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Stoft - Power System Economics(389p Designing Markets for...

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Power System Economics (389p) Designing Markets for Electricity © 2001 Steven Stoft Excerpts from Part 3 Part 1: Introduction 88 p. Part 2: Price Spikes, Reliability and Investment 110 p. Part 3: Market Architecture 78 p. 3-1 Key Questions of Market Architecture 5 p. 1 Spot Markets, Forward Markets and Settlements 2 Controversies 3 Simplified Locational Pricing 3-2 The Pure Bilateral approach 5 p. 1 No central market 2 Central Coordination without Price 3 A Pure Transmission Market 3-3 Why Have a Spot Energy Exchange 7 p. 1 A Pure Spot Market for Energy 2 Conclusions 3-4 Real-Time Pricing and Settlement 12 p. 1 The Two-Settlement System 2 Setting the Real-time Price 3 Ex-Post Prices: The Trader’s Complaint 3-5 Why Have a Day-ahead Market? 9 p. 1 When Marginal-Cost Bidding Fails 2 Reliability and Unit Commitment 3 Efficiency and Unit Commitment 4 The Congestion Problem 3-6 Day-