Is there a deregulated electricity market operating in the world today?

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Description:	Meyn, S (Urbana-Champaign) Wednesday 26 May 2010, 14:30-15:00

Created:

2010-06-08 11:55

Collection:

Stochastic Processes in Communication Sciences

Publisher:

Isaac Newton Institute

Meyn, S

Language:

eng (English)

Credits:

Author:

Meyn, S


Abstract:	While markets for electric power are operational all over the world, regulation of these markets has increased significantly over the past decade. In particular, electricity markets operating in the U.S. today are subject to price caps, and severe penalties for not following the "rules of the game". Indeed, electricity markets in the U.S. are no more "deregulated" than the U.S. highway system: Drivers can drive wherever they want, and whenever they want, but their range of behavior is tightly constrained. Given the complexity of power systems, combined with the complexity and uncertainty of markets and the key role of electricity in society, I argue that similar constraints must be placed on the participants in any electric power market. However, a fuller understanding of such complexities and the use of appropriate models to represent them are mandatory to succeed in the design of the ’electricity highways’ of the future. If we can ensure that the overall system is more predictable this will facilitate the management of the power grid, and thereby enhance its reliability. In addition, a better understanding of dynamic markets will allow appropriate market designs that achieve the benefits from competition, while managing risks, and enhancing incentives. This opens important research questions. In particular, how can we create market environments that take into account these critical issues? Achieve an appropriate level of reliability in the face of significant variability of supply and demand in a market environment. The cost of reliability in terms of efficiency, and other metrics. Sufficient profits for generators so that they will remain in the game (for both the short- and long-term). Incentives for creating new energy resources, or making better use of current resources such as wind and sun.

Abstract:

While markets for electric power are operational all over the world, regulation of these markets has increased significantly over the past decade. In particular, electricity markets operating in the U.S. today are subject to price caps, and severe penalties for not following the "rules of the game". Indeed, electricity markets in the U.S. are no more "deregulated" than the U.S. highway system: Drivers can drive wherever they want, and whenever they want, but their range of behavior is tightly constrained. Given the complexity of power systems, combined with the complexity and uncertainty of markets and the key role of electricity in society, I argue that similar constraints must be placed on the participants in any electric power market. However, a fuller understanding of such complexities and the use of appropriate models to represent them are mandatory to succeed in the design of the ’electricity highways’ of the future.
If we can ensure that the overall system is more predictable this will facilitate the management of the power grid, and thereby enhance its reliability. In addition, a better understanding of dynamic markets will allow appropriate market designs that achieve the benefits from competition, while managing risks, and enhancing incentives.

This opens important research questions. In particular, how can we create market environments that take into account these critical issues?

Achieve an appropriate level of reliability in the face of significant variability of supply and demand in a market environment.

The cost of reliability in terms of efficiency, and other metrics.

Sufficient profits for generators so that they will remain in the game (for both the short- and long-term).

Incentives for creating new energy resources, or making better use of current resources such as wind and sun.

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