Paper accepted for presentation at 2003 IEEE Bologna Power Tech Conference, June 23th-26th, Bologna, Italy

Computation of Competitive Market

Equilibrium in Hydrothermal Power Systems
with Cascaded Reservoirs
Agustn R. Marulanda Guerra and Jos Luis Martnez Ramos, Member, IEEE.

Abstract-- In a competitive electricity market, generation

companies have to maximize their benefits selecting the best
strategy; therefore it is convenient to previously know the
resulting spot prices. This paper presents a model to determine
market clearing prices and hourly generation levels of each
participant over a 24-hour period, including hydrothermal
constraints. The optimal competitive market equilibrium problem
is formulated as a large-scale mixed integer linear programming
algorithm and is solved by using an optimization package. The
model incorporates the following elements: thermal plants
(maximum up and down ramp), hydro units, hydro systems
(cascaded reservoirs, spillway flow, generator I/O characteristic),
and inelastic demand. Numerical tests of a day ahead market are
presented.
Index Terms--Competitive market equilibrium, electricity
power market, hydrothermal systems, mixed integer linear
programming, piecewise linear function.

I. INTRODUCTION

ENERATION companies (GENCOs) have traditionally

been subject to regulatory policies, which guaranteed the
full recovery of their costs. Nowadays deregulation and market
competition is the new paradigm in the electricity sector. In the
new scheme GENCOs have to compete to sell their electric
energy trying to maximize their individual benefit, for which
they can settle different strategies. An important aid to decide
the optimal strategy is to forecast the evolution of the spot
price and the relevance of its own technical constraints in
different conditions of the market.
An Independent System Operator (ISO) or a power
exchange (PX) is often in charge of the power market. In a
power exchange market, an independent agency is responsible
for conducting an auction for the generators, seeking to sell
energy and loads, which are not otherwise being served by
bilateral contracts. Therefore the power exchange will be
responsible for scheduling generation in its scheduling (e.g.,
day-ahead, hour-ahead) markets, determining hourly market
clearing prices, and settling and billing for suppliers. A pool
Agustn R. Marulanda Guerra (amarulan@luz.ve) and Jos Luis Martnez
Ramos (jlmr@esi.us.es), Member IEEE, are with the Department of
Electrical Engineering, University of Seville, Seville (Spain).
The authors would like to acknowledge the financial support provided by
the Spanish MCYT and Junta de Andaluca under grants DPI2001-2612 and
ACC-1021-TIC-2002 respectively.

0-7803-7967-5/03/$17.00 2003 IEEE

comprises the functions of a power exchange and a system

operator, such as the Spanish electricity market [1].
Independently of the selected arrangement, the System
Operator typically relies on an auction procedure to efficiently
obtain the spot price and needed quantities in a short-term
market, such as a day-ahead market. Several countries have
adopted simple auction matching algorithms as a part of their
electricity pool design. However, the simple auction
approaches fail to capture inter-temporal links and other
complex effects that appear in power systems due to technical
constraints, such as ramp rates or minimum stable loads [2].
This occurs because the simple auction approach only takes
into account simple bids of pair quantities-prices sent by
suppliers and consumers to the system operator, and, as a
consequence of this auction mechanism, GENCOs have to
internalise their technical and economical characteristics into
its own bids to achieve a feasible dispatch, increasing the risk
associated to the market.
The simple auction mechanism can be modified to take into
account technical constraints and power system non-linear
characteristics. For instance, in the Spanish system the market
clearing price mechanism is coordinated by a Market Operator
(MO) who computes the spot price -for every hour- by the
intersection of the Aggregated Demand and Aggregated
Supply Curves [3], and complex supplier bids are allowed
using additional conditions besides price and quantities
(complex auctions).
The England and Wales Pool implements an auction
procedure based on a classical Unit Commitment model,
where generators submit multi-part bids to supply the daily
demand. Each bid consists of a cost function and a set of
parameters that define the operational limits of the generation
unit. The cost function contains variable and star-up costs.
Operational limits include, among others, ramp constraints and
minimum time constrains. The marginal price is determined as
the maximum average cost among the scheduled generators
[4][5].
The purpose of this paper is to present a model to determine
the energy clearing prices and hourly generation levels of each
generation unit over a 24-hour period in hydrothermal systems
with cascaded reservoirs by using optimization techniques.
The optimal competitive market equilibrium problem is
formulated using a large-scale mixed integer linear

