۱- Introduction

۲- Materials and methods

۳- Conclusion

References

Abstract

This paper proposes a nice electricity market design that is efficient and practical, meaningfully satisfying the wants of a market design’s stakeholders. Hence, this new design should be considered by countries that have reformed their electricity sectors or are in the process of doing so.

Introduction

The global trend of electricity market reform (Sioshansi, 2013) has resulted in wholesale markets that house independent power producers (IPPs) and load serving entities (LSEs) and retail markets that house LSEs and end-use customers (Woo et al., 2003a). Fig. 1 is a stylized model of a restructured electricity sector in which end-use customers obtain energy and services from LSEs, which include local distribution companies (LDCs) that own and operate distribution networks and retailers that do not. To serve electricity needs unmet by the resources already owned or for which they have rights, LDCs and retailers buy from wholesale markets differentiated by structure (pool vs. bilateral). Large end-users (e.g., industrial firms) may do the same in a region like the Pacific Northwest in the U.S. or the Canadian province of Ontario. These market participants may use financial contracts (e.g., electricity futures and options) to manage their electricity risk exposure (Eydeland and Wolyniec, 2003; Deng and Oren, 2006). Though not explicitly shown in Fig. 1, open transmission access enables electricity wholesale competition through active trading among market participants (Lusztig et al., 2006). Under the pool structure, an independent system operator (ISO) like those shown in Fig. 2 performs least-cost dispatch of heterogeneous generation units with diverse fuel types and heat rates, maintains real-time load-resource balances required by safe and reliable grid operation, and implements locational marginal pricing based on real-time marginal energy costs by electric node (Stoft, 2002). Under the bilateral structure, a buyer and a seller transact directly via bilateral negotiation under a regulated transmission company’s open access transmission tariff. A good case in point is the day-ahead electricity trading in the Western Interconnection of the U.S (Woo et al., 2013), made possible by the U.S. Federal Energy Regulatory Commission’s Order 888 pro forma tariff (Woo et al., 1998). Market experience in the early 1990s indicates reforms can fail, unable to deliver reliable service to meet end-use consumption at competitive prices (Woo et al., 2003a, 2006). Over two decades later, two market design problems of missing money and price manipulation persist, as exemplified by Alberta’s wholesale electricity market with an energy-only design (Brown and Olmstead, 2017). The missing money problem occurs when a wholesale electricity market cannot provide adequate investment incentives for conventional generation units, including combined cycle gas turbines (CCGTs) and combustion turbines (CTs) (Joskow, 2013). The price manipulation problem occurs when IPPs exercise their market power that can, even in the absence of a generation capacity shortage or transmission constraints, cause abnormally high wholesale market prices (Wolfram, 1999; Borenstein et al., 2002). Exacerbating the missing money problem is the price reduction (aka merit order) effect of renewable energy (RE) like wind and solar that has zero fuel cost and displaces thermal generation (Woo et al., 2016a, 2017a, 2017b, 2018; Zarnikau et al., 2019).