Syllabus for EE/Econ 458 (Tesfatsion)

Economic Systems for
Electric Power Planning

Last Updated: 10 January 2012 Latest Course Offering: Fall 2011 Meeting Time: MWF 11-11:50 Meeting Place: Marston 205 EE/Econ 458 Homepage (Tesfatsion) Syllabus for Dr. McCalley's Class Days

Required Text & Useful On-Line Materials Topic Outline and Exam Schedule Topics, Readings, Exercises, and Tentative Schedule

Required Text & Useful On-Line Materials

Required Textbook (Bookstore):

• Daniel Kirschen and Goran Strbac, Fundamentals of Power System Economics, Wiley, 2004

On-Line Resource Materials:

• MISO: Midwest ISO Homepage
• ISO-NE: ISO New England Homepage
• PJM Homepage
• NY-ISO: New York ISO Homepage
• CAISO: California ISO Homepage
• ERCOT: Electric Reliability Council of Texas Homepage
• SPP: Southwest Power Pool Homepage
• General Resources on Electricity Restructuring

Fun Stuff:

• Energy Systems from Soup to Nuts (fun slide show assembled by Professor Jim McCalley) (zip file,52MB). Caution: Large download.

• This Electronic Demonstrations website uses Java animations to show the inner workings of common electronic circuits.

• Real-Time Utility Consumption at the ISU Power Plant (graphical visualization)

Topic Outline and Exam Schedule

1. Historical Background and Course Overview (JM/LT)
2. Microeconomic Basics for Power Systems
   1. Modeling of Generator Costs (JMB)
   2. Market Demand/Supply Basics (LT)
   3. Theory of the Competitive Firm (LT)
   4. Introduction to Constrained Optimization (LT)
3. Linear Programming and Application to Optimal Power Flow (JMB)
4. Integer Programming and Application to Security Constrained Unit Commitment (JMB)
5. Operation of Electric Power Markets (LT)
   1. Game Aspects of Power Systems
   2. Organization of Power Markets
   3. Power Market Trading Subject to Transmission Constraints
   4. Policy Concerns
6. Financial Risk Management for Power Systems (LT)
   1. Markets, Risks, and Risk-Hedging Contracts
   2. Financial Risk Management: Basic Concepts
   MIDTERM EXAM 1: Monday, September 19th
   (regular classroom and time)

   MIDTERM EXAM 2: Wednesday, November 2nd
   (regular classroom and time)

   FINAL EXAM: Tuesday, December 13, 9:45-11:45am (regular classroom)

Topics, Readings, Exercises, and Tentative Class Schedule

Required readings are marked below with two asterisks (**), and recommended materials are marked below with a single asterisk (*). Exercises will be posted below as they are assigned.

The lecture notes posted below will possibly be revised prior to their scheduled day of presentation, and some new required materials might be added. Any revised or new materials added below will be highlighted using "updated" or "new" icons for at least one week after the modification is made.

I. Historical Background and Course Overview (LT/JM, 8/22)

Required Readings:

• ** Lecture Materials by JM . ON-LINE/CLASS PRESENTATION

• ** F. Huntowski, N. Fisher, and A. Patterson, Embrace Electric Competition or it's Déjà Vu All Over Again (pdf,586KB), The Northbridge Group, October 2008, Sections I-III, pages 1-30. ON-LINE

II. Microeconomic Basics for Power Markets

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II.A Modeling of Generator Costs (JM, 8/24, 8/26)

Required Readings:

** Lecture Materials by JM . ON-LINE/CLASS PRESENTATION

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II.B Market Demand/Supply Basics (LT, 8/29, 8/31, 9/2, 9/7, 9/9)

** HOMEWORK 2: Construction of Market Demand and Supply Schedules (pdf,32KB). Due: Wednesday, September 7, 11:00am (beginning of class)

** HOMEWORK 3: Cost Functions for Power Systems (pdf,92KB). Due: Friday, September 16, 11:00am (beginning of class)

Important Note: As stated near the top of each homework assignment, homework answers are due in at the beginning of class on the due date (i.e., before discussion of answers commences). Late assignments will not be accepted -- no exceptions.