programming algorithm. The main idea is to include the most

important technical constraints of the generation units into the
auction matching algorithms, i.e., non-divisible quantity bids,
up-and-down ramp rates of thermal units, upper and lower
generation limits of hydro and thermal generators, hydro
network flow constrains, generation characteristics of hydro
units, spilling flows, reservoir target levels, and cascaded
reservoirs. In this way it is possible to simulate a theoretical
market in which the suppliers make their own bids including
marginal costs and technical restrictions, decreasing the risks
due to the internalisation of their own technical constraints.
This paper is organized as follows. In section II a
theoretical market model for a hydro-system is presented. A
mathematical formulation of the ISO maximization problem
based on social benefit is given in section III. A brief notion of
price-demand elasticity in electricity markets is included in
section IV. Numerical tests are presented in section V, and,
finally, section VI presents some conclusions.
II. MARKET MODEL
Each GENCO is assumed to bid in an individual form for
each generation unit. The power output of a generation unit,
compared to the demand, is supposed to be small so that
variations in their bidding strategies do not affect the market
clearing prices. In other words, we have assumed a perfect
competition market, where no GENCO has the possibility of
modifying the market clearing prices. Every GENCO makes a
bid curve for each own generation unit; this bid curve
represents the marginal cost of production for the
corresponding unit. A bid consists of quantities of energy
offers (MW) and price (Euro/MWh) at which each unit is
willing to sell its own production. The sum of all bids
represents the Aggregated Supply Curve.
A single consumer, who sends step-wise monotonically
decreasing curves to the ISO, models the Demand Bid Curve.
The ISO decides hourly generation levels of units based on the
intersection of the aggregated supply curve and demand bid
curve, which define the market equilibrium point trying to
maximize both consumers benefit and generators benefit [6].
Generating units allowed for bidding are the thermal units and
the hydro generating plants. In contrast with thermal units,
which have direct operating cost, hydro plants have an indirect
water value associated to fuel saving in thermal generation [7].
III. MATHEMATICAL FORMULATION
This section presents the market clearing procedure as an
optimisation problem. The objective function and main
constraints of thermal units and hydro plants are presented in
the next sections.
A. Objective Function
The objective is to maximize the benefit of all the
participants, maximizing consumers and producers benefits to
maximize the social surplus. In a market where network
constraints and losses are not considered, the social surplus is
subject only to the balance between the amount of power sold

Fig. 1. Total Surplus and equilibrium point.

and bought [9]. In other words, the spot price is determined by

maximizing the total surpluses of generators and consumers
[10], subject to the operational constraints.
The market clearing price problem can be solved using a
linear programming approach (LP) [8].
Fig. 1 shows the total surplus as the area between the
aggregated supply curve and demand bid curve on the left of
the equilibrium point. The total consumer surplus is the sum of
each individual consumer surplus evaluated at a price p*. An
individual consumer surplus is the area under its demand curve
and above the price p*. The total generation surplus is the
sum of each individual generator evaluated at price p*. The
individual surplus is the area above each supply curve and
below the price p*.
The total surplus is defined by

Max

i ,h,d Pci ,h,d j ,h ,b Pg j ,h ,b

hH iI d D

jJ bB

(1)

where i , h ,d , Pci , h, d are the quantities of energy scheduling

and price, respectively, bid by customer i at hour h in block d,
and j ,h,b , Pg j , h,b are the quantities of energy scheduling and
price, respectively, bid by generator j at hour h in block b.
B. System Constraints
The maximisation of the objective function is subject to the
following constraints:
The total energy sold at any time must be equal to the total
energy bought, and the energy settled in each energy block
must be equal or less than the amount bid by the generation
units and buyers, that is:
i ,h ,d =
j ,h ,b
h H (2)

iI d D

jJ bB

i ,h ,d Qc i ,h ,d

i I , h H , d D

(3)

j ,h ,b Qg j ,h ,b

j J , h H , b B

(4)

where Qci , h, d is the energy that consumer i is willing to

buy at hour h in block d, and Qg j , h ,b is the energy that unit
j is willing to produce at hour h in block b.

 The output of each unit and the energy bought by each

consumer have to be equal to the sum of blocks scheduled
at each hour.
j ,h ,b j J , h H
P j ,h =
(5)

bB

i ,h ,d

C i ,h =

i I , h H

h, q oj is the best-efficiency point of hydro unit j, Q M

is
j
the maximum water flow in the hydro turbine j, and w j , h is
a binary variable which controls
characteristic of hydro unit at hour h.

the

generation

(6)

d D

where Pj , h is the energy scheduling of unit j at hour h,

and C i , h is the quantity served to consumer j at hour h.
Upper and lower generation limits of generation units and
logic relationships among status changes have been
formulated as:
P jm x j ,h P j ,h P jM x j ,h
x j ,h x h ,h 1 = a j ,h s j ,h
a j ,h + s j ,h 1

j J , h H
j J , h = 2

(7)

(8)

j J , h H

(9)

where x j , h is equal to 1 if the unit j is committed at hour

Fig. 2. I/O characteristic of a hydro unit.

h, a j ,h is equal to 1 if the unit j is started-up at the

beginning of hour h, and s j , h is equal to 1 if the unit j is
P jm , P jM

shut-down at the beginning of hour h.

are

minimum and maximum outputs of unit j, respectively.

