10-02-2025 © Deep Kiran, IIT Roorkee (2025) 1
EEN/L-671:
RESTRUCTURED POWER
SYSTEMS
LECTURE 11: Philosophy of Market
Modelling
10-02-2025 © Deep Kiran, IIT Roorkee (2025) 2
The Settlement
Let us revisit Tata Power’s situation before commencement
of bidding in pool market (Spot market)
Unit Pmin (MW) Pmax (MW) MC (INR/ MW)
A 100 500 1000
B 50 200 1300
C 0 50 1700
Tata Power can submit following bids and offers in (pool) spot market
Type Unit MC (INR/ MW) Pmax (MW)
Bid (increase) C 1750 50
Offer (decrease) B 1250 30
Offer (decrease) A 950 400
10-02-2025 © Deep Kiran, IIT Roorkee (2025) 3
The Settlement
• 12th March between 5:00 pm and 6:00 pm
• Spot / Real price: 1825 INR/MW
• Unit B of Tata Power could produce only 10 MW instead
of 80 MW
• Tata Power thus had a deficit of 70 MW for this hour
• 40 MW of Tata Power’s spot market bid of 50 MW at 1750
INR/MW was called by the operator
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The Settlement
Market Type Amount (MW) Price (INR/ MW) Income (INR) Expense (INR)
Sale 200 1250 250000
Sale 250 1280 320000
Long Term
Bilateral and Sale 100 1400 140000
Futures
Purchase -30 1350 40500
Sale 50 1380 69000
Sale 20 1350 27000
Sale 30 1330 39900
Shot Term
Bilateral Sale 10 1325 13250
through Purchase -20 1440 28800
exchange
Purchase -20 1430 28600
Purchase -10 1410 14100
Spot Market Sale 40 1825 73000
Imbalance Purchase -70 1825 127750
Total 550 932150 239750
10-02-2025 © Deep Kiran, IIT Roorkee (2025) 5
Features of pool markets
• All demands pay as per MCP
• All generators are paid as per MCP
• The ‘marginal generator’ sets the MCP
• Except for marginal generator, all ‘infra-marginal
generators’ get paid more than what they have asked for
• Why every generator is not paid what it has asked for?
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Pay-as-bid scheme
• Paying generators as per their asking price results in
reduced average price
• The basic assumption in above conclusion is that the
generators would continue to bid in the same way as in
marginal pricing scheme
• Assumption not true!
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Pay-as-bid scheme
• All generators would try to guess what MCP would be
• All generators would try to bid to the level of MCP and
gain more profit
• Likely outcomes:
• MCP may go higher
• Some low cost generators may get substituted by high cost
generators
• Non-optimal use of available resources
• Ultimate results: increase in price!
10-02-2025 © Deep Kiran, IIT Roorkee (2025) 8
Marginal Pricing Scheme (MCP)
• If seller bids at its own marginal cost:
• Assurance of ‘no loss’ situation
• Profit if non-marginal generator
• No profit no loss if marginal generator
• No incentive for bidding higher than marginal cost!
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Simple Bids and Complex Bids
• Simple bids are provided in decentralized markets
• Complex bids are provided in centralized markets
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Philosophy of Market Modelling
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Philosophy of Market Modelling
• What are possible ways in which buyers and sellers can
trade electrical energy?
• Which part of the consumer section has choice of
selecting energy provider?
• What are the peculiarities of electricity market?
• What is the role and involvement of system operator in
market decisions?
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Market Models
• Defining Question: If there are to be competitive
generators, whom can they sell to? OR
• Who are the buyers having choice of supplier?
• Following four models progressively reduce the scope for
monopoly:
• Model 1: Monopoly
• Model 2: Single Buyer
• Model 3: Wholesale competition
• Model 4: Retail competition
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Monopoly Model
Generation • A very “conventional”
model
• No competitive
Transmission generators, no one is
permitted to buy from
them
Distribution • All functions are
bundled together and
regulated
Customer
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Monopoly Model: Separate Distribution
Company
Generation • Distribution companies
represent local
monopolies
Transmission
Distribution
Customer
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Single Buyer Model
IPP Own
Generation
IPP • Single buyer agency
buys power from IPPs
Single Buyer
+ its own generation
• Power purchasing
utility sells power to
Transmission
distribution utilities
• Distribution companies
Distribution don’t have a choice to
choose power supplier
Customer
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Single buyer model
• The single buyer makes a long term contract with IPPs.
