Dealing with uncertainty in dispatching and pricing in power markets

A Regional Transmission Organization must operate the system in a fashion that allows it to maintain the power balance in a cost effective fashion. It must be able to respond to variations and uncertainty in demand and in supplies from moment to moment. Operating reserves have traditionally been used for this purpose. Given the increasing penetration of renewable generation resources such as wind, the level of uncertainty and variability with which the RTO must plan to deal is increasing. To manage the increasing uncertainty, Midwest ISO is investigating the development of a market product to procure rampable capacity that is able to respond to the uncertain changes in net load that may materialize on a moment to moment basis. Such uncertainties can also lead to situations in which the RTO is unable to maintain the power balance while procuring required reserves or enforcing transmission constraints for a period given the committed resources. The existing pricing approach employed at Midwest ISO would set prices using demand curves for the reserves or penalties for constraint violations leading to price spikes indicative of shortages in available capacity. The RTO may not be actually short of capacity and could commit additional resources to alleviate the shortage or violation that leads to a transient price spike. Midwest ISO is investigating a new pricing methodology (Extended LMP) that would allow it to price based on the cost of committing an off-line resource to manage the constraints or meet requirements.