Market Design for Generation Adequacy: Healing Causes rather than Symptoms

Keywords JEL Classification This paper argues that electricity market reform – particularly the need for complementary mechanisms to remunerate capacity – need to be analysed in the light of the local regulatory and institutional environment. If there is a lack of investment, the priority should be to identify the roots of the problem. The lack of demand side response, short-term reliability management procedures and uncompetitive ancillary services procurement often undermine market reflective scarcity pricing and distort long-term investment incentives. The introduction of a capacity mechanism should come as an optional supplement to wholesale and ancillary markets improvements. Priority reforms should focus on encouraging demand side responsiveness and reducing scarcity price distortions introduced by balancing and congestion management through better dialog between network engineers and market operators. electricity market, generation adequacy, market design, capacity mechanis

Review of the Proposed Reserve Markets in New England

ISO New England proposes reserve markets designed to improve the existing forward reserve market and improve pricing during real-time reserve shortages. We support all of the main elements of the proposal. For example, we agree that little is gained by allowing reserve availability bids in the day-ahead market. Doing so greatly increases the complexity of the market without the prospect of more efficient pricing. Rather, offline reserves are most efficiently priced and awarded well in advance, as is done by the improved forward reserve market.Auctions; Multiple Object Auctions; Electricity Auctions

Distributed Stochastic Market Clearing with High-Penetration Wind Power

Integrating renewable energy into the modern power grid requires risk-cognizant dispatch of resources to account for the stochastic availability of renewables. Toward this goal, day-ahead stochastic market clearing with high-penetration wind energy is pursued in this paper based on the DC optimal power flow (OPF). The objective is to minimize the social cost which consists of conventional generation costs, end-user disutility, as well as a risk measure of the system re-dispatching cost. Capitalizing on the conditional value-at-risk (CVaR), the novel model is able to mitigate the potentially high risk of the recourse actions to compensate wind forecast errors. The resulting convex optimization task is tackled via a distribution-free sample average based approximation to bypass the prohibitively complex high-dimensional integration. Furthermore, to cope with possibly large-scale dispatchable loads, a fast distributed solver is developed with guaranteed convergence using the alternating direction method of multipliers (ADMM). Numerical results tested on a modified benchmark system are reported to corroborate the merits of the novel framework and proposed approaches.Comment: To appear in IEEE Transactions on Power Systems; 12 pages and 9 figure

Different Approaches to Supply Adequacy in Electricity Markets

This paper studies the electricity market design long run problem of ensuring enough generation capacity to meet future demand (resource adequacy). Reform processes worldwide have shown that it is difficult for the market alone to provide incentives to attract enough investment in capacity reserves due to technical and institutional features. We study several measures that have been proposed internationally to cope with this problem including strategic reserves, capacity payments, capacity requirements, and call options. The analytical and practical strengths and weaknesses of each approach are discussed .Supply adequacy, electricity markets

ERA: A Framework for Economic Resource Allocation for the Cloud

Cloud computing has reached significant maturity from a systems perspective, but currently deployed solutions rely on rather basic economics mechanisms that yield suboptimal allocation of the costly hardware resources. In this paper we present Economic Resource Allocation (ERA), a complete framework for scheduling and pricing cloud resources, aimed at increasing the efficiency of cloud resources usage by allocating resources according to economic principles. The ERA architecture carefully abstracts the underlying cloud infrastructure, enabling the development of scheduling and pricing algorithms independently of the concrete lower-level cloud infrastructure and independently of its concerns. Specifically, ERA is designed as a flexible layer that can sit on top of any cloud system and interfaces with both the cloud resource manager and with the users who reserve resources to run their jobs. The jobs are scheduled based on prices that are dynamically calculated according to the predicted demand. Additionally, ERA provides a key internal API to pluggable algorithmic modules that include scheduling, pricing and demand prediction. We provide a proof-of-concept software and demonstrate the effectiveness of the architecture by testing ERA over both public and private cloud systems -- Azure Batch of Microsoft and Hadoop/YARN. A broader intent of our work is to foster collaborations between economics and system communities. To that end, we have developed a simulation platform via which economics and system experts can test their algorithmic implementations

A Quantitative Analysis of Pricing Behavior In California’s Wholesale Electricity Market During Summer 2000

During the Summer of 2000, wholesale electricity prices in California were nearly 500% higher than they were during the same months in 1998 or 1999. This price explosion was unexpected and has called into question whether electricity restructuring will bring the benefits of competition promised to consumers. The purpose of this paper is to examine the factors that explain this increase in wholesale electricity prices. We simulate competitive benchmark prices for Summer of 2000 taking account of all relevant supply and demand factors --- gas prices, demand, imports from other states, and emission permit prices. We then compare the simulated competitive benchmark prices with the actual prices observed. We find that there is a large gap between our benchmark competitive prices and observed prices, suggesting that the prices observed during summer 2000 reflect, in part, the exercise of market power by suppliers. We then proceed to examine supplier behavior during high-price hours. We find evidence that suppliers withheld supply from the market that would have been profitable for price-taking firms to sell at the market price.electricity, market power, deregulation

The Supply Function Equilibrium and Its Policy Implications for Wholesale Electricity Auctions

The supply function equilibrium provides a game-theoretic model of strategic bidding in oligopolistic wholesale electricity auctions. This paper presents an intuitive account of current understanding and shows how welfare losses depend on the number of firms in the market and their asymmetry. Previous results and general recommendations for divisible-good/multi-unit auctions provides guidance on the design of the auction format; setting the reservation price; the rationing rule; and restrictions on the offer curves in wholesale electricity auctions.Wholesale Electricity Markets; Supply Function Equilibria; Competition Policy

A Swing-Contract Market Design for Flexible Service Provision in Electric Power Systems

The need for flexible service provision in electric power systems has dramatically increased due to the growing penetration of variable energy resources, as has the need to ensure fair access and compensation for this provision. A swing contract (SC) facilitates flexible service provision because it permits multiple service attributes to be offered together in bundled form with each attribute expressed as a range of possible values rather than as a single point value. This paper discusses a new SC Market Design for electric power systems that permits SCs to be offered by any dispatchable resource. An analytical optimization formulation is developed for the clearing of an SC day-ahead market that can be implemented using any standard mixed integer linear programming (MILP) solver. The practical feasibility of the optimization formulation is demonstrated by means of a numerical example

Price and Environment in Electricity Restructuring

One purpose of electricity restructuring is to create a market in which prices reflect costs to which both generators and consumers may respond efficiently. Yet in many jurisdictions, spot prices may be quite volatile, and both consumers and generators of electricity have made it clear that they do not prices that are highly volatile. This paper examines price plans that have been and might be used in restructured electricity markets assessing their ability to face consumers with efficient prices at the margin but to minimize their exposure to volatility, considering the welfare losses that may be associated with them. It notes that electricity markets are necessarily artificial and that few have managed to create price plans that seem to improve on the efficiency of pre-restructuring prices. Moreover in the California market, the operation of a separate market for air pollution emissions gave rise to emission prices far above reasonable estimates of environmental harm, further exacerbating wholesale price fluctuations in 2000. Solutions to these problems are explored.electric utilities, electricity restructuring, air pollution, spot market, price volatility, price structure, Ontario

Competition in Electricity Spot Markets: Economic Theory and International Experience

auctions, electricity markets