Economics of Electricity Markets

Bridges the knowledge gap between engineering and economics in a complex and evolving deregulated electricity industry, enabling readers to understand, operate, plan and design a modern power system

With an accessible and progressive style written in straight-forward language, this book covers everything an engineer or economist needs to know to understand, operate within, plan and design an effective liberalized electricity industry, thus serving as both a useful teaching text and a valuable reference. The book focuses on principles and theory which are independent of any one market design. It outlines where the theory is not implemented in practice, perhaps due to other over-riding concerns. 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). It draws out the parallels to the Nordpool market (an important point of reference for Europe). Written from the perspective of the policy-maker, the first part provides the introductory background knowledge required. This includes an understanding of basic economics concepts such as supply and demand, monopoly, market power and marginal cost. The second part of the book asks how a set of generation, load, and transmission resources should be efficiently operated, and the third part focuses on the generation investment decision. Part 4 addresses the question of the management of risk and Part 5 discusses the question of market power. Any power system must be operated at all times in a manner which can accommodate the next potential contingency. This demands responses by generators and loads on a very short timeframe. Part 6 of the book addresses the question of dispatch in the very short run, introducing the distinction between preventive and corrective actions and why preventive actions are sometimes required. The seventh part deals with pricing issues that arise under a regionally-priced market, such as the Australian NEM. This section introduces the notion of regions and interconnectors and how to formulate constraints for the correct pricing outcomes (the issue of "constraint orientation"). Part 8 addresses the fundamental and difficult issue of efficient transmission investment, and finally Part 9 covers issues that arise in the retail market.

• Bridges the gap between engineering and economics in electricity, covering both the economics and engineering knowledge needed to accurately understand, plan and develop the electricity market

• Comprehensive coverage of all the key topics in the economics of electricity markets

• Covers the latest research and policy issues as well as description of the fundamental concepts and principles that can be applied across all markets globally

• Numerous worked examples and end-of-chapter problems

• Companion website holding solutions to problems set out in the book, also the relevant simulation (GAMS) codes

Auteur

Dr Biggar is Australia's leading expert on the
economics of wholesale electricity markets and the economics of
public utility regulation. Since 2002 he has provided economic
advice primarily to the Australian Energy Regulator and the
Australian Competition and Consumer Commission. He has also
provided advice to other government agencies including the
Australian Energy Markets Operator, the Australian Energy Markets
Commission, and the New Zealand Electricity Authority. He has
published a number of papers in academic journals in the economics
of electricity markets and the economics of public utility
regulation and regularly provides training courses in these areas
to government agencies and industry. He has a particular interest
in the assessment of market power in wholesale electricity markets
and in matters related to wholesale market design.

Dr Hesamzadeh is assistant professor in electric power
systems division of the school of electrical engineering at KTH
Royal Institute of Technology in Stockholm, Sweden. Dr Hesamzadeh
is a world leader in the modelling of market power in wholesale
electricity markets, particularly in the context of transmission
planning. His special fields of interests include Power Systems
Planning and Design, Economics of Wholesale Electricity Markets,
and Mathematical Modelling and Computing. Hesamzadeh is currently
working towards his Docent degree in Electricity Markets at KTH.

Contenu

Preface xv

Nomenclature xvii

PART I INTRODUCTION TO ECONOMIC CONCEPTS 1

1 Introduction to Micro-economics 3

1.1 Economic Objectives 3

1.2 Introduction to Constrained Optimisation 5

1.3 Demand and Consumers' Surplus 6

1.3.1 The Short-Run Decision of the Customer 7

1.3.2 The Value or Utility Function 7

1.3.3 The Demand Curve for a Price-Taking Customer Facing a Simple Price 7

1.4 Supply and Producers' Surplus 10

1.4.1 The Cost Function 11

1.4.2 The Supply Curve for a Price-Taking Firm Facing a Simple Price 11

1.5 Achieving Optimal Short-Run Outcomes Using Competitive Markets 14

1.5.1 The Short-Run Welfare Maximum 14

1.5.2 An Autonomous Market Process 15

1.6 Smart Markets 17

1.6.1 Smart Markets and Generic Constraints 17

1.6.2 A Smart Market Process 18

1.7 Longer-Run Decisions by Producers and Consumers 20

1.7.1 Investment in Productive Capacity 20

1.8 Monopoly 22

1.8.1 The Dominant Firm Competitive Fringe Structure 24

1.8.2 Monopoly and Price Regulation 25

1.9 Oligopoly 26

1.9.1 Cournot Oligopoly 27

1.9.2 Repeated Games 27

1.10 Summary 28

Questions 29

Further Reading 30

PART II INTRODUCTION TO ELECTRICITY NETWORKS AND ELECTRICITY MARKETS 31

2 Introduction to Electric Power Systems 33

2.1 DC Circuit Concepts 33

2.1.1 Energy, Watts and Power 34

2.1.2 Losses 35

2.2 AC Circuit Concepts 36

2.3 Reactive Power 38

2.3.1 Mathematics of Reactive Power 40

2.3.2 Control of Reactive Power 42

2.3.3 Ohm's Law on AC Circuits 43

2.3.4 Three-Phase Power 44

2.4 The Elements of an Electric Power System 45

2.5 Electricity Generation 46

2.5.1 The Key Characteristics of Electricity Generators 49

2.6 Electricity Transmission and Distribution Networks 52

2.6.1 Transmission Networks 54

2.6.2 Distribution Networks 57

2.6.3 Competition and Regulation 59

2.7 Physical Limits on Networks 60

2.7.1 Thermal Limits 61

2.7.2 Voltage Stability Limits 64

2.7.3 Dynamic and Transient Stability Limits 64

2.8 Electricity Consumption 66

2.9 Does it Make Sense to Distinguish Electricity Producers and Consumers? 67

2.9.1 The Service Provided by the Electric Power Industry 69

2.10 Summary 70

Questions 71

Further Reading 72

3 Electricity Industry Market Structure and Competition 73

3.1 Tasks Performed in an Efficient Electricity Industry 73

3.1.1 Short-Term Tasks 73

3.1.2 Risk-Management Tasks 75

3.1.3 Long-Term Tasks 75

3.2 Electricity Industry Reforms 76

3.2.1 Market-Orientated Reforms of the Late Twentieth Century 77

3.3 Approaches to Reform of the Electricity Industry 79

3.4 Other Key Roles in a Market-Orientated Electric Power System 81

3.5 An Overview of Liberalised Electricity Markets 82

3.6 An Overview of the Australian National Electricity Market 85

3.6.1 Assessment of the NEM 87

3.7 The Pros and Cons of Electricity Market Reform 88

3.8 Summary 89

Questions 90

Further Reading 90

PART III OPTIMAL DISPATCH: THE EFFICIENT USE OF GENERATION, CONSUMPTION AND NETWORK RESOURCES 91

4 Efficient Short-Term Operation of an Electricity Industry with no Network Constraints 93

4.1 The Cost of Generation 93

4.2 Simple Stylised Representation of a Generator 96

4.3 Optimal Dispatch of Generation with Inelastic Demand 97

4.3.1 Optimal Least Cost Dispatch of Generation Resources 98

4.3…