Maximum up and down ramps of thermal units:
Pj ,h Pj ,h 1 UR j

j J ,h = 2

Pj ,h 1 Pj ,h DR j

j J , h = 2

The spill-out of the reservoir is also modelled by a

piecewise linear curve as a function of the volumes of the
reservoirs [10], where the spill is constrained to be zero if
the volume of water in the reservoir is less than the starting
spill volume, v1j . Fig. 3 shows this characteristic as a three-

(10)

(11)

segment piecewise linear function, where kj are the

where UR j , DR j are maximum up and down ramps of unit

positive variables that control the reservoir volume. The

corresponding equations are:

j, respectively.
The generation characteristic of hydro units can be
calculated as a non-linear polynomial function of the head
level and turbine flow [11]. When the head level is
constant, this characteristic is typically similar to the curve
shown in Fig. 2. Note that usually the curve is non-convex.
For an specific head level, the hydro turbine characteristic
is modelled by a two-segment linear curve based on the
correct values at maximum efficiency and full gate flow
level [10][12]. The I/O characteristic can be expressed as
follows:
L

P j ,h =

k =1

mq kj kj ,h

j J h , h H

(12)

Q j ,h =

kj ,h

j J h , h H

(13)

1j , h q oj

j J h , h H

(14)

k =1

q oj w j , h

o
0 2j ,h Q M
j q j w j ,h

j J h , h H

segment k of hydro unit j,

mskj kj ,h

j JH , h H

(16)

j JH , h H

(17)

k =1

v j ,h =

kj ,h

k =1
1 1
v j j ,h 1j ,h

j JH , h H

(18)

v1j 2j ,h 2j ,h

j JH , h H

(19)

2j ,h v 2j v1j 1j ,h

j JH , h H

(20)

0 3j ,h v 3j v 2j 2j ,h

j JH , h H

(21)

2j ,h 1j ,h

j JH , h H

(22)

(v

2
j

v1j

where So j ,h is the spillage rate of hydro unit j at hour h

and the slope of segment k of unit spill characteristic j

(15)

k
is represented by ms kj . j, h are the variables that

is the slope of

represent the k-th segment volume of the corresponding

are positive variables that

1
2
reservoir of hydro turbine j at hour h, and j , h , j ,h are

where j h is the hydro unit subset of J,

kj,h

So j ,h =

ms kj

represent the k-th water flow in the hydro turbine j at hour

h, Q j , h is the total water flow in the hydro turbine j at hour

binary variables that control the relationship between

k
intervals of volume v kj and j,h .

A. Input data
Seven units, five thermal units and two hydro plants during
a 24-hour period of a day-ahead market, form the test system.
The demand has been modeled by a single bidding with five
energy blocks and their corresponding price, trying to simulate
an inelastic behavior of the electricity demand, and a 4-block
bidding curve is assumed for every unit.
TABLE I
RESERVOIR TARGET LEVEL LIMITS
3
vM
j [Hm

jh

]
Fig. 3. Spill-out characteristic of a hydro reservoir.

j J h , h H

v j ,1 = v 0j q 0j + r j ,1 + Q ju ,0 + So ju ,0

j J h

v j ,h = v j ,h 1 Q j ,h So j ,h + r j ,h + Q ju ,h + So ju ,h

(23)
(24)

) (25)

j J h , h H
where j u is the hydro unit upstream from the hydro unit j,
is the water flow delay time from hydro unit j u to j, and
r j ,h , is the inflow rate into the storage reservoir during hour
h of the corresponding hydro unit j.
IV. PRICE-DEMAND ELASTICITY
In markets where customers can easily choose not to
consume a product, or to consume a substitute instead,
producers cannot raise prices above costs without significantly
reducing sales. Conversely, a producer that knows that its
product is absolutely needed can profitably raise prices up to
very high levels [13]. In electricity markets, the elasticity of
price with respect to the energy demanded is defined as the
percentage change in the quantity of electricity demanded in
response to a percentage change in the price of electricity.
Typically, a 1.0 per cent change in the elasticity price will lead
to less than 1.0 per cent change in the quantity demanded.
In the long term, there is some elasticity of demand, but in
the short term a day ahead and especially an hour aheadthere is essentially no elasticity of electricity demand. This
lack of elasticity means that sellers can unilaterally raise the
price to extraordinarily exorbitant levels [14].

