The Economics of Electricity Markets

8Efficient Network Operation

The efficient short-run operation of an electric power system is not just a matter of efficient production and consumption decisions. There may also be decisions to be made about the use of the network itself. In practice, in an AC power network there are relatively few decisions to be made by the network operator. Although there are some devices capable of altering power flows on different lines, electric power generally flows around the network according to the laws of physics. However, there are two important decisions to be made regarding network operation. The first arises in the case of DC interconnectors, where a decision must be made as to how much power to transfer from one location to another. The second relates to the configuration of the network itself. Switching network elements in or out of service can alter power flows in a manner that increases economic welfare.

8.1 Efficient Operation of DC Interconnectors

As we noted in Section 2.6, one of the key features of DC links is that they are controllable. Let us imagine that we have, in addition to the conventional AC network, a network of DC links. How should these links be operated so as to achieve the highest short-run economic welfare?

Let us focus on the DC link from node i to node j. The controllable flow on this link in the direction from i to j is (MW) and the capacity of the link ...