The economics of electricity markets /
Darryl Biggar, Mohammad Hesamzadeh.
- 1 PDF (432 pages).
- Wiley - IEEE .
- Wiley - IEEE .
Includes bibliographical references and index.
pt. I INTRODUCTION TO ECONOMIC CONCEPTS -- 1.Introduction to Micro-economics -- 1.1.Economic Objectives -- 1.2.Introduction to Constrained Optimisation -- 1.3.Demand and Consumers' Surplus -- 1.3.1.The Short-Run Decision of the Customer -- 1.3.2.The Value or Utility Function -- 1.3.3.The Demand Curve for a Price-Taking Customer Facing a Simple Price -- 1.4.Supply and Producers' Surplus -- 1.4.1.The Cost Function -- 1.4.2.The Supply Curve for a Price-Taking Firm Facing a Simple Price -- 1.5.Achieving Optimal Short-Run Outcomes Using Competitive Markets -- 1.5.1.The Short-Run Welfare Maximum -- 1.5.2.An Autonomous Market Process -- 1.6.Smart Markets -- 1.6.1.Smart Markets and Generic Constraints -- 1.6.2.A Smart Market Process -- 1.7.Longer-Run Decisions by Producers and Consumers -- 1.7.1.Investment in Productive Capacity -- 1.8.Monopoly -- 1.8.1.The Dominant Firm -- Competitive Fringe Structure -- 1.8.2.Monopoly and Price Regulation -- 1.9.Oligopoly -- 1.9.1.Cournot Oligopoly -- 1.9.2.Repeated Games -- 1.10.Summary -- Questions -- Further Reading -- pt. II INTRODUCTION TO ELECTRICITY NETWORKS AND ELECTRICITY MARKETS -- 2.Introduction to Electric Power Systems -- 2.1.DC Circuit Concepts -- 2.1.1.Energy, Watts and Power -- 2.1.2.Losses -- 2.2.AC Circuit Concepts -- 2.3.Reactive Power -- 2.3.1.Mathematics of Reactive Power -- 2.3.2.Control of Reactive Power -- 2.3.3.Ohm's Law on AC Circuits -- 2.3.4.Three-Phase Power -- 2.4.The Elements of an Electric Power System -- 2.5.Electricity Generation -- 2.5.1.The Key Characteristics of Electricity Generators -- 2.6.Electricity Transmission and Distribution Networks -- 2.6.1.Transmission Networks -- 2.6.2.Distribution Networks -- 2.6.3.Competition and Regulation -- 2.7.Physical Limits on Networks -- 2.7.1.Thermal Limits -- 2.7.2.Voltage Stability Limits -- 2.7.3.Dynamic and Transient Stability Limits -- 2.8.Electricity Consumption -- 2.9.Does it Make Sense Distinguish Electricity Producer's and Consumers? -- 2.9.1.The Service Provided by the Electric Power Industry -- 2.10.Summary -- Questions -- Further Reading -- 3.Electricity Industry Market Structure and Competition -- 3.1.Tasks Performed in an Efficient Electricity Industry -- 3.1.1.Short-Term Tasks -- 3.1.2.Risk-Management Tasks -- 3.1.3.Long-Term Tasks -- 3.2.Electricity Industry Reforms -- 3.2.1.Market-Orientated Reforms of the Late Twentieth Century -- 3.3.Approaches to Reform of the Electricity Industry -- 3.4.Other Key Roles in a Market-Orientated Electric Power System -- 3.5.An Overview of Liberalised Electricity Markets -- 3.6.An Overview of the Australian National Electricity Market -- 3.6.1.Assessment of the NEM -- 3.7.The Pros and Cons of Electricity Market Reform -- 3.8.Summary -- Questions -- Further Reading -- pt. III OPTIMAL DISPATCH: THE EFFICIENT USE OF GENERATION, CONSUMPTION AND NETWORK RESOURCES -- 4.Efficient Short-Term Operation of an Electricity Industry with no Network Constraints -- 4.1.The Cost of Generation -- 4.2.Simple Stylised Representation of a Generator -- 4.3.Optimal Dispatch of Generation with Inelastic Demand -- 4.3.1.Optimal Least Cost Dispatch of Generation Resources -- 4.3.2.Least Cost Dispatch for Generators with Constant Variable Cost -- 4.3.3.Example -- 4.4.Optimal Dispatch of Both Generation and Load Assets -- 4.5.Symmetry in the Treatment of Generation and Load -- 4.5.1.Symmetry Between Buyer-Owned Generators and Stand-Alone -- Generators -- 4.5.2.Symmetry Between Total Surplus Maximisation and Generation Cost Minimisation -- 4.6.The Benefit Function -- 4.7.Nonconvexities in Production: Minimum Operating Levels -- 4.8.Efficient Dispatch of Energy-Limited Resources -- 4.8.1.Example -- 4.9.Efficient Dispatch in the Presence of Ramp-Rate Constraints -- 4.9.1.Example -- 4.10.Startup Costs and the Unit-Commitment Decision -- 4.11.Summary -- Questions -- Further Reading -- 5.Achieving Efficient Use of Generation and Load Resources using a Market Mechanism in an Industry with no Network Constraints -- 5.1.Decentralisation, Competition and Market Mechanisms -- 5.2.Achieving Optimal Dispatch Through Competitive Bidding -- 5.3.Variation in Wholesale Market Design -- 5.3.1.Compulsory Gross Pool or Net Pool? -- 5.3.2.Single Price or Pay-as-Bid? -- 5.4.Day-Ahead Versus Real-Time Markets -- 5.4.1.Improving the Quality of Short-Term Price Forecasts -- 5.4.2.Reducing the Exercise of Market Power -- 5.5.Price Controls and Rationing -- 5.5.1.Inadequate Metering and Involuntary Load Shedding -- 5.6.Time-Varying Demand, the Load-Duration Curve and the Price-Duration Curve -- 5.7.Summary -- Questions -- Further Reading -- 6.Representing Network Constraints -- 6.1.Representing Networks Mathematically -- 6.2.Net Injections, Power Flows and the DC Load Flow Model -- 6.2.1.The DC Load Flow Model -- 6.3.The Matrix of Power Transfer Distribution Factors -- 6.3.1.Converting between Reference Nodes -- 6.4.Distribution Factors for Radial Networks -- 6.5.Constraint Equations and the Set of Feasible Injections -- 6.6.Summary -- Questions -- 7.Efficient Dispatch of Generation and Consumption Resources in the Presence of Network Congestion -- 7.1.Optimal Dispatch with Network Constraints -- 7.1.1.Achieving Optimal Dispatch Using a Smart Market -- 7.2.Optimal Dispatch in a Radial Network -- 7.3.Optimal Dispatch in a Two-Node Network -- 7.4.Optimal Dispatch in a Three-Node Meshed Network -- 7.5.Optimal Dispatch in a Four-Node Network -- 7.6.Properties of Nodal Prices with a Single Binding Constraint -- 7.7.How Many Independent Nodal Prices Exist? -- 7.8.The Merchandising Surplus, Settlement Residues and the Congestion Rents -- 7.8.1.Merchandising Surplus and Congestion Rents -- 7.8.2.Settlement Residues -- 7.8.3.Merchandising Surplus in a Three-Node Network -- 7.9.Network Losses -- 7.9.1.Losses, Settlement Residues and Merchandising Surplus -- 7.9.2.Losses and Optimal Dispatch -- 7.10.Summary -- Questions -- Further Reading -- 8.Efficient Network Operation -- 8.1.Efficient Operation of DC Interconnectors -- 8.1.1.Entrepreneurial DC Network Operation -- 8.2.Optimal Network Switching -- 8.2.1.Network Switching and Network Contingencies -- 8.2.2.A Worked Example -- 8.2.3.Entrepreneurial Network Switching? -- 8.3.Summary -- Questions -- Further Reading -- pt. IV EFFICIENT INVESTMENT IN GENERATION AND CONSUMPTION ASSETS -- 9.Efficient Investment in Generation and Consumption Assets -- 9.1.The Optimal Generation Investment Problem -- 9.2.The Optimal Level of Generation Capacity with Downward Sloping Demand -- 9.2.1.The Case of Inelastic Demand -- 9.3.The Optimal Mix of Generation Capacity with Downward Sloping Demand -- 9.4.The Optimal Mix of Generation with Inelastic Demand -- 9.5.Screening Curve Analysis -- 9.5.1.Using Screening Curves to Assess the Impact of Increased Renewable Penetration -- 9.5.2.Generation Investment in the Presence of Network Constraints -- 9.6.Buyer-Side Investment -- 9.7.Summary -- Questions -- Further Reading -- 10.Market-Based Investment in Electricity Generation -- 10.1.Decentralised Generation Investment Decisions -- 10.2.Can We Trust Competitive Markets to Deliver an Efficient Level of Investment in Generation? -- 10.2.1.Episodes of High Prices as an Essential Part of an Energy-Only Market -- 10.2.2.The �Missing Money' Problem -- 10.2.3.Energy-Only Markets and the Investment Boom--Bust Cycle -- 10.3.Price Caps, Reserve Margins and Capacity Payments -- 10.3.1.Reserve Requirements -- 10.3.2.Capacity Markets -- 10.4.Time-Averaging of Network Charges and Generation Investment -- 10.5.Summary -- Questions -- pt. V HANDLING CONTINGENCIES: EFFICIENT DISPATCH IN THE VERY SHORT RUN -- 11.Efficient Operation of the Power System in the Very