use of shadow price cap in local congestion management

04/19/23 ERCOT Market Operations Support 1

Use of Shadow Price Cap in Local Congestion Management


Definition of Shadow Price

Shadow Price v. Penalty Factor

How Shadow Price Cap can be used

Topics


What is a Shadow Price?

Local Congestion Management

Objective FunctionMinimize the cost of deployment, subject to certain constraints

Local Congestion constraintSystem power balanceZonal Congestion constraintPortfolio BES Bid Ramp RateBES bid amount

NU

m

NU

m

DBESBPDBESMWUBESBPUBESMW1 1

**min


What is a Shadow Price?

Shadow Price Cost of operation(s) to effect a 1 MW change in a constraint

NU

m

NU

m


**min

Change in cost

Local Congestion constraint

When this is changed

Ck

NU

mmkmmm KkLimitSFDBESMWUBESMWGen

*)(1



Shadow Price vs. Penalty Factor

ERCOT assigns a penalty factor to each constraint

For Local Congestion constraints,

Penalty Factor = “Stopping point” price for EACH local constraint

When cost for 1 MW (Shadow Price) = Penalty Factor, clearing engine stops solving


Penalty Factor values

Constraint Penalty Factor

OC3 Contingency $250,000

OC2 $500,000

OC3 Base Case $1,000,000



Production Shadow PricesShadow Price by Constraint

0

5

10

15

20

25

30

35

40

0-500 500-1000 1000-1500 1500-2000 4500-5000 10000-10500 500000

Shadow Price

# o

f In

terv

als

DBBSRCH5 (1750_B) DCLEZOR5 (287T301@MCQUEE) DGIBTOK5 (JEWET 1260_A)

6%


Specific ExampleDGIBTOK5 (Jewet 1260_A) on November 1 07:15Shadow Price = $4,967.40

If reduce the constraint limit by 1 MW,Move BBSES_U2 down 44.0528 MW

Shift Factor = 0.0227Reduces flow by 1 MW

Move CBY_G3 up 44.0528 MWShift Factor = 0No impact on flow

Cost =

(44.0528 * $115.76 – 44.0528 * 3) = $4,967.4

NU

m

NU

m


**




A Shadow Price cap can…

Limit possibility of deployments to “expensive” units

Units with high bid prices (nuclear, hydro, QF)

Limit possibility of deployments to less effective units

Units with small shift factors





NU

m

NU

m


**

1) MW (UBESBP – DBESBP)

2) (UBESBP – DBESBP) < $150

3) MW = 50 (1 MW/0.02 = 50)

4) Shadow Price cap = 150 * 50 = $7,500





Possibility of deployment depends on shift factor and shadow price cap

Guarantee: set unit bid price > shadow price cap



A Shadow Price cap can…Limit possibility of deployments to less effective units

Units with small shift factors

NU

m

NU

m


**

1) MW (UBESBP – DBESBP)

2) (UBESBP – DBESBP) < $150

3) MW = 25 (1 MW/0.04 = 25)

4) Shadow Price cap = 150 * 25 = $3,750



A Shadow Price cap can…Limit possibility of deployments to less effective units

Possibility depends on bid price and shadow price cap

Guarantee: use shift factor tolerance



A Shadow Price cap cannot…

Limit Total Cost of deployment Limit Total MW deployed

Shadow Price = per MW costAs long as the per MW cost is below the cap, clearing engine will continue deployments

use of shadow price cap in local congestion management

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