Imperfect Competition in Markets for Short-Circuit Current Services

TL;DR

This paper investigates how strategic Synchronous Generators might manipulate Short-Circuit Current markets to increase profits, potentially reducing market efficiency and increasing costs, highlighting the need for better market design.

Contribution

It introduces the first SCC-constrained bilevel model to analyze strategic behaviors of SGs and assesses market power issues in local SCC markets.

Findings

Strategic SGs can triple their revenues by manipulating prices.

Market power can significantly reduce market efficiency.

Mitigation measures are necessary to prevent manipulation.

Abstract

An important limitation of Inverter-Based Resources (IBR) is their reduced contribution to Short-Circuit Current (SCC), as compared to that of Synchronous Generators (SGs). With increasing penetration of IBR in most power systems, the reducing SCC poses challenges to a secure system operation, as line protections may not trip when required. In order to address this issue, the SCC ancillary service could be procured via an economic mechanism, aiming at securing adequate SCC on all buses. However, the suitability of markets for SCC services is not well understood, given that these could be prone to market power issues: since the SCC contributions from various SGs to a certain bus are determined by the electrical topology of the grid, this is a highly local service. It is necessary to understand if SGs at advantageous electrical locations could exert market power and, if so, how it could be mitigated. In order to fill this gap, this paper, for the first time, adopts an SCC-constrained bilevel model to investigate strategic behaviors of SGs. To address the non-convexity due to unit commitment variables, the model is restructured through a primal-dual formulation. Based on a modified IEEE 30-bus system, cases with strategic SGs placed at different buses are analyzed. These studies demonstrate that strategic agents exerting market power by manipulating service prices and extending operating periods could achieve up to triple revenues from SCC provision, which reduces market efficiency and would increase the financial burden on consumers. These findings highlight the need for careful market design, for which potential measures to mitigate these market power issues are also discussed.