Optimal power flow application issues in the Pool paradigm

This paper focuses on the application of the Optimal Power Flow (OPF) to competitive markets. Since the OPF is a central decision-making tool its application to the more decentralized decision-making in the competitive electricity markets requires considerable care. There are some intrinsic challenges associated with the effective OPF application in the competitive environment due to the inherent characteristics of the OPF formulation. Two such characteristics are the flatness of the optimum surface and the consequent continuum associated with the optimum. In addition to these OPF structural characteristics, the level of authority vested in the central decision-making entity has major ramifications. These factors have wide ranging economic impacts, whose implications are very pronounced due to the fact that, unlike in the old vertically integrated utility environment, various market players are affected differently. The effects include price volatility, financial health of various players and the integrity of the market itself. We apply appropriate metrics to evaluate market efficiency and how the various players fare. We study the impacts of OPF applications in the Pool paradigm, with both supply and demand side explicitly modeled, and provide extensive numerical results on systems based on IEEE 30-bus and 118-bus networks. The results show the variability of nodal prices and the skew possible in different 'optimal' allocations among competing suppliers. Such variability in the results may lead to serious disputes among the players and the central decision-making authority. Directions for future research are discussed.