Benefits of Independent System Operator (ISO) in Power Sector

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The ever-increasing population and growing industrial activities around the globe have affected the power sector in significant ways. The growing demand for reliable power supply has increased the requirement for higher investments in the power sector and has imposed more constraints on the operation of the power systems.
Moreover, due to increasing cost and environmental consciousness around the globe, pressure has also increased on power systems to use more sustainable energy resources and to increase their efficiency in operation. This is coupled with the need for grid security, economic development, efficient use of available resources, environmental awareness to require the cooperation of all participants for achieving an efficient power network that would allow sustainable growth within the countries.
Along with the abovementioned drivers, the reform of power sector has also become prevalent amongst the power sectors in many developing countries. Through such reforms, the governments are hoping to shift some of the high costs of power sector development to private sector or at least allow the private sector to play a pivotal role in the expected expansion of the power sector.
The establishment of an independent system operator is extremely important to achieve these goals. A truly independent system operator would ensure that reliable operation is achieved whilst providing the transparency and fair competition required to encourage the participation of the private sector in the development. In order to facilitate this, two general models have been widely used:
(a) The Independent System Operator (ISO) model which has been widely adopted in the US, allows generation companies or retailers to own network assets while control of the transmission system will be entrusted to the ISO in order to ensure fair competition and avoid monopolized power.
(b) The Independent Transmission System Operator (ITSO) model which has been mostly adopted in England and Wales, in which the transmission system owner and operator are integrated into a single entity, restricted from investing in generation to avoid conflict of interest.
The important point to note in both of the above models requires the complete separation and independence of both ITSO and ISO from the generation and distribution companies, e.g. the energy producers and consumers. This ownership separation ensures that the independent organization remains free of any apparent influence from the interested parties in the production and consumption areas of the power sector. With that in mind, many various models may be employed with various degrees of responsibility given to the system operator. This report hopes to introduce the general models used in this sense and how they may be employed in the power sector with regards to the traditional structure of that power system.

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