• Contracts usually are of life-of-plant type
• The generator may see contract as assured return on
investment
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Single Buyer Model: Alternate version
IPP IPP IPP • A buyer does not own any
generation
• Distribution activity is also
Single disaggregated
Buyer
• Introduces some
competition between
Distribution Distribution Distribution without expense of setting
competitive market
• Tariff needs to be
Customer Customer Customer regulated as single entity
has monopoly over
Discoms and monopsony
over IPPs
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Attendance
• MS Teams: l6ahq8m
• Please ensure 75% of attendance for ETE.
• Please finalize a paper from IEEE TEMPR in a team of two.
Please get it confirmed from me at the earliest!
• Brief introduction to the work done in the chosen paper.
• What was the situation before the authors did the work? What was the
motivation for the authors that led them to do this work?
• Describe the methodology of the work in the chosen paper. Explain the
optimization model.
• Describe the key numeric results given in the paper which justify the
findings of the paper.
• What do you think about the actual implementation/ validation/ testing
of the work proposed in real life world/ test bed?
• Quiz: Wednesday (2-3 pm)
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Single buyer model: Merits
• Private participation in power generation
• Introduction of some competition without expensive set-up
for a competitive market
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Single buyer model: De-merits
• No true competition
• Price not decided by demand-supply interaction
• End consumer is not a part of competitive process
• The end consumer price needs to be regulated
• Transfer the market risk, technology risk and most of the
credit risk back to customer
• Sellers need either many potential buyers or life-of-plant
contracts
• Life-of-plant IPP contracts defeats the sole purpose of
competition in terms of achieving new technology,
efficiency, fuels, and location
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Single buyer model: Problems with IPP
contracts
• Design of IPP contracts is a problem
• Two part contract: Fixed part and variable part
• Where the profits are earned?
• If profits are paid up-front in fixed charges, how to get the
plants to run?
• If profits are figured in variable payments, how to stop
plants from running when not needed?
• One solution: pay profit in fixed charge, penalties for
failing to run
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Single buyer model: Problems with non-
dispatchable contracts
• Sometimes IPP contracts are made non-dispatchable
• This is to avoid discrimination by system operator
• Flip side: system operator loses control
• Non-dispatchable contracts okay if plant is small
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Wholesale Competition Model
GENCO GENCO GENCO GENCO GENCO
Wholesale Market Place
Transmission Network
DISCO Big Consumer DISCO DISCO
Customer Customer Customer Customer
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Wholesale competition model
• Entire generation sells into a competitive wholesale
market
• Discoms and large customers purchase from wholesale
market
• Retailers, traders and all forms of marketers are permitted
• Discoms provide for the small customers by making
contracts with generators
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Large Consumers
• They are small in numbers but have large share in the
market
• Inclusion of more buyers increases competition
• Requires less rigorous arrangements for metering, billing,
and settlement as compared to all these arrangements for
each and every individual customer
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Large Consumers: Boundary problem
• Only those customers above a certain MW, say 1 MW, will
be deemed as Large Customers
• How to sum 1 MW?
• Two meters at same site?
• Sites include two buildings across the streets?
• Why not all sites owned by a single company?
• No logical stopping point
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Default Service
• Default service provider has to offer service at regulated
prices to the deregulated consumers
• If Discom provides default service, customers would turn
to Discom when prices are above regulated price which
put Discom at risk
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Power procurement for small customers
• How Discom procures power for its small customers?
• Discom passes on all the cost of purchase to the customers. But as
the load is regulated, Discom has to provide electricity more or less
at fixed price
• Contracts for 80 to 90% of its load and rest at spot prices.
• Customers get power at fixed price.
• Discom could have its own generation.
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Retail Competition Model
GENCO GENCO GENCO GENCO GENCO
Wholesale Market Place
Transmission Network
Big Retailer DISCO
Retailer DISCO Consumer
Retail Market Place
Distribution Network
Customer Customer Customer Customer
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Retail Competition
• Permits all customers to choose their supplier
• Competing generator can sell to anyone
• However, small customers usually buy through
aggregators or retailers