0.114

0.016

0.07

0.07

6.40

2.10

3.00

3.00

DR j [MW]

UR j [MW]

P jM [MW]

Pjm [MW]

100

100

197

100

100

210

10

50

50

163

50

50

74

230

230

290

20

100

100

74

100

100

100

The main objective is to determine the marginal price and

scheduling for each participant, analyzing how technical
constraints influence on market clearing prices. Table I
presents reservoir target level limits; Table II gives technical
parameters of the units used in this example, and, finally,
Tables III and IV show the parameters used in the piecewise
linear approximation of hydro unit characteristics and spill-out
behaviours, respectively.
TABLE III
HYDRO UNIT PARAMETERS
mq1j
jh

mq 2j
3

q1j
3

QM
j

[MW/(m /s)
]
10.00

[MW/(m /s)
]
4.895

[m3/s
]
6.00

5.332

3.650

15.00

[m3/s]
8.86
20.48

TABLE IV
SPILL PARAMETERS OF RESERVOIRS
ms1j
jh

[(m /s)/Hm
]
0.00

0.00

V. APPLICATION CASE
In this section, a small case study is presented, developed to
test the results of the model. We have used the commercial
optimisation package CPLEX [15] under the General
Algebraic Modeling Systems (GAMS) [16] software,
including mixed-integer linear programming to solve the
model.

v jf Hm3]

TABLE II
DATA OF SEVEN UNITS

The hydraulic coupling between reservoirs is formulated

as:
v mj v j ,h v M
j

v 0j [Hm3

v mj [Hm3]

ms 2j
3

ms3j
3

[(m /s)/Hm
]
166.667

[(m /s)/Hm
]
200.00

1.5383

3.667

v1j
3

v 2j
3

v 3j
3

[Hm
]
0.090

[Hm
]
0.105

[Hm3
]
0.130

3.05

5.00

6.50

The problem to solve is a large-scale one due to the time

periods of the planning horizon and the number of units
involved in the model. Furthermore, it is a mixed-integer

Demand

700

2.2

500
2.0

300
100

1.7

-100
1.5

-300

1.2

4.0

-500
1

11

13

15

17

19

21

23

Time [h]

3.5

Fig. 5. Demand and market-clearing price

3.0

0.12

11

13

15

17

19

21

23

Time [h]
Fig. 4. Inflow rate into reservoir 6

Unit six and seven are hydraulically coupled and the inflow
rate into the storage reservoir corresponding to hydro unit six
has been modelled as variable in time (see Fig. 4). The
discharge and spill-out of unit six is assumed to flow directly
into the reservoir corresponding to hydro unit seven with onehour time lag. Unit seven does not have any additional inflow.
B. Test Results
Fig. 5 shows the demand and the market clearing prices of
the 24-hour period. Note that, as expected, the spot price
follows the shape of the demand. This occurs due to the
market price being determined by the intersection of the
aggregated demand and aggregated supply curves, thus while
more electricity demand is needed the energy blocks with
higher prices can enter into the match auction, increasing the
market price. During peak demand, hydro units can help to
reduce the market clearing prices, avoiding the production of
thermal units in the most expensive segment of its marginal
cost curve.
The change in storage volume and spillage rate of
reservoirs corresponding to hydro units six and seven are
showed in Fig. 6 and 7, respectively. Note that they spill only
when the reservoir level is over the spill level, 0.09 Hm3 for
unit six and 3.05 Hm3 for unit seven (see Table IV).
It is also possible to appreciate the change in the stored
volume of reservoirs six and seven. Note that the level of
reservoirs increases when hydro units are shutdown (e.g., 19 to
21 hours in Fig. 6 and 8).
The relationship between the water flow through the
turbines of hydro units six and seven and the power output is
given in Fig. 8 and 9, respectively. This relationship has been
modelled as a two-piecewise linear function, which can be
noticed in Fig. 8 and 9 as both units are working in the first
segment of the piecewise approximation, near to the maximum
efficiency point (see Table 3.).

0.10

3.5
3.0

0.08

2.5

0.06

2.0
1.5

0.04

1.0
S pillage R ate

0.5

0.02

S torage Volume

0.0

0.00
1

11

13

15

17

19

21

23

Time [h]
Fig. 6. Change in storage volume and Spillage rate for hydro unit 6.

