Congestion Management

Introduction In the early 1990's the power supply industries worldwide started to undergo a period of extensive changes. Electricity markets moved away from vertically integrated monopolies towards liberalized structures with power delivery being a bundle of several services mainly including generation, transmission and distribution. One reason for restructuring lied in the expectation that competition could lead to a reduction of electricity prices and could stimulate the emergence of new technologies. The liberalization process was driven by several reasons, where the introduction of the Combined Cycle Gas Turbine (CCGT) provided a technological justification for competition in energy markets. The CCGT technology allowed for smaller plant sizes, nevertheless being at least as economical and efficient as thermal plants with their large economies of scale.[1] Thus, it was believed that new players may easily enter the market forming a competitive market structure. However, transmission networks are still regarded as natural monopolies. Fixed costs are high while variable costs are comparably low. The monopoly transmits energy at significantly lower total cost than a competitive market. " Electricity grids exhibit large economies of scale and must be physically interconnected for maximum trading efficiency, making the grid a natural monopoly within a defined region. " [2] Under such conditions, conventional wisdom suggests that government regulation must substitute for competition to discipline the behavior of firms. Deregulation of the transmission grid would not be suitable. Although, the pricing mechanism of competitive markets does not provide efficient results for natural monopolies, and thus, transmission access and tariffs are subject to regulation, there is a growing need for market-based pricing concepts in transmission networks.[3] Ideally, these pricing concepts give not only correct economic incentives, but will also facilitate the physical operation of the network. In this regard especially congestion management and pricing method-ologies received attention, as these methodologies are crucial for the efficient operation of electricity markets. This report intends to give an overview of congestion management and pricing concepts. As different market designs allow for different congestion management approaches the comparison and description is done in conjunction with overall market structures. The report is structured as follows. Chapter 2 defines the concepts and terms as used in this report. Chapter 3 provides an overview on generic market structures and describes market-based congestion management and pricing approaches, such as capacity allocation and capacity alleviation methods. The overview is complemented by chapter 4 focussing on the implementation of the respective …