Impact of MW dependent constraint violation penalties on market results at southwest power pool

This paper proposes a different way to model the violation penalties in the price-based economic dispatch algorithm used at SPP. Instead of using a flat violation penalty rate to discourage operating constraints violations, a MW dependent multi-step violation penalty function is introduced. A comparative study is preformed to analyze the impact of the new violation model on the average prices and price volatility on the one hand, and on the number and magnitude of the operating constraint violations on the other hand. A multi-step penalty function provides more flexibility for the market analyst to find the right penalty structure that reconciles the two conflicting objectives: minimizing price excursions and minimizing operating constraint violations. A comparative study is performed where test cases are subjected to three types of violation penalty profiles: one single rate profile and two multi segment violation penalty profiles, each with different segment sizes. The purpose of the different segment sizes is to provide some idea of the sensitivity of the study results with respect to the sizes of the segments.