Electricity Spot Market Research Articles

Electricity Demand and Price Analysis in California Using Possibility Regression Model

In this paper, the authors analyze the prices of electricity spot market in California. Firstly, we discuss the relation between annual demand of electricity and the temperature in California. We identify the electricity demand is related to temperature using possibility regression analysis. Then we show the fluctuation of electricity price is influenced by the demand. In the early summer season of 1998, the relationship between temperature and electricity price in California was simple. However, in the mid summer season in 1998, the price volatility of the electricity goes on increasing. Secondly we show that the expectation (speculative buying) of the market participant which is formed by temperature fluctuation induced the price volatility. We show that the price volatility is affected by temperature fluctuation for a previous few days.

Measuring anti-correlations in the nordic electricity spot market by wavelets

We consider the Nordic electricity spot market from mid-1992 to the end of year 2000. This market is found to be well approximated by an anti-persistent self-affine (mean-reverting) walk. It is characterized by a Hurst exponent of H≃0.41 over three orders of magnitude in time ranging from days to years. We argue that in order to see such a good scaling behavior, and to locate cross-overs, it is crucial that an analyzing technique is used that decouples scales. This is in our case achieved by utilizing a (multi-scale) wavelet approach. The shortcomings of methods that do not decouple scales are illustrated by applying, to the same data set, the classic R/ S- and Fourier techniques, for which scaling regimes and/or positions of cross-overs are hard to define.

Valuation of services. Competitive industry modeling

This tutorial presents an overview of the externalities that impact the electricity spot market. The importance of this modeling is to provide proper and thorough valuation of the services offered by each industry segment. There are several alternative ways to model this multiple market interaction. Two approaches are discussed: Leontief energy model and supply chain. Their relationship to the Porter five-forces model is presented.

Managing electricity reliability risk through the futures markets

In competitive electricity markets, the vertically integrated utilities that were responsible for ensuring system reliability in their own service territories, or groups of territories, often cease to exist. Typically, the burden falls to an independent system operator (ISO) to ensure that enough ancillary services (AS) are available for safe, stable, and reliable operation of the grid, defined, in part, as compliance with officially approved engineering specifications for minimum levels of AS. In order to characterize the behavior of market participants (generators, retailers, and an ISO) in a competitive electricity market with reliability requirements, we model a spot market for electricity and forward markets for both electricity and AS. By assuming that each participant seeks to maximize its expected utility of wealth and that all markets clear, we solve for the optimal quantities of electricity and AS traded in each market by all participants, as well as the corresponding market-clearing prices. We show that forward prices for both electricity and AS depend on expectations of the spot price, statistical aspects of system demand, and production cost parameters. More important, our model captures the fact that AS are essentially call options for electricity that can potentially be used just like any other derivative to manage risk within a competitive environment. We use data from the California electricity market to test our model's viability.

The must-run dispatch auction in an electricity market

In a nodal spot market for electricity, there may be circumstances in which generators may wish to offer energy at negative prices, e.g. to avoid being shut down for a short period. Such behaviour can create some severe computational difficulties for the system dispatcher. The ‘must-run dispatch auction’ is a system used to handle such cases in New Zealand; we construct an equilibrium model for generators’ behaviour in the auction under stochastic demands. An interesting feature of the auction is that its outcome may be economically suboptimal even under very idealised assumptions of perfect competition.

A multiple-unit, multiple-period auction in the British electricity spot market

A multiple-unit, multiple-period auction in the British electricity spot market

An Agent-Based Approach to Modeling Electricity Spot Markets

In this paper an agent-based approach characterizing auction-style electricity spot market dynamics is proposed. This method captures the learning and decisionmaking of rational agents which cannot be modeled using a supply-demand equilibrium approach. Because the auctions are repeated, an agent improves its decisions through time or through adaptive learning. Furthermore, instead of elaborately searching for an optimal bidding strategy for each agent, some sensible and practical bidding strategies are assigned to the agents. This strategic behavior depends highly on information available to the agents before a bidding decision is made. The model mainly focuses on understanding the role of learning by the generators and, accordingly, on their strategic bidding behavior in the market.

