Interruptible Load as an Ancillary Service in Deregulated Electricity Markets

Doctoral thesis, 2004

Power companies world-wide have been restructuring their electric power systems from a vertically integrated entity to a deregulated, open-market environment. Previously, electric utilities usually sought to maximize the social welfare of the system with distributional equity as its main operational criterion. The operating paradigm was based on achieving the least-cost system solution while meeting reliability and security margins. This often resulted in investments in generating capacity operating at very low capacity factors. Decommissioning of this type of generating capacity was a natural outcome when the 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 with efficiency as the main criterion for the generating companies. As a consequence, power producers are no longer responsible for the system reliability margins in deregulated markets. Additionally, new investments in generating capacity are not easily forthcoming since private investors look for a high rate of return of capital employed, which becomes increasingly difficult to ensure in a competitive environment. These factors, being a consequence of deregulation, have triggered a need for the research and implementation of interruptible load management - ILM. In an ILM program, the customer enters into a contract with the independent system operator (ISO) to reduce its demand as and when requested. The ISO benefits in having additional reserve for its security management services, while the customer benefits from reduction in energy costs and from incentives provided by the contract. Though this concept is not new, it has attained a new significance because of the deregulation. This thesis proposes a model for a competitive market for interruptible load customers where they can offer to reduce (a part of) their demand, as an ancillary service provision to be procured by the ISO. The operational objective of the proposed market would be minimizing the total ILM procurement costs while satisfying the system operational constraints. It is shown that an interruptible load market can help the ISO to maintain the operating reserves during peak load periods. Econometric analysis reveals that a close relationship exits between the reserve level and the amount of interruptible load service invoked. It was also found that at certain buses, market power could exist which may lead to unwanted inefficiencies in the market. Investing in generation capacity at such buses can mitigate this. The thesis also examines the role of interruptible load during contingencies and peak demand in the power system. In particular the ability of the interruptible load market in providing transmission congestion relief is analysed. In the proposed congestion management scheme, interruptible loads can specifically identify those load buses where corrective measures are needed for relieving congestion in a particular transmission corridor. While examining the role of interruptible load in providing for congestion management, it is necessary to arrive at a long-term solution for persistent congestions, i.e., bottlenecks in the system. An answer to this, is investment in reserve generation at strategic locations in order to provide for efficient congestion relief. Long-term investment needs for fast start-up generators that can alleviate transmission bottlenecks and provide additional operating reserves were investigated by a comprehensive cost-benefit analysis and a least-cost optimization scheme.