A goal-programming approach to optimal price determination for inter-area energy trading

Abstract

This paper introduces a two-stage optimization process that can be used to determine local and inter-utility tariffs for a scenario. The scenario can include several power utilities with local demand of electrical energy. It can also be associated with a central authority that (a) co-ordinates the energy pricing, and (b) owns some generating units of its own, from which participating utilities are free to buy energy to meet their demands. The first stage of optimization minimizes the overall generation cost without any consideration of inter-utility energy pricing. It includes representation of generation cost at individual generating units, energy losses incurred in inter-utility energy transactions, availability of units, and shares of centrally generated energy that are consumed by individual utilities. The results of this stage provide optimal allocation of all utility and centrally owned units to satisfy the overall energy demand. The problem is defined as a linear programming model. Given the results of the first stage, the second stage maximizes a welfare function of the overall scenario, and thereby provides the tariffs for each energy transaction. Such transactions may be internal to an utility, arising from import and export of energy, or purchase of energy from centrally owned units. As a result of this optimization, the revenue deficits of each individual participant (utility or central authority) are fully recovered. This stage is formulated as a goal-programming problem. The complete algorithm is illustrated for a fifteen utility interconnected scenario that is derived from part of the Indian power system. Centrally owned generating units are also included. Results show the various advantages of the price-setting algorithm, and its dependence on inter-utility energy transfer.