Required Readings:

• ** LT Lecture Notes on Kirschen/Strbac, Chapter 1: Overview of Power Market Organization (pdf,1.2MB). ON-LINE/CLASS PRESENTATION

• ** Kirschen/Strbac Chapter 1: Introduction, pp. 1-9, TEXTBOOK

• ** L. Tesfatsion, Market Organization with Price-Setting Agents, (Notes,html,12KB) and (Slides,pdf,2MB). ON-LINE/CLASS PRESENTATION

• ** L. Tesfatsion, Market Basics for Price-Setting Agents (pdf,53KB) with accompanying slides giving an Illustration of Demand & Supply Schedule Construction (pdf,2MB). ON-LINE/CLASS PRESENTATION

• ** LT Lecture Notes on Kirschen/Strbac, Chapter 2 (Section 2.2): Fundamentals of Markets (pdf,648KB). ON-LINE/CLASS PRESENTATION

• ** Kirschen/Strbac, Chapter 2 (Sections 2.2), pp. 11-25. TEXTBOOK

• ** L. Tesfatsion, "Auction Basics for Wholesale Power Markets: Objectives and Pricing Rules" (pdf,552KB), Proceedings of the IEEE Power and Energy Society General Meeting, Calgary, Alberta, CA, 2009, 8pp. ON-LINE

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II.C Theory of the Competitive Firm (LT, 9/12)

Required Readings:

• ** LT Lecture Notes on Kirschen/Strbac, Chapter 2 (Section 2.3): Theory of the Competitive Firm (pdf,1.3MB). ON-LINE/CLASS PRESENTATION

• ** Kirschen/Strbac, Chapter 2 (Section 2.3), pp. 25-33. TEXTBOOK

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II.D Introduction to Constrained Optimization (LT, 9/14, 9/16)

Required and Recommended Readings:

• ** L. Tesfatsion, Optimization Basics for Electric Power Markets (pdf,1.3MB). ON-LINE/CLASS PRESENTATION
  Remark: These notes on optimization use basic vector/matrix notation and concepts (e.g., vector multiplication, multiplication of a matrix by a vector, and transposing of vectors and matrices). If you need a review of these concepts, or are new to these concepts, you should study the following "Appendix A" materials (sections A.1-A.5) with care. A mastery of basic vector/matrix concepts is essential for both economists and engineers.

  ** Appendix A: Vectors and Matrices (pdf,191KB), from Applied Mathematical Programming by Bradley, Hax, and Magnanti (Addison-Wesley, 1977). ON-LINE

  * D. Kirschen, "Optimization Tools for Economic Dispatch Calculation" (pdf,5.6MB). ON-LINE

  * G. Sheble and J. McCalley, "Cost Function Determination and Economic Dispatch Calculation: Worked Examples" (pdf,277KB), PowerLearn Module 3, Electric Power Engineering Education, 2000. ON-LINE

III. Linear Programming and Application to
Optimal Power Flow (JM, 9/21, 9/23)

Required Readings:

• ** Lecture Materials by JM. ON-LINE/CLASS PRESENTATION

IV. Integer Programming and Application to
Security Constrained Unit Commitment (JM, 9/26-10/31)

Required Readings:

• ** Lecture Materials by JM. ON-LINE/CLASS PRESENTATION

V. Operation of Electric Power Markets (LT, 11/4-11/18, 11/28-11/30)

V.A Game Aspects of Power Systems (LT, 11/4)

Required Readings:

• ** L. Tesfatsion, Game Aspects of Power Systems (pdf,97KB). ON-LINE/CLASS PRESENTATION

• ** L. Tesfatsion, Game Theory: Basic Concepts and Terminology (pdf,49KB). ON-LINE/CLASS PRESENTATION

• ** LT Lecture Notes on Kirschen/Strbac, Chapter 2 (Section 2.5): Theory of the Imperfectly Competitive Firm (pdf,306KB). ON-LINE