A multiple-unit, multiple-period auction in the British electricity spot market

This paper examines the electricity pool in England and Wales. The approach followed in this paper builds on the auction approach of Von der Fehr and Harbord (Von der Fehr, N.H.M., Harbord, D., 1993. Spot market competition in the UK electricity industry. Econ. J. 103, 531–546), but adds realism by allowing explicitly for multiple-unit firms and multiple periods. In a formal setting, a bidding range will be derived, by characterizing the polar cases. The more interesting lower bidding rule will be characterized in detail, providing insights in the performance of the British electricity pool. Four aspects are examined more closely: (1) the mark-up; (2) the number of firms; (3) the auction frequency (bidding flexibility); and (4) load-profile competition.

Efficiency and Income Shares in High‐Demand Energy Networks: Who Receives the Congestion Rents when a Line is Constrained?

We create an experimental spot market for electricity with demand side bidding, and use experimental methods to study the efficiency of the market and the income shares of the generators, wholesale buyers and transmission line operators. Nodal and line prices are computed on the basis of short run marginal costs, energy losses in transmission, and network opportunity costs when a line is constrained. We find that a traditional, competitive model, which yields congestion rents for the transmission line owners, does not explain the observed bidding behavior; and that subtle differences in institutional rules can cause changes in market efficiency.

Bilateral contracts and the spot market for electricity: some observations on the British and the NordPool experiences

The performance of the futures and the spot market for electricity in England and Wales (EW) and in the Nordic countries have significant differences in terms of volumes traded and evolution of prices. Even though the institutional arrangements show significant differences and the data collected has important limitations we observe in EW for 1990–99 that as the coverage via bilateral contracts diminished, spot prices tended to increase, there was higher price volatility and an increasing number of plants were declared unavailable. In the NordPool, by contrast, market structure is more distributed, the bilateral contract price has tended to smooth the volatility in the spot price and a very diverse pattern behavior of prices has been observed. We interpret these observations as additional support in favor of the theoretical result by Allaz and Vila (Journal of Economic Theory 59 (1993) 1), but hint at the possibility of strategies by the firms that can diminish the welfare enhancing properties of this new bilateral market.

Designing ancillary services markets for power system security

A framework for ensuring power system security in competitive electricity markets is developed, based on a market for ancillary services. The ancillary services market is designed to integrate with a spot market for electricity, and market operation is based on a set of transparent and repeatable market rules. These rules provide the analytical basis for the algorithm that determines which ancillary service offers should be accepted to optimize system security for least overall cost. The approach is demonstrated for voltage control of a nine bus test system.

Incorporating Fuel Constraints and Electricity Spot Prices into the Stochastic Unit Commitment Problem

The electric power industry is going through deregulation. As a result, the load on the generating units of a utility is becoming increasingly unpredictable. Furthermore, electric utilities may need to buy power or sell their production to a power pool that serves as a spot market for electricity. These trading activities expose utilities to volatile electricity prices. In this paper, we present a stochastic model for the unit commitment that incorporates power trading into the picture. Our model also accounts for fuel constraints and prices that may vary with electricity prices and demand. The resulting model is a mixed-integer program that is solved using Lagrangian relaxation and Bender's decomposition. Using this solution approach, we solve problems with 729 demand scenarios on a single processor to within 0.1% of the optimal solution in less than 10 minutes. Our numerical results indicate that significant savings can be achieved when the spot market is entered into the problem and when stochastic policy is adopted instead of a deterministic one.

Optimal response of a thermal unit to an electricity spot market

This paper addresses the optimal response of a thermal unit to an electricity spot market. The objective is to maximize the unit profit from selling both energy and spinning reserve in the spot market. The paper proposes a 0/1 mixed-integer linear programming approach that allows a rigorous modeling of (i) nonconvex and nondifferentiable operating costs, (ii) exponential start-up costs, (iii) available spinning reserve taking into account ramp rate restrictions, and (iv) minimum up and down time constraints. This approach overcomes the modeling limitations of dynamic programming approaches and is computationally efficient. Results from realistic case studies are reported.

