Transfer capability improvement through market-based operation of series FACTS devices

Traditionally, electric system operators have dispatched generation to minimize total production costs, ignoring the flexibility of the transmission system. Implementation of smart-grid systems could allow operators to co-optimize flexible transmission alongside generation dispatch; the technologies that would enable such co-optimization are still regulated as part of the monopoly transmission system. One particular flexible transmission asset is variable impedance flexible AC transmission system (FACTS). This paper 1) points out the positive externality problem existing in a recent market design proposal with active transmission participation, and 2) proposes a sensitivity-based method to estimate the marginal market value of FACTS adjustments to overcome this positive externality problem. The marginal value would suggest efficient impedance adjustments to the operator and provide the right financial incentives for the FACTS owners to operate their assets in a socially optimal way. Revenue adequacy is demonstrated under specific conditions and more broadly investigated through simulation studies. An analytical example on a two-bus system as well as a numerical study on the IEEE 118-bus system are presented. The results suggest that inclusion of a price signal for FACTS devices would lead to significant social welfare improvements in competitive power markets.