• ** Kirschen/Strbac, Chapter 2 (Section 2.5), pp. 39-44. TEXTBOOK

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V.B Organization of Power Markets (LT, 11/7, 11/9, 11/11, 11/14, 11/16, 11/18, 11/28, 11/30)

Homework Assignment:

** HOMEWORK 8: Settlement of Contracts in Wholesale Electric Power Markets (pdf,23KB). Due: Monday, November 14, 2011, 11:00am (beginning of class)

** HOMEWORK 9: Real-World Case Study of a North American Restructured Energy Region (pdf,24KB). Due: Wednesday, November 30, 2011, 11:00am (beginning of class)

Required Readings:

• (11/8/2011) ** LT Lecture Notes on Kirschen/Strbac, Chapter 3: Markets for Electrical Energy (pdf,1.7MB). ON-LINE/CLASS PRESENTATION

• ** Kirschen/Strbac, Chapter 3: Markets for Electrical Energy, pp. 49-72. TEXTBOOK

• (11/18/2011) ** LT Lecture Notes on Kirschen/Strbac, Chapter 4: Participating in Markets for Electrical Energy (pdf,495KB). ON-LINE/CLASS PRESENTATION

• ** Kirschen/Strbac, Chapter 4: Participating in Markets for Electrical Energy, pp. 73-104. TEXTBOOK

• (11/27/2011) ** LT Lecture Notes on Kirschen/Strbac, Chapter 5: System Security and Ancillary Services (pdf,352KB). ON-LINE

• ** Kirschen/Strbac, Chapter 5: System Security and Ancillary Services, pp. 105-139. TEXTBOOK

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V.C Power Market Trading Subject to Transmission Constraints (LT, 12/2)

Required Readings:

• ** LT Lecture Notes on Kirschen/Strbac, Chapter 6:Sections 6.1-6.3.2.9 (pp. 141-175) (pdf,2.2MB). ON-LINE/CLASS PRESENTATION

• ** Kirschen/Strbac, Chapter 6: Transmission Networks and Electricity Markets, Sections 6.1-6.3.2.9 (pp. 141-175). TEXTBOOK

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V.D Policy Concerns (LT)

Recommended Readings:

• * L. Tesfatsion, Testing the Performance of Restructured Wholesale Power Markets: Illustrative Experimental Findings (pdf,2.3MB). ON-LINE

• * F. Huntowski, N. Fisher, and A. Patterson, Embrace Electric Competition or it's Déjà Vu All Over Again (pdf,586KB), The Northbridge Group, October 2008, Sections IV and V (pp. 31-75). ON-LINE

VI. Financial Risk Management for Power Systems (LT, 12/5, 12/7, 12/9)

** Homework 10 (Individual): Financial Risk Management in Electric Power Markets (pdf,29KB). Due: Wednesday, December 7, 2011, 11:00am. ON-LINE

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VI.A Markets, Risks, and Risk-Hedging Contracts

Required Readings:

• (12/6/2011) ** LT Lecture Notes on Markets, Risks, and Risk-Hedging Contracts (pdf,1.1MB). ON-LINE/CLASS PRESENTATION

• ** Kirschen/Strbac, Chapter 2 (Section 2.4, pp. 33-39): Markets, Risks, and Contracts, pp. 33-39. TEXTBOOK

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VI.B Financial Risk Management: Basic Concepts

Required Readings:

• (12/4/2011) ** LT Lecture Notes on Financial Risk Management (pdf,443KB). ON-LINE/CLASS PRESENTATION

• ** Kirschen/Strbac, Chapter 6 (Section 6.3.5, pp. 191-200): Financial Transmission Rights, pp. 191-200. TEXTBOOK

• * Nanpeng Yu, Abhishek Somani, and Leigh Tesfatsion, "Financial Risk Management in Restructured Wholesale Power Markets: Concepts and Tools" (pdf,143KB), Proceedings, IEEE Power and Energy Society General Meeting, Minneapolis, MN, July 2010 (electronic).