Short-Run -- 11.1.Introduction to Contingencies -- 11.2.Efficient Handling of Contingencies -- 11.3.Preventive and Corrective Actions -- 11.4.Satisfactory and Secure Operating States -- 11.5.Optimal Dispatch in the Very Short Run -- 11.6.Operating the Power System Ex Ante as though Certain Contingencies have Already Happened -- 11.7.Examples of Optimal Short-Run Dispatch -- 11.7.1.A Second Example, Ignoring Network Constraints -- 11.7.2.A Further Example with Network Constraints -- 11.8.Optimal Short-Run Dispatch Using a Competitive Market -- 11.8.1.A Simple Example -- 11.8.2.Optimal Short-Run Dispatch through Prices -- 11.8.3.Investment Incentives -- 11.9.Summary -- Questions -- Further Reading -- 12.Frequency-Based Dispatch of Balancing Services -- 12.1.The Intradispatch Interval Dispatch Mechanism -- 12.2.Frequency-Based Dispatch of Balancing Services -- 12.3.Implications of Ignoring Network Constraints when Handling Contingencies -- 12.3.1.The Feasible Set of Injections with a Frequency-Based IDIDM -- 12.4.Procurement of Frequency-Based Balancing Services -- 12.4.1.The Volume of Frequency Control Balancing Services Required -- 12.4.2.Procurement of Balancing Services -- 12.4.3.Allocating the Costs of Balancing Services -- 12.5.Summary -- Questions -- Further Reading -- pt. VI MANAGING RISK -- 13.Managing Intertemporal Price Risks -- 13.1.Introduction to Forward Markets and Standard Hedge Contracts -- 13.1.1.Instruments for Managing Risk: Swaps, Caps, Collars and Floors -- 13.1.2.Swaps -- 13.1.3.Caps -- 13.1.4.Floors -- 13.1.5.Collars (and Related Instruments) -- 13.2.The Construction of a Perfect Hedge: The Theory -- 13.2.1.The Design of a Perfect Hedge -- 13.3.The Construction of a Perfect Hedge: Specific Cases -- 13.3.1.Hedging by a Generator with no Cost Uncertainty -- 13.3.2.Hedging Cost-Shifting Risks -- 13.4.Hedging by Customers -- 13.4.1.Hedging by a Customer with a Constant Utility Function -- 13.4.2.Hedging Utility-Shifting Risks -- 13.5.The Role of the Trader -- 13.5.1.Risks Facing Individual Traders -- 13.6.Intertemporal Hedging and Generation Investment -- 13.7.Summary -- Questions -- 14.Managing Interlocational Price Risk -- 14.1.The Role of the Merchandising Surplus in Facilitating Interlocational Hedging -- 14.1.1.Packaging the Merchandising Surplus in a Way that Facilitates Hedging -- 14.2.Interlocational Transmission Rights: CapFTRs -- 14.3.Interlocational Transmission Rights: Fixed-Volume FTRs -- 14.3.1.Revenue Adequacy -- 14.3.2.Are Fixed-Volume FTRs a Useful Hedging Instrument? -- 14.4.Interlocational Hedging and Transmission Investment -- 14.4.1.Infinitesimal Investment in Network Capacity -- 14.4.2.Lumpy Investment in Network Capacity -- 14.5.Summary -- Questions -- Further Reading -- pt. VII MARKET POWER -- 15.Market Power in Electricity Markets -- 15.1.An Introduction to Market Power in Electricity Markets -- 15.1.1.Definition of Market Power -- 15.1.2.Market Power in Electricity Markets -- 15.2.How Do Generators Exercise Market Power? Theory -- 15.2.1.The Price--Volume Trade-Off -- 15.2.2.The Profit-Maximising Choice of Rate of Production for a Generator with Market Power -- 15.2.3.The Profit-Maximising Offer Curve -- 15.3.How do Generators Exercise Market Power? Practice -- 15.3.1.Economic and Physical Withholding -- 15.3.2.Pricing Up and the Marginal Generator -- 15.4.The Incentive to Exercise Market Power: The Importance of the Residual Demand Curve -- 15.4.1.The Shape of the Residual Demand Curve -- 15.4.2.The Importance of Peak Versus Off-Peak for the Exercise of Market Power -- 15.4.3.Other Influences on the Shape of the Residual Demand Curve -- 15.5.The Incentive to Exercise Market Power: The Impact of the Hedge Position of a Generator -- 15.5.1.Short-Term Versus Long-Term Hedge Products and the Exercise of Market Power -- 15.5.2.Hedge Contracts and Market Power -- 15.6.The Exercise of Market Power by Loads and Vertical Integration -- 