transmission capacity allocation and pricing, and compares two different paradigms for managing congestion in electricity markets: nodal and zonal pricing. The course is split into four sections, corresponding to one full day of lecture material. The sections cover (i) an introduction to power system operations, (ii) zonal and nodal pricing examples, (iii) the principles of nodal pricing, and (iv) nodal pricing in practice. The course is tailored for specialists in the power industry, such as electricity regulatory authorities.
Part 1: Introduction
- Physical reality of the power system
- Supply-demand balance
- Reserves
- Unit commitment
- Kirchhoff’s laws
- Transmission constraints
- Direct current power flow
- Optimal power flow
- Efficient short-term dispatch
- Uniform price auctions
- Pay-as-bid auctions
Part 2: Zonal and nodal examples
- Definition of nodal and zonal pricing
- Examples
- Two-node example
- Chao-Peck example
- Implementation challenges of zonal pricing
- Dec game
- Inefficiency of unit commitment
Part 3: Nodal pricing principles
- Some properties of locational marginal prices
- Main elements of the Standard Market Design
- The two-settlement system
- Pools
- Uplifts
- Co-optimization of energy and reserves
- Virtual trading
- Risk hedging
- Forward contracts
- Contracts for differences
- Financial transmission rights
- FTR auctions and revenue adequacy
Part 4: Nodal pricing in practice
- Examples of US nodal markets
- Implementation
- Computational complexity
- Market power
- Liquidity
- Hedging risks
- Trading of forward contracts in the US
- US FTR auctions
- Virtual trading in practice
- Co-existence of nodal and zonal markets