Transmission reservation and transactions modeling in electricity markets

Significant progresses have been made in developing analytical models for electricity markets to schedule and price supply and demand resources. However, transmission‐specific service products such as bilateral energy transactions, transmission capacity reservations, and transmission rights transactions have been left largely as the by‐product of market development. For instance, a bilateral transaction across multiple interconnected systems is normally preconditioned on acquiring transmission capacity reservation in market or non‐market systems. To be economically efficient, such a transaction should be considered simultaneously with the aggregated use from all market participants in order to price the true transmission costs. In most of today's electricity markets, it is difficult for market participants to directly schedule an economic transmission capacity reservation, or an economic purchase of transmission rights from markets. This paper presents a new optimization formulation for forward electricity markets, extending traditional market capabilities from the scheduling and pricing of energy resources to the scheduling of economic transmission transactions and transmission capacity reservation by considering the economic costs of transmission. Examples are provided to illustrate the applications and features of the proposed model. The proposed model helps markets improve the utilization of transmission. It may also be used to manage cross‐border transactions of market and non‐market systems reducing seams between them. Copyright © 2008 John Wiley & Sons, Ltd.