Abstract
During the past 20 years, we have seen an expanding role for the free market in the electricity sector as well as other sectors. A perfectly competitive power market is efficient but difficult to achieve. The special features of electricity should be taken into account. In this paper, it is shown how traditional Optimal Power Flow (OPF) can be extended to include the demand side, thereby reflecting the supply-demand balance of an open market. The OPF technique can be used for the calculation of a set of nodal prices representing the optimal price at each node in the grid, from which we can derive a set of optimal transmission prices. Depending on the market design, generation planning can be performed by central optimization or in a decentralized manner by each generation company. For an individual generating company, the planning criterion will change from cost minimization to profit maximization. Practical experiences are now available from various parts of the world. It is clearly demonstrated that a power market can be operated under free market conditions. Various solutions concerning ownership and market design have been implemented. However, experiences have been mixed. In the future, it will be important to draw upon the lessons that have been learned.
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