Quantification of market performance as a function of system security

The tight coupling between market and system operations in the restructured environment requires a thorough understanding of the interdependence between the market performance and the way the power systems are operated. In particular, we need to go beyond the qualitative characterization and to quantify the dependence of the market performance on the system security. Such studies are typically not performed ill today's regional transmission organization, or RTO, structures. In this paper, we develop a general approach to quantify the monetary impacts of complying with a specified security criterion when the deployment of appropriate preventive and/or corrective security control actions is fully taken into account. This approach is deployed in the day-ahead electricity markets and is based on the emulation of the way the RTO currently operates the market and the grid, the latter in compliance with the security criterion. The proposed approach has a wide range of applications such as comparative market performance assessments of different security criteria and the cost/ benefit analysis of network improvements to mitigate the market performance impacts of a set of specified contingencies. We illustrate the application of the proposed approach on the large-scale ISO-NE system to quantify the monetary impacts associated with changing from the current security criterion to two other criteria using the actual 2005 day-ahead data--the historical system model and the bids/offers submitted--with the actual market clearing methodology. These studies capture, in a meaningful way, the impacts of the changes with respect to the current security criterion. An important finding of this study is that the economic efficiency of electricity markets need not decrease when the system is operated under a stricter criterion. Index Terms--Corrective and preventive security control actions, electricity market economics, locational marginal price, price-responsive demand, power system security, (n - 1) and (n - 2) security, social welfare maximization.