The Spring Washer Effect - Section 3 - A spring washer scenario

Now that we know about the way SPD determines marginal prices, and how Kirchhoff's Law imposes constraints on parallel transmission lines, we will be able to see how the very high and very low prices of the spring washer effect come about. Let's look at our scenario. We still have two generators supplying power to the loads, but now we now have four grid exit points at Buses A, B, C, and D. Generator 1 is currently offering power at $1 per MW. Generator 2 is offering power at $100 per MW. Generator 1 is able to supply all the loads at Buses A, B, C, and D for the cheapest price. Generator 1 is also the marginal generator for the system, so the marginal price at the buses is $1. Let's see what happens if B–C becomes constrained. Kirchhoff's Law dictates that power generated at Generator 1 will be distributed equally between two parallel circuits. In this case, since B–C is constrained and A–D is parallel to B–C A–D is limited in its transmission capability. This binding constraint will affect SPD's calculations when it determines where the next MW can be supplied from, and therefore will affect the marginal prices. Let's now view the scenario through SPD's eyes. We'll calculate the marginal prices at each bus starting with Bus A. If required, an extra unit of load at Bus A can be supplied by Generator 1 for $1 because it doesn't need to flow through B-C. So the marginal price at Bus A stays at $1. For Bus D, because A-D is limited, the next MW of load cannot come from Generator 1. So it would have to be supplied by Generator 2 for $100. So the marginal price at Bus D increases to $100. Now let's look at the marginal price calculation for Bus B. To supply the next MW of load at Bus B, Generator 1 would have to send 2 MW in total, because any power would be distributed evenly between the two lines. Therefore to get 1 MW to Bus B the generator would also have to send 1 MW along circuit A-D. This would mean an extra unit of load is going to Bus D. This would reduce the amount of generation required by Generator 2 by 1 MW. So now we can calculate the cost of supplying the next MW of load to Bus B. It would require 2 MW from Generator 1 at $1 and it would require Generator 2 to back off by 1 MW for -$100. So the final marginal price at Bus B would be -$98. Now let's calculate the marginal price for Bus C. For SPD, this is the same calculation as it used to calculate the marginal price for Bus B - just flipped. To send the next MW of load to Bus C, Generator 2 would have to supply 2 MWs. One flowing through D-C and one flowing through D-A, according to Kirchhoff's Law. This would mean a surplus MW at Bus A, so Generator 1 would back off by 1 MW. So now we can see the cost to the system of supplying the next MW to Bus C. It would be the cost of producing 2 MW at Generator 2, $200, minus the 1 MW backed off by Generator 1, at $1. So, we can see that SPD calculates the marginal price at Bus C at $199. Now we can see the spring washer effect. Bus C has to pay a large amount while Bus B has to pay a negative amount.