Generator Contingency Modeling in Electric Energy Markets: Derivation of Prices via Duality Theory

Abstract: Traditional electric energy markets do not explicitly model generator contingencies. To improve the representation of resources and to enhance the modeling of uncertainty, existing markets are moving in the direction of including generator contingencies and remedial action schemes within market auction models explicitly. This research contributes to the market design realm by providing detailed analysis of impending changes, it provides insightful guidance in understanding the market implications, and it provides recommendations on necessary changes to ensure a fair and transparent market structure. A primal (and the corresponding dual) formulation that accounts for the proposed changes to the auction model is provided to enable a theoretical analysis of the anticipated changes including the effect on market prices, settlements, and revenues. The derivation of the prices and the dual formulation are based on leveraging duality theory from linear optimization theory. A comparison to existing market structures is also included. The primary impact of the proposed changes includes the addition of a new congestion component within the traditional locational marginal price, which reflects the influence of congestion during the post-contingency states for the modeled critical generator contingencies.