Draining the Pool: the reform of electricity trading in England and Wales

The British government has decided to abolish the “Pool”, the electricity spot market in England and Wales, and replace it with a series of bilateral markets. The government believes that the Pool has been biased against coal-fired generators, and that its price-setting rule (all generators are paid the bid of the marginal unit) has inflated the level of prices. In practice, many of the perceived problems in the Pool are the result of market power, not the basic design of the Pool, which is capable of sending the right price signals to generators. Efficient bilateral markets could well produce similar results. Prices could rise, however, if buyers are more risk-averse, and less good at trading, than sellers.

Measuring Duopoly Power in the British Electricity Spot Market

This article presents an empirical study of market power in the British electricity industry. Estimates of price-cost markups are derived using direct measures of marginal cost and several approaches that do not rely on cost data. Since two suppliers facing inelastic demand dominate the industry, most oligopoly models predict prices substantially above marginal costs. All estimates indicate that prices, while higher than marginal costs, are not nearly as high as most theoretical models predict. Regulatory constraints, the threat of entry, and financial contracts between the suppliers and their customers are considered as possible explanations for the observed price levels. (JEL L13, L94)

Imperfect competition: modeling and analysis of oligopoly electricity markets

The aim of this letter is to provide an analysis of oligopoly electricity markets, such as the British electricity spot market. A model is developed under certain assumptions, first to describe the behavior of such a type of market. The main objective is to reveal how the behavior of suppliers affects each other's profit-maximization. The effectiveness of the proposed methodology is demonstrated on a test electricity industry that contains three different suppliers.

Competition, Contracts, and Entry in the Electricity Spot Market

The supply function model of the English electricity spot market is extended to include a contract market and contestable entry, both of which have dramatic effects on the determination of equilibrium. I present an analytically tractable model that can be solved with contracts, variable numbers of competitors, and capacity constraints. In the case of constant marginal costs and linear demand, two outcomes are possible: if new plant is the same as existing plant and incumbents have insufficient capacity, entry will occur, but if new plant has lower variable costs then incumbents can invest to deter entry.

Charting a new course in California [electricity market restructuring

The California Public Utilities Commission issued a decision in December 1995 that made it official: the investor-owned electric utility industry in California will be restructured to allow for wholesale and retail competition beginning in 1998. Under the plan, an independent system operator will operate, as a single control area, the transmission systems that at present are owned and operated by the three largest investor-owned utilities in the state. The independent system operator will be responsible for ensuring that schedules for use of the transmission system are feasible, operating the transmission system in real time, and settling financially with parties who use the transmission system. It will guarantee open access to the transmission grid, so that no particular group of market participants is favored, wholesale or retail. While wholesale open access is required under Federal law, retail open access is new. A separate power exchange will serve as a daily spot market for electricity with publicly posted prices. That is, an auction will be held daily in which bids will be taken for each hour of the next operating day. The state's plan for competitive power markets is expected to to better serve customers.

Increasing Competition in the British Electricity Spot Market

This paper models the effect of three policies that could increase the amount of competition in the electricity spot market in England and Wales. It uses a linear supply function model with asymmetric firms. The paper finds that the regulator's chosen policy, partial divestiture, should lead to a substantial reduction in deadweight losses. Splitting up the dominant firms would have more effect but is unlikely to be politically feasible, while encouraging competitive entry 'in advance of need' would tend to reduce welfare. Copyright 1996 by Blackwell Publishing Ltd.

Competition in the British Electricity Spot Market

Most of the British electricity supply industry has been privatized. Two dominant generators supply bulk electricity to an unregulated "pool." They submit a supply schedule of prices for generation and receive the market-clearing price, which varies with demand. Despite claims that this should be highly competitive, we show that the Nash equilibrium in supply schedules implies a high markup on marginal cost and substantial deadweight losses. Further simulations, to show the effect of entry by 1994, produce somewhat lower prices, at the cost of excessive entry; subdividing the generators into five firms would produce better results.