International Journal of Advances in Engineering & Technology, May 2012. ©IJAET ISSN: 2231-1963 446 Vol. 3, Issue 2, pp. 446-455 IMPROVED BILATERAL CONTRACT APPROACH TO MULTI- AREA UNIT COMMITMENT IN DEREGULATED ELECTRICITY MARKET K.Venkatean 1 and C. Christober Asir Rajan 2 1 Research Scholar, Deptt. of Electrical Engg., J.N.T.U. Anantapur, Anantapur, A.P, India. 2 Associate Professor, Pondicherry Engineering College, Pondicherry, India. ABSTRACT This paper presents a new improved bilateral contract approach to solve multi-area unit commitment problem (MAUC) in deregulated electricity market. The objective of this paper proposes an improved bilateral contract approach, which includes call and put options, forward contracts, and reliability must-run contract into multi- area unit commitment in deregulated environment. Evolutionary Programming-Sequential Combination (EP- SC) method is used to solve Multi-Area Unit Commitment Problem (MAUCP) subjected to variety of constraints and Lamda iteration method is used to solve Multi-Area Economic Dispatch Problem (MAEDP). In this, the objective of MAUCP is to determine the optimal generation scheduling of generating companies which are connected by tie-lines and MAEDP is to find optimal power exchange between areas as to minimize the total production cost. The tie-line transfer limits were considered as a set of constraints during optimization process to ensure system security and reliability. The overall algorithm can be implemented on an IBM PC, which can process a fairly large system in a reasonable period of time. Case study of four areas with different load pattern each containing 26 units connected via tie-lines has been taken for analysis. Experimental results shows that the application of this proposed method have potential to solve MAUC problem in deregulated electricity market with lesser computation time, reliable and computationally efficient. KEYWORDS: Bilateral contract, Evolutionary Programming, Sequential combination, Multi-Area Unit Commitment, Multi-Area Economic Dispatch I. INTRODUCTION An important goal behind the restructuring of the electricity industry is to bring more choice in the way individual loads supply their needs, permitting them to buy either from a centralized spot market or directly from generators or marketers through pre-arranged bilateral contracts. These are typically of longer duration and tend to offer financial stability to generators and lower prices to loads when compared with the more volatile pool market prices. They can be of two types: financial hedging agreements [1-2] or physical transactions directly affecting the generation and demand levels [3], [4].In the competitive environment, customers request for high service reliability and lower electricity prices, while generation companies (GENCOS) have to make their own profits. Thus, it is important to maximize own profit with high reliability and minimize overall operating costs and meet demand contracts while satisfying relevant generation constraints and network constraints with respect to financial hedging contracts. The Multi-Area Unit Commitment Problem (MAUCP) is a constrained optimization problem in which optimal turn-on and turn-off schedules need to be determined over a given time horizon for a group of power generation units under some operational constraints [5,6].The objective is to minimize the power generation costs while meeting the hourly forecasted power demands. The UCP is an important area of research which has attracted increasing interest from the scientific community due to the fact that even small savings in the operation costs for each hour can lead to major overall economic savings. In the economic dispatch problem, for each hour, the power outputs for the units