The research work presented in this thesis discusses various complex issues associated with reactive power management and pricing in the context of new operating paradigms in deregulated power systems, proposing appropriate policy solutions. An integrated two-level framework for reactive power management is set forth, which is both suitable for a competitive market and ensures a secure and reliable operation of the associated power system. The framework is generic in nature and can be adopted for any electricity market structure. The proposed hierarchical reactive power market structure comprises two stages: procurement of reactive power resources on a seasonal basis, and real-time reactive power dispatch. The main objective of the proposed framework is to provide appropriate reactive power support from service providers at least cost, while ensuring a secure operation of the power system. The proposed procurement procedure is based on a two-step optimization model. First, the marginal benefits of reactive power supply from each provider, with respect to system security, are obtained by solving a loadability-maximization problem subject to transmission security constraints imposed by voltage and thermal limits. Second, the selected set of generators is determined by solving an optimal power flow (OPF)-based auction. This auction maximizes a societal advantage function comprising generators' offers and their corresponding marginal benefits with respect to system security, and considering all transmission system constraints. The proposed procedure yields the selected set of generators and zonal price components, which would form the basis for seasonal contracts between the system operator and the selected reactive power service providers. The main objective of the proposed reactive power dispatch model is to minimize the total payment burden on the Independent System Operator (ISO), which is associated with reactive power dispatch. The real power generation is decoupled and assumed to be fixed during the reactive power dispatch procedures; however, the effect of reactive power on real power is considered in the model by calculating the required reduction in real power output of a generator due to an increase in its reactive power supply. In this case, real power generation is allowed to be rescheduled, within given limits, from the already dispatched levels obtained from the energy market clearing process. The proposed dispatch model achieves the main objective of an ISO in a competitive electricity market, which is to provide the required reactive power support from generators at least cost while ensuring a secure operation of the power system. The proposed reactive power procurement and dispatch models capture both the technical and economic aspects of power system operation in competitive electricity markets; however, from an optimization point of view, these models represent non-convex mixed integer non-linear programming (MINLP) problems due to the presence of binary variables associated with the different regions of reactive power operation in a synchronous generator. Such MINLP optimization problems are difficult to solve, especially for an actual power system. A novel Generator Reactive Power Classification (GRPC) algorithm is proposed in this thesis to address this issue, with the advantage of iteratively solving the optimization models as a series of non-linear programming (NLP) sub-problems. The proposed reactive power procurement and dispatch models are implemented and tested on the CIGRE 32-bus system, with several case studies that represent different practical operating scenarios. The developed models are also compared with other approaches for reactive power provision, and the results demonstrate the robustness and effectiveness of the proposed model. The results clearly reveal the main features of the proposed models for optimal provision of reactive power ancillary service, in order to suit the requirements of an ISO under today’s stressed system conditions in a competitive market environment.

The research work presented in this thesis discusses various complex issues associated with reactive power management and pricing in the context of new operating paradigms in deregulated power systems, proposing appropriate policy solutions. An integrated two-level framework for reactive power management is set forth, which is both suitable for a competitive market and ensures a secure and reliable operation of the associated power system. The framework is generic in nature and can be adopted for any electricity market structure. The proposed hierarchical reactive power market structure comprises two stages: procurement of reactive power resources on a seasonal basis, and real-time reactive power dispatch. The main objective of the proposed framework is to provide appropriate reactive power support from service providers at least cost, while ensuring a secure operation of the power system. The proposed procurement procedure is based on a two-step optimization model. First, the marginal benefits of reactive power supply from each provider, with respect to system security, are obtained by solving a loadability-maximization problem subject to transmission security constraints imposed by voltage and thermal limits. Second, the selected set of generators is determined by solving an optimal power flow (OPF)-based auction. This auction maximizes a societal advantage function comprising generators' offers and their corresponding marginal benefits with respect to system security, and considering all transmission system constraints. The proposed procedure yields the selected set of generators and zonal price components, which would form the basis for seasonal contracts between the system operator and the selected reactive power service providers. The main objective of the proposed reactive power dispatch model is to minimize the total payment burden on the Independent System Operator (ISO), which is associated with reactive power dispatch. The real power generation is decoupled and assumed to be fixed during the reactive power dispatch procedures; however, the effect of reactive power on real power is considered in the model by calculating the required reduction in real power output of a generator due to an increase in its reactive power supply. In this case, real power generation is allowed to be rescheduled, within given limits, from the already dispatched levels obtained from the energy market clearing process. The proposed dispatch model achieves the main objective of an ISO in a competitive electricity market, which is to provide the required reactive power support from generators at least cost while ensuring a secure operation of the power system. The proposed reactive power procurement and dispatch models capture both the technical and economic aspects of power system operation in competitive electricity markets; however, from an optimization point of view, these models represent non-convex mixed integer non-linear programming (MINLP) problems due to the presence of binary variables associated with the different regions of reactive power operation in a synchronous generator. Such MINLP optimization problems are difficult to solve, especially for an actual power system. A novel Generator Reactive Power Classification (GRPC) algorithm is proposed in this thesis to address this issue, with the advantage of iteratively solving the optimization models as a series of non-linear programming (NLP) sub-problems. The proposed reactive power procurement and dispatch models are implemented and tested on the CIGRE 32-bus system, with several case studies that represent different practical operating scenarios. The developed models are also compared with other approaches for reactive power provision, and the results demonstrate the robustness and effectiveness of the proposed model. The results clearly reveal the main features of the proposed models for optimal provision of reactive power ancillary service, in order to suit the requirements of an ISO under today’s stressed system conditions in a competitive market environment.