The ongoing energy deregulation has created various job opportunities in the energy sector, including positions in energy trading, energy market design, market operations, and asset optimization. In this article, I will discuss ten questions you will likely see in an energy market job interview. Knowing to answer these questions will show your understanding of important energy market concepts and may increase your chance of being hired. However, you should NEVER remember the sample answers mechanically because they are NOT meant to be “standard and exhaustive.” You should ALWAYS understand the concepts being asked and describe them in your own words. Keep your answers relevant and concise. After answering the question, you may ask the interviewer if your answer fully addresses their questions. Be ready to defend your answer and elaborate if needed.

Question 1: Describe your understanding of the optimization in the energy market.

Sample answer:

• The energy market optimization refers to the process of committing and dispatching the most economical generation to serve the forecasted load while honoring various grid constraints, including resource, transmission, ancillary services, and regulatory constraints.
• The optimization uses load forecast, generator schedules, bids, transmission topology, etc., to calculate optimal generation outputs, energy interchanges, and LMPs in the grid.
• The optimization is a large-scale mix-integer problem continuously solved by the market operator, i.e., ISO/RTOs.

Comments:

It is not practical to expect you to know every technical detail about energy market optimization. However, you should, at a minimum, understand what the optimization does and the key inputs and outputs.

Question 2: Explain the Locational Marginal Price (LMP) and its components.

Sample answer:

• LMP is a pricing mechanism widely used in deregulated wholesale electricity markets to settle energy purchases and sales.
• LMP represents the incremental cost to serve the next MW of load at a specific location, considering factors such as transmission limits, generation capacities, and losses.

The most common components of LMP are:

• Energy component: This is the marginal cost of producing one additional unit of electricity to serve the system load, assuming an infinite transmission capacity. Ignoring losses, the energy component is the same as the LMP and equals the marginal generator’s bid.
• Congestion component: This is the marginal cost difference of delivering one additional unit of electricity to a specific location with and without transmission limits.
• Loss component: This is the marginal cost of changes in line losses to deliver one additional unit of electricity to serve a specific load. This component is usually insignificant.

Comments:

LMP is one of the most important concepts in the energy market. You should know what LMP is (e.g., a shadow price) and is not (e.g., a total cost). Also, accurately explaining each LMP component will further show your knowledge of the concept and suggest your ability to analyze LMPs to reach meaningful conclusions.

Question 3: How does market optimization handle an overload?

Sample answer:

• Given enough generation resources, the market optimization will dispatch generators to mitigate the overload.
• The optimization will try to hold the power flow or the expected post-contingency flow at the line’s capacity.

Comments:

Although frequently used interchangeably, there are subtle differences between overload and congestion. A line is congested when the flow (or the expected post-contingency flow) is at or above its appropriate limit. When the (expected) flow is above its limit, it is an overload. When there is an overload, the market optimization engine will dispatch available resources to mitigate it. However, the market will try to keep the (expected) flow at the line’s limit because the objective is to satisfy constraints with minimal costs. In other words: the optimization only tries to eliminate overloads; it doesn’t eliminate congestion.

Question 4: Explain how the generator and load get settled in an energy market.

Sample answer:

• In the energy market, generators and loads are settled by the LMP at their local price node or aggregated price node.
• Many ISOs that run a day-ahead (DA) market and a real-time (RT) market follow a “multi-settlement” system, one in DA and one in RT. As a result, market participants participating in both markets will be settled twice based on the LMP in each market.

Comments:

Settlement rules can be very complicated and can vary by market. However, the basic rule is simple: the loads/generators pay/get paid at their local bus’s LMP.

Question 5: What is a shift factor, and how does it work? Give an example.

Sample answer:

• The shift factor represents the change in the line flow due to a unit power injection increase at a node (bus) in the grid.
• The shift factor range from -1 to 1, or -100% to 100% if expressed in %.
• For example, if the shift factor of the i th bus to the k th line is 0.3, it means that 1 unit of change in power injection at bus i will increase the flow in line k by 0.3 units.

Comments:

The shift factor is your best friend when it comes to congestion analysis and generation dispatch. Make sure you understand it.

Question 6: What are the main differences between a real-time market solution and a state estimator (SE) solution?

Sample answer:

• Real-time market solutions are look-ahead solutions. The dispatches and line flow in the market solutions are operating targets based on expected future operating conditions.
• On the other hand, the state estimator solution represents the current operating condition.

Comments:

The market solution and the SE solution have different scopes. When you compare them, make sure you compare apples to apples! Keep in mind that the market is always looking ahead.

Question 7: All else equal, what can you say about the LMPs on the sending end and receiving end of a congested line? Explain your answer.

Sample answer:

• The LMPs at the sending end tend to have a negative congestion component, and the LMPs at the receiving end tend to have a positive congestion component.
• This way, generators at the sending end are incentivized to keep or reduce their generation by receiving a lower LMP.
• On the other hand, generators at the receiving end are incentivized to generate more by a higher LMP.

Comments:

It is important to understand that the congestion contributor will receive a lower LMP, not a higher one. This mechanism uses prices as signals to re-dispatch market participating generators to mitigate overloads and manage congestion.

Question 8: Can LMP be negative? If so, give some examples.

Sample answer:

Yes, LMP can be negative. The following conditions will lead to a negative LMP:

1. The marginal unit’s bid is negative. (this is the obvious scenario).
2. The congestion results in a negative incremental cost to serve the next MW of load at a bus. For example, the LMP will be $-10/MWh if serving the next MW load requires increasing 2 MW of a $10/MWh generator and decreasing 1 MW of a $30/MWh generator.

Comments:

Mathematically, LMP is unbounded, meaning it can be from negative infinity to positive infinity. However, each ISO has its administrative price floor and price ceiling to make the problem solvable and prioritize constraints based on their importance. A negative price can be a result of both negative bids and congestion.

Question 9: Can LMP be higher than the highest generator bid? Give an example.

Sample answer:

• Yes, LMP can be higher than the highest bid if the congestion in the system makes the incremental cost to serve the next MW of load at a bus higher than the highest generator bid.
• For example, the LMP will be $50/MWh if serving the next MW of load requires increasing 2 MW of a $30/MWh generator and decreasing 1 MW of a $10/MWh generator. If these are the only two generators in the system, then the LMP is higher than the highest bid.

Comments:

Given a power system, LMPs are driven by the incremental cost to serve loads rather than the highest generator bid. Hence, limiting the maximum LMP by putting a ceiling on the bid price may not be effective when there is congestion in the system.

Question 10: Compare the uniform pricing and the pay-as-bid system. Which one will likely incentivize efficient generation? Explain your answer.

Sample answer:

• The uniform pricing system will likely incentivize generation efficiency because the market clearing price is set by the marginal unit. With improved fuel efficiency, the marginal unit could lower its marginal cost (i.e., become “intramarginal”) and therefore be more profitable.
• All else equal, generators in the pay-as-bid system will have less incentive to lower their marginal costs but to speculate by manipulating their bid.

Comments:

In the U.S., the energy market follows a uniform pricing model. Other market models, such as pay-as-bid, are also considered for wholesale electricity markets. From the market design perspective, it is crucial to understand the pros and cons of each design and discuss the regulations needed for each design to work properly.

I hope you find the above questions and sample answers useful.  Thank you for reading.