Impacts of Loop Flow on Electricity Market Design

The process towards conforming with standardized market design (SMD) in electricity markets like New Zealand, PJM, ISO-NE and ERCOT, includes features of locational marginal pricing and financial transmission rights. This paper presents occurrence of price volatilities in LMP-based market typically during transmission congestions in a loop network which is termed as spring washer effect in New Zealand Electricity Market (NZEM). The loop flow or parallel path flow that causes this impact is analyzed using DC load flow model. Financial transmission rights (FTR), a financial hedging instrument, is recommended for electricity markets by SMD. The paper also demonstrates the potential impacts of loop flow control devices on FTR.