Competitive Electricity Markets (eBook)

Front Cover 1
Competitive Electricity Markets: Design, Implementation, Performance 4
Copyright Page 5
Table of Contents 6
Contributors 8
Foreword: Liberalization and Regulation in Electricity Systems – How can We get the Balance Right? 18
Preface: Competition and Long-Term Dimensions of Electricity Supply 36
Introduction: Electricity Market Reform – Progress and Remaining Challenges 44
PART I: Market Reform Evolution 68
Chapter 1. Reevaluation of Vertical Integration and Unbundling in Restructured Electricity Markets 70
Summary 70
1.1. Introduction 70
1.2. The Historical Motives for Vertical Integration 72
1.3. The Case Now for Liberalized Markets 78
1.4. The Unsolved Problems of Liberalized Markets 91
1.5. The Allocation of Risk Bearing in Liberalized Markets 101
1.6. Conclusions 106
Acknowledgment 106
References 107
Chapter 2. Hybrid Electricity Markets: The Problem of Explaining Different Patterns of Restructuring 108
Summary 108
2.1. Introduction 108
2.2. The Institutional Setting for Restructuring 110
2.3. Hybrid Markets and Patterns of Restructuring 120
2.4. Analysis 128
2.5. Conclusions 131
References 132
Chapter 3. Achieving Electricity Market Integration in Europe 138
Summary 138
3.1. Introduction 138
3.2. Contextual Setting 139
3.3. European Commission Initiatives 153
3.4. Removing Barriers to Market Harmonization 164
3.5. Establishing the “Western” Regional Market 175
3.6. Conclusions 178
PART II: Market Performance, Monitoring and Demand Participation 182
Chapter 4. Transmission Markets, Congestion Management, and Investment 184
Summary 184
4.1. Introduction 184
4.2. Evolution of Transmission Organizations and Structures 188
4.3. Approaches for Transmission Markets 198
4.4. Congestion Metrics 204
4.5. Financial Transmission Rights 207
4.6. Transmission Investment 212
4.7. Conclusions 219
4.8. Acknowledgment 219
References 220
Chapter 5. The Design of US Wholesale Energy and Ancillary Service Auction Markets: Theory and Practice 222
Summary 222
5.1. Introduction 223
5.2. The Development of Wholesale Energy Auction Market Designs 225
5.3. The Day-Ahead Market 237
5.4. The Reliability Unit Commitment 253
5.5. Real-Time Market 255
5.6. The Revenue Sufficiency Guarantee 263
5.7. Pricing and Settlement of Marginal Congestion and Losses 267
5.8. Market Power Monitoring and Mitigation 273
5.9. Other Topics in ISO Market Design and Implementation 276
5.10. Extensions of the Market Design 280
5.11. Conclusions 281
5A. Appendix: Mathematical Formulation of the Auction Examples 282
Acknowledgment 284
References 284
Chapter 6. The Cost of Anarchy in Self-Commitment-Based Electricity Markets 288
Summary 288
6.1. Introduction 288
6.2. Centralized versus Decentralized Markets 289
6.3. Comparison of Centrally and Self-Committed Markets 297
6.4. Conclusions 304
6A. Appendix 305
References 308
Chapter 7. Market Power and Market Monitoring 310
Summary 310
7.1. Introduction 310
7.2. Market Power in Electricity Markets 311
7.3. Market monitoring 324
7.4. Conclusions 335
Acknowledgment 335
7A. Appendix 335
References 338
Chapter 8. Demand Participation in Restructured Markets 340
Summary 340
8.1. Why Demand-Side Participation is Important in Restructured Markets 340
8.2. Barriers and Opportunities 343
8.3. Demand-Side Participation: From Traditional Utility Efforts to Restructured Markets 347
8.4. A Case Study of the ERCOT Market 355
8.5. Conclusions 364
REFERENCES 365
PART III: Capacity, Resource Adequacy and Investment 368
Chapter 9. Resource Adequacy: Alternate Perspectives and Divergent Paths 370
Summary 370
9.1. Introduction 370
9.2. Concerns Regarding Resource Adequacy 372
9.3. Evolution of Installed Capacity Markets in the US 380
9.4. Energy Market Alternatives to Capacity Mechanisms 389
9.5. Energy-Only Markets 393
9.6. Transitional Mechanism Based on Energy-Only Markets with Contracting Obligations 397
9.7. Conclusions 403
Acknowledgment 403
References 403
Chapter 10. The Evolution of PJM’s Capacity Market 406
Summary 406
10.1. Introduction 407
10.2. Emergence of a Capacity Market in PJM 409
10.3. Capacity Market Fundamentals 411
10.4. Market Evolution 415
10.5. The Performance of Markets: Net Revenue 418
10.6. The RPM Modifications to PJM Capacity Market Design 420
10.7. Conclusions 424
Bibliography 427
Chapter 11. Resource Adequacy and Efficient Infrastructure Investment 430
Summary 430
11.1. Introduction 430
11.2. Market History and Outcomes 432
11.3. Market Outcomes 439
11.4. Reliability and Capacity Reward 445
11.5. Some Key Issues and Fragilities 451
11.6. Conclusions 457
References 458
PART IV: Market Design Issues 460
Chapter 12. Promoting Electricity from Renewable Energy Sources – Lessons Learned from the EU, United States, and Japan 462
Summary 462
12.1. Introduction 462
12.2. Historical Overview 464
12.3. Promotional Strategies 466
12.4. Comparison of Strategies 481
12.5. What Works and Why? 501
12.6. Conclusions 509
Acknowledgments 509
References 509
Chapter 13. Distributed Generation and the Regulation of Electricity Networks 512
Summary 512
13.1. Introduction 512
13.2. Background on DG, Electricity Networks, and Network Regulation 513
13.3. Network Regulation and Problems of DG Integration 523
13.4. Regulatory Approaches to DG 530
13.5. Conclusions 537
References 538
Chapter 14. Global Climate Change and the Electric Power Industry 542
Summary 542
14.1. Introduction 542
14.2. Global Warming 544
14.3. The Greenhouse Effect 546
14.4. The Global Carbon Cycle 547
14.5. Climate Models and Uncertainty 549
14.6. Dealing with Uncertainty 555
14.7. Goals for Emission Reductions 557
14.8. Policies to Reduce Emissions 563
14.9. A Carbon Tax or a Carbon Market? 564
14.10. The European Emissions Trading Scheme 567
14.11. S139 and the Response of the US Electric Power Industry 572
14.12. S139 and the Near-Term Response in the Western United States and Canada 576
14.13. Conclusions 582
References 582
Chapter 15. Reform of the Reforms in Brazil: Problems and Solutions 586
Summary 586
15.1. Introduction: Reform as a Learning Process 586
15.2. The First Reform: Features, Successes, Failures 588
15.3. The Investment and Contracting Issue 593
15.4. The Second Reform: CCEE, Agents, and Contract Environments 598
15.5. Electric Power Competitive Auctions in Brazil 607
15.6. Conclusions 612
References 614
Index 616