25-01-2025 © Deep Kiran, IIT Roorkee (2025) 1
EEN/L-671:
RESTRUCTURED POWER
SYSTEMS
LECTURE 4: Introduction
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Steps Towards Deregulation
• The competition
• Unbundling the system
• Dis-aggregation of traditionally vertically integrated utility
• Different entities in deregulated environment
• Structure of deregulated industry
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Changes that are required
• Privatization
• Government-owned organizations become private, for profit
companies
• Competition
• Remove monopolies
• Wholesale level: generators compete to sell electrical energy
• Retail level: consumers choose from whom they buy electricity
• Unbundling
• Generation, transmission, distribution and retail functions are
separated and performed by different companies
• Essential to make competition work: open access
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Why introduce competition?
• Monopolies are inefficient
• No incentive to operate efficiently
• Costs are higher than they could be
• No penalty for mistakes
• Unnecessary investments
• Benefits of introducing competition
• Increase efficiency in the supply of electricity
• Lower the cost of electricity to consumers
• Foster economic growth
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The Competition: where?
Identify the candidates for competition:
• Generation
• Yes
• Transmission
• Natural Monopoly
• Distribution
• Monopoly in most of the places
• Retail Side
• Yes / No ?
• System Operation
• Firm No!!!
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The Competition
Competitive
Competitive
Retail Power Market
Generation Market Transco &
Disco
Monopoly Multiple buyers
Multiple sellers Franchises (Retailers)
COMPETITION
REGULATED
COMPETITION or
MONOPOLY
MONOPOLY
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Unbundling the System
Electrical Power System
(Generation + Transmission + Distribution)
Generation Transmission
(Competition) & Distribution
Transmission Distribution &
(Regulated Retail Service
Monopoly) (Competition)
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Dis-aggregation of Traditionally Vertically
Integrated Utility
State Electricity Board
Transmission
Generation Distribution
Authority
Resco
Genco
(Distribution and
(Generation
Retail Service
companies)
companies)
TATA Power Reliance Others TATA Power Reliance Others
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Consequences of Unbundling
Monopoly vertically-integrated utility
One organization controls the
Single perspective on the system
whole system
Unbundled competitive electricity market
Many actors, each controlling one Different perspectives, different
aspect objectives
How to make the system work so that all participants are
satisfied (i.e. achieve their objectives)?
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Different Entities in Restructured
Environment
Regulator Generator
Companies
Independent
(Gencos)
System Operator
(ISO)
Transmission
Companies
Market (Transcos)
Operator
(MO)
Distribution
Companies (Discom)
Retail Energy
Service Companies
(Resco)
Customer
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Generating Company (Genco)
• Produces and sells electrical energy in bulk
• Owns and operates generating plants
• Single plant
• Portfolio of plants with different technologies
• Often called as Independent Power Producer (IPP) when
coexisting with a vertically integrated utility
• Objective:
• Maximize the profit it makes from the sale of energy and other
services
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Distribution Company (Discom)
• Owns and operates distribution network
• Traditional environment:
• Monopoly for the sale of electricity to consumers in a given
geographical area
• Competitive environment:
• Network operation and development function separated from sale
of electrical energy
• Remains a regulated monopoly
• Objective:
• Maximize regulated profit
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Attendance
• MS Teams: l6ahq8m
• Please ensure 75% of attendance for ETE.
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Retailer (Resco)
• Buys electrical energy on wholesale market
• Resells this energy to consumers
• All its customers do not have to be connected to the same
part of the distribution network
• Does not own large physical assets
• Occasionally a subsidiary of a DISCOM
• Objective:
• Maximize profit from the difference between wholesale and retail
prices
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Market Operator (MO)
• Runs the computer system that matches bids and offers
submitted by buyers and sellers of electrical energy
• Runs the market settlement system
• Monitors delivery of energy
• Forwards payments from buyers to sellers
• Forward markets often run by private companies
• Objective:
• Run an efficient market to encourage trading
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Independent System Operator (ISO)
• Maintains the security of the system
• Should be independent from other participants to ensure
the fairness of the market
• Usually runs the market of last resort
• Balance the generation and load in real time
• Owns only computing and communication assets
• A Transmission System Operator (TSO) is an ISO that
also owns the transmission network
• Objectives:
• Ensure the security of the system
• Maximize the use that other participants can make of the system
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Regulator
• Government body
• Determines or approves market rules
• Investigates suspected abuses of market power
• Sets the prices for products and services provided by
monopolies
• Objectives:
• Make sure that the electricity sector operates in an economically
efficient manner
• Make sure that the quality of the supply is appropriate
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Small Consumer
• Buys electricity from a retailer
• Leases a connection from the local DISCOM
• Participation in markets is usually limited to choice of
retailer
• Objectives:
• Pay as little as possible for electrical energy
• Obtain a satisfactory quality of supply
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Large Consumer
• Often participates actively in electricity market
• Buys electrical energy directly from wholesale market
• Sometimes connected directly to the transmission
network
• May offer load control ability to the ISO to help control the
system
• Objectives:
• Pay as little as possible for electrical energy
• Obtain a satisfactory quality of supply
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Structure of Deregulated Industry
Generation Transmission &
Customer
Distribution
Independent System Retailer
Operator
Energy Information Money
flow flow flow
A common representative structure…there are many others…
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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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Fully Restructured Power System
GENCO GENCO GENCO GENCO GENCO
Wholesale Market Place
Transmission Network
Retailer DISCO
Retailer DISCO
Retail Market Place
Distribution Network
Customer Customer Customer Customer
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The Power Marketplace
➢The Marketplace Mechanisms
➢Energy Auction & Competitive Bidding
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The Marketplace Mechanisms
Bilateral Exchange Power Exchange
Multi-buyer, Multi-seller system Multi-buyer, Multi-seller system
Generators and Loads bid into PX.
Contract Price is mutually decided
Market settles as per MCP.
Long Term or Short Term Contracts 24 hour, day ahead market
A Combination of two!
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Energy Auction, Competitive Bidding &
Market Clearing Price (MCP)
Price Demand curve Supply curve
(Rs/MWh)
Market clearing Point of
price (MCP) intersection
Quantity cleared Supply and demand (MWh)
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Fundamental underlying assumption
• Treat electricity as a commodity
• Examples of commodities:
• A ton of rice
• A litre of petrol
• A dozen of oranges
• Is electricity same as these commodities?
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How do we define the unit for electricity
as a commodity?
• A volt / ampere / MW / MWh of electricity?
• None defines it completely!
• Complexity is added because of:
• Time
• Location
• Security
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Effect of Lack of Storage in Bulk Quantity
• Electrical energy cannot be stored economically
• Electrical energy must be produced when it is consumed
• Demand for electrical energy is cyclical
• Cost of producing electrical energy changes with the load
• Value of a MWh is not constant over the course of a day
• A MWh at peak time is not the same as a MWh at off-peak
time
• Commodity should be MWh at a given time
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Effect of Laws of Physics
• You can’t give electricity an injection and drawal point and
ask it to follow a path decided by you!
• Flow of electricity is obeyed by laws of physics
• May result in market inefficiency!
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Effect of Location
1000 MW @ 1000 MW @
5000 ₹/MWh 10000 ₹/MWh
Max flow 100 MW G2
G1
200 MW
• Price of Electricity at A = 5000 ₹/MWh
• Price of Electricity at B = 10000 ₹/MWh
• Price differential due to transmission constraints
• Commodity should be MWh at a given time and given
location
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Effect of Security of Supply
1000 MW @ 1000 MW @
5000 ₹/MWh 10000 ₹/MWh
Max flow 100 MW G2
G1
200 MW
• Consumers expect reliable supply
• What if lines connecting A-B is opened due to fault?
• Arrangement necessary to tackle contingent situation
• Commodity should be MWh at a given time and a given
location, with a given security of supply