Spillage rate [m^3/s]

Spillage rate [m^3/s]

4.0
2.0

Storage Volume [Hm^3]

4.5

2.5

0.08

3.10

0.07

3.05

0.06

3.00

0.05

2.95

0.04

2.90

0.03

2.85

0.02

2.80
S pillage R ate

0.01

S torage Volume

0.00

Storage Volume [Hm^3]

Inflow rate [m^3/s]

4.5

900

Marginal Price

Demand [MW]

5.0

2.5

Marginal price [cent/kwh]

problem because of the generation characteristics, the spill-out

of the reservoirs, and the logic relationships among status
changes that have been modelled using binary variables. For
this example there are 1993 positive variables and 648 binary
variables. Both the objective function and constrains have
been formulated as linear expressions.

2.75
2.70

11

13

15

17

19

21

23

Time [h]
Fig. 7. Change in storage volume and Spillage rate for hydro unit 7.

The scheduling for all generators is showed in Fig. 10. Note

that unit 1 is only dispatched during higher spot prices due to
its expensive marginal cost, unlike unit 5, which is the least
expensive unit and is always dispatched.
VI. CONCLUSIONS
A methodology to determine the energy clearing prices and
hourly generation levels of generation units over a 24-hour
period in hydrothermal systems with cascaded reservoirs has
been presented in this paper. The non-linear constraints of
hydro units (the I/O characteristic and the spill-out of the
reservoirs) have been modelled with accuracy using a

piecewise linear function. An example with seven units is used

to demonstrate that the proposed model is an useful tool for
GENCOs to analyse its own hydro constrains and behaviour in
a market clearing process.

VII. REFERENCES
[1]

[2]

Discharge [m3/s]

5
4

[3]

3
2

[4]

1
0
0

10

15

20

Time [h]

[5]
60

Power output [MW ]

50

[6]
[7]

40
30
20
10

[8]

0
0

10

15

20

Time [h]

[9]

Fig. 8. Discharge and power output of unit 6.

[10]

12

Discharge [m3/s]

10

[11]

8
6

[12]

4
2
0
0

10

15

20

[13]

Time [h]

60

[14]

Power output [MW h]

50
40

[15]

30
20

[16]

10

A. Canoyra, C. Illn, A. Landa, J.M. Moreno, J.L. Prez-Arriaga, C.

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activities
rules,
[online]
Available:
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P. Samuelson, W. Nordhaus, Economics. McGraw-Hill. 1993.
R. kelman, M. Pereira. Application of Economic Theory in Power
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Control John Wiley & Sons Inc., 1996.
M.R. Piekutowski, T. Litwinowicz, R.J. Frowd, Optimal short-time
scheduling for a large-scale cascaded hydro system IEEE Trans. on
Power Systems, Vol. 9, N 2, pp. 805-811, May 1994
G.W. Chang, M. Aganagic, J.G. Waight, J. Medina, T. Burton, Steve
Reeves, M. Christoforidis, Experiences with mixed integer linear
programming based approaches on short-term hydro scheduling, IEEE
Trans. on Power Systems, Vol. 16, N 4, pp. 743-749, November 2001.
S. Borestein, J. Bushnell, C. R. Knittel. (February 1999). Market Power
in Electricity Markets: Beyond Concentration Measures PWP-059r.
University
of
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[online]
Available:
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M. H. Rothkorpf, Control of Market Power in Electricity Auctions
The Electricity Journal, pp 15-24, October 2002.
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Notes" , GAMS Development Corporation. Washington. 1996.
A. Brooke, D. Kendrick and A. Meeraus, GAMS: A users Guide,
Release 2.25, The Scientific Press. San Francisco. 1996.

0
0

10

15

20

VIII. BIOGRAPHIES

Time [h]

Fig. 9. Discharge and power output of unit 7.

1000

Unit 1

Unit 2

Unit 3

Unit 4

Unit 5

Unit 6

Unit 7

Power [MWh]

800

Agustn R. Marulanda Guerra, was born in Maracaibo, Venezuela, in 1970.

He received his degree in Electrical Engineering from the University of Zulia,
Venezuela, in 1984. He is currently working toward a Ph.D. degree in
electrical engineering from the University of Seville, Spain. He primary areas
of interest are operations and economics of electrical systems and new
electricity markets.

600

Jos Luis Martnez Ramos, Member IEEE, was born in Dos Hermanas,
Spain, in 1964. He received his Ph.D. degree in electrical engineering from
the University of Seville. Since 1990 he has been with the Department of
Electrical Engineering, University of Seville, where he is currently an
Associate Professor. His primary areas of interest are active and reactive
power optimization and control, power system analysis and power quality.

400

200
0
1

11

13

15

17

19

Time [h]
Fig. 10. Thermal and hydraulic scheduling.

21

23