COMBINING PRODUCTION AND TRANSMISSION SYSTEM USING RELAXED CONSTRAINTS Michael M. Belsnes, Olav B. Fosso, Geir Warland SINTEF Energy Research Trondheim, Norway Michael.Belsnes@energy.sintef.no This paper presents a new method, based on relaxa- tion techniques, for optimization of power produc- tion where power transfer capability can be included as transmission constraints in the optimization. The presented method combines different optimization techniques making the resulting technique useful for a widespread number of applications: planning of dispersed generation and renewable energy and how introduction of these might influence the existing system, optimal utilization of generation capacity and transmission grid, implementing strategies for congestion management and transmission grid plan- ning. In the Nordic power market, as well as in other deregulated power markets, the application areas listed above is expected to become more important as focus has shifted towards environmental issues and new large power plants and large investments in the transmission grid become more unlikely. In the pa- per we present an example where the method is used to analyze the impact of introducing dispersed gen- eration in a hydro power dominated system. The modeling includes uncertainty in inflow and prices where inflow is modeled on a daily basis. Keywords: Power system operation, distributed generation, congestion management 1 INTRODUCTION The Nordic countries, Norway, Sweden, Finland and Denmark today share a common spot market for electri- cal power. Deregulation and market competition were introduced in the electricity market in Norway in 1991, in Sweden in 1996, while Finland and Denmark came later. The effect of the deregulation imposes new risk to the power sector but it also increases the effectiveness of the power sector in means of economy. Increasing the effectiveness of the power sector calls for a new approach where production scheduling and expansion planning are seen in connection with the transmission capabilities rather than the traditional de- coupled approach where these are treated separately. Power production companies are now facing challenges such as:  It is quite common that the market is split up in different price areas with individual spot prices due to transmission constraints. It is therefore important for the power producers to implement long-term strategies that account for reoccurring congestion of the transmission system due to bottlenecks.  Joint optimization of the production and local transmission system with the objective to de- crease the overall losses, and enhance market ac- cess.  As wind power and other renewable energy sources become available, their interaction with the existing system becomes important. This type of production will often be placed locally at re- mote locations where the transmission grid is weak. The variety of the challenges above calls for different approaches with regard to the choice of optimization method. But in cases where a linear optimization or dispatch model can be used, the transmission grid can be added to the model as suggested in this paper. As wind power and distributed power production become focused in Norway we have developed a proto- type for local expansion planning where the production and transmission systems are both included. Transmis- sion constraints are tested separately in a security con- strained optimal power flow, and transmission con- straints are added to the optimization. The reasons why the transmission grid is indirectly included in the model are:  A combined model of the production and transmission system could become impracti- cally large and time-consuming.  The decomposition approach applied enhances the flexibility of both the power scheduling model and the transmission model. An example of this is to allow the transmission model to in- clude the security aspect for the transmission system. The work is an enhancement of a model developed for hydropower expansion planning under price uncer- tainty described in [1]. The focus is on description of the mathematics and iteration techniques used in the current implementation. The next chapter gives a brief overview of the expan- sion-planning problem in a hydropower dominated power market. Chapter 3 describes the iterative imple