15.6.1.Vertical Integration -- 15.7.Is the Exercise of Market Power Necessary to Stimulate Generation Investment? -- 15.8.The Consequences of the Exercise of Market Power -- 15.8.1.Short-Run Efficiency Impacts of Market Power -- 15.8.2.Longer-Run Efficiency Impacts of Market Power -- 15.8.3.A Worked Example -- 15.9.Summary -- Questions -- Further Reading -- 16.Market Power and Network Congestion -- 16.1.The Exercise of Market Power by a Single Generator in a Radial Network -- 16.1.1.The Exercise of Market Power by a Single Generator in a Radial Network: The Theory -- 16.2.The Exercise of Market Power by a Single Generator in a Meshed Network -- 16.3.The Exercise of Market Power by a Portfolio of Generators -- 16.4.The Effect of Transmission Rights on Market Power -- 16.5.Summary -- Questions -- Further Reading -- 17.Detecting, Modelling and Mitigating Market Power -- 17.1.Approaches to Assessing Market Power -- 17.2.Detecting the Exercise of Market Power Through the Examination of Market Outcomes in the Past -- 17.2.1.Quantity-Withdrawal Studies -- 17.2.2.Price--Cost Margin Studies -- 17.3.Simple Indicators of Market Power -- 17.3.1.Market-Share-Based Measures and the HHI -- 17.3.2.The PSI and RSI Indicators -- 17.3.3.Variants of the PSI and RSI Indicators -- 17.3.4.Measuring the Elasticity of Residual Demand -- 17.4.Modelling of Market Power -- 17.4.1.Modelling of Market Power in Practice -- 17.4.2.Linearisation -- 17.5.Policies to Reduce Market Power -- 17.6.Summary -- Questions -- Further Reading -- pt. VIII NETWORK REGULATION AND INVESTMENT -- 18.Efficient Investment in Network Assets -- 18.1.Efficient AC Network Investment -- 18.2.Financial Implications of Network Investment -- 18.2.1.The Two-Node Graphical Representation -- 18.2.2.Financial Indicators of the Benefit of Network Expansion -- 18.3.Efficient Investment in a Radial Network -- 18.4.Efficient Investment in a Two-Node Network -- 18.4.1.Example -- 18.5.Coordination of Generation and Network Investment in Practice -- 18.6.Summary -- Questions -- Further Reading -- pt. IX CONTEMPORARY ISSUES -- 19.Regional Pricing and Its Problems -- 19.1.An Introduction to Regional Pricing -- 19.2.Regional Pricing Without Constrained-on and Constrained-off Payments -- 19.2.1.Short-Run Effects of Regional Pricing in a Simple Network -- 19.2.2.Effects of Regional Pricing on the Balance Sheet of the System Operator -- 19.2.3.Long-Run Effects of Regional Pricing on Investment -- 19.3.Regional Pricing with Constrained-on and Constrained-off Payments -- 19.4.Nodal Pricing for Generators/Regional Pricing for Consumers -- 19.4.1.Side Deals and Net Metering -- 19.5.Summary -- Questions -- Further Reading -- 20.The Smart Grid and Efficient Pricing of Distribution Networks -- 20.1.Efficient Pricing of Distribution Networks -- 20.1.1.The Smart Grid and Distribution Pricing -- 20.2.Decentralisation of the Dispatch Task -- 20.2.1.Decentralisation in Theory -- 20.3.Retail Tariff Structures and the Incentive to Misrepresent Local Production and Consumption -- 20.3.1.Incentives for Net Metering and the Effective Price -- 20.4.Incentives for Investment in Controllable Embedded Generation -- 20.4.1.Incentives for Investment in Intermittent Solar PV Embedded Generation -- 20.4.2.Retail Tariff Structures and the Death Spiral -- 20.4.3.An Illustration of the Death Spiral -- 20.5.Retail Tariff Structures -- 20.5.1.Retail Tariff Debates -- 20.6.Declining Demand for Network Services and Increasing Returns to Scale -- 20.7.Summary -- Questions.
Restricted to subscribers or individual electronic text purchasers.
"The book covers the basic modelling of electricity markets, including the impact of uncertainty, an integral part of generation investment decisions and transmission cost-benefit analysis"--
Mode of access: World Wide Web
9781118775745
10.1002/9781118775745 doi
Electric utilities. Electric power consumption. Electric power--Economic aspects.