Electricity Markets

Barrie Murray is the author of Electricity Markets: Investment, Performance and Analysis, published by Wiley.

Preface xv

Symbols xvii

Part One A Review Of Market Structures And Mechanisms 1

Chapter 1 Introduction 3

Objectives 3

International Perspectives 4

Commercial Arrangements 7

Implications 8

The Analysis 9

Chapter 2 Alternative Market Structures 11

The Gross Pool 11

Bilateral Trading – The Net Pool 13

The Single Buyer 14

Zonal Pools 15

Mixed Generation 16

State Utility 16

Transmission Issues 17

Supply Issues 18

Stranded Assets 18

Market Comparisons 19

Chapter 3 Market Mechanisms 21

Price Setting 21

Securing Availability 22

Accommodating Transmission Constraints 23

Enabling Demand Side Participation 24

Capturing Data for Settlement 25

Calculating Payments 25

Unit Commitment 29

Conclusion 30

Chapter 4 Markets in Operation 33

Reliability 33

Competition 35

Price Trends 38

SMP V Demand 39

Investment 40

Efficiency in Operation 43

Conclusions 44

Chapter 5 Market Modelling 47

Solution Process 47

Production Modelling 51

Conclusions 55

Chapter 6 SMP Theory and Optimal Plant Mix 57

SMP Derivation 57

Derivation of Optimal Plant Mix 58

SMP Estimation 61

Conclusions 62

Chapter 7 LOLP Theory and Optimal Margin 65

Theory 65

Lolp V Margin 66

Comparison of Theory With Model And Actual 68

Lolp and Pooling 68

Optimum Investment Level 70

Conclusion 71

Chapter 8 Idealised Tariffs 73

Basic Principle 73

Ideal Price Derivation 74

Actual SMP Prices 75

Lolp and Capacity Charge 76

BST 78

Comparison of Actual PSP With BST 79

The Open Supply Market 80

Conclusions 81

Chapter 9 Review of Market Shortcomings 83

Marginal Pricing 83

Plant Mix 84

Plant Margins 85

Transmission Management 86

Consumers 86

Security of Supply 87

Conclusions 88

Chapter 10 A Medium-Term Market Based on Lagrangian Relaxation 89

The Requirements 90

The Process 91

The Theory 91

Commercial Arrangements 94

Other Improvements 95

Benefits 96

Conclusion 96

Part Two Generation Investment Appraisal 99

Chapter 11 Basic Principles 101

Classical Approach 101

Pre-Privatisation Approach 102

Post-Privatisation Approach 103

Shortcomings 105

Conclusion 105

Chapter 12 Predicting SMP and Income 107

Estimation of Income 107

Bidding Strategy 108

Generator Costs 108

Profit Forecast 109

Predicting Utilisation 110

Predicting SMP 113

Results 114

Forward Pricing 115

Conclusions 119

Chapter 13 Market Share and Appraisal Process 121

The Profit Function 121

Calculating Total Profit 122

Overview of Process 125

Modelling Uncertainty 126

Alternative Company Interaction Models 128

Comparison With Actual 130

Conclusions 130

Chapter 14 Predicting Multiple Company Interaction 133

The System Merit Order 133

Theoretical Derivation of Profit Function 134

Results 135

Changing Capacity and Demand 135

Multiple Interaction 136

Modelling Interactive Expansion 138

Risk and Option Evaluation 139

Conclusions 140

Part Three Transmission Investment Appraisal 143

Chapter 15 Review of International Structures 145

The Regulated Monopoly 145

Objectives of a Market Structure 146

International Practice 146

Discussion 151

Chapter 16 Cost Apportionment And Benefit 153

Cost Apportionment of Existing System 155

The Benefit Function 155

Assessment of Global Benefit 157

New Investment Types 160

Conclusions 161

Chapter 17 Interconnection Evaluation 163

Income and Costs 164

Effect of Interconnection 164

The Optimal Wheel 165

Example 166

Transmission Profit 168

System Wheeling 169

Consumer Reaction 170

Discussion 171

Chapter 18 Managing Constraints 173

Constraint Costs 174

Post-Market Settlement – Uplift Definition 175

Commercial Arrangements 176

Transaction Model 177

Theoretical Formulation 178

Modelling In Operation 180

Conclusion 182

Chapter 19 Optimal Investment and Outage Planning 183

Modelling 184

Loading Programme 184

The Cost Function 185

Derivation of Optimal Outage Pattern 186

Example 187

Full-Year Assessment 188

Investment Evaluation 189

Commercial Arrangements 190

Conclusion 191

Part Four The Impact On Utility Operations 193

Chapter 20 Impact on System Operation 195

Keeping The Lights On 196

Facilitating The Market 199

The Independent System Operator 201

Conclusions 202

Chapter 21 Impact on System Development 203

Generation Planning 203

Transmission 205

Distribution Planning 207

Conclusions 208

Chapter 22 The Commercial Infrastructure 209

Generation 210

Transmission 211

Distribution 212

Supplier Income 212

Licenced/Unlicenced 213

Culture 213

Take-Overs and Mergers 213

Conclusion 214

Chapter 23 The IT/Communications Infrastructure 215

Background 215

New Requirements 216

Design Considerations 217

Structure 217

Station Links 219

Conclusions 219

Part Five The Changing Market For Facility Providers 221

Chapter 24 New Businesses and Drivers 223

New Interfaces and Drivers 224

New Needs 224

Supplier Response 225

Future 226

Chapter 25 Primary Plant for Generation, Transmission and Distribution 229

Actual Developments 230

Projected Market Needs 233

Conclusions 237

Chapter 26 IT Metering And Telecommunications 239

Metering Systems 240

Commercial Data Handling Systems 242

Settlement Systems 242

Asset Management Systems 243

Operational Systems 244

Conclusions 245

Part Six The Market And The Future 247

Chapter 27 The Role And Effect Of Regulation 249

International Practice 250

Experience 251

Impact on Generation And Transmission 252

The Nuclear Position 252

Gas Electricity Arbitrage 253

Impact on Investment 254

Chapter 28 Conclusions 255

The Market 255

Generation Investment Appraisal 256

Transmission Investment Appraisal 258

The Impact on Utility Operations 259

The Changing Market for Facility Providers 260

Chapter 29 The Future 261

Are Markets Delivering Benefit? 261

The Economic Theory 262

Alternative Structures 263

Alternative Working Arrangements 264

The Way Forward 265

Further Developments 266

Conclusion 266

Select Bibliography 267

Glossary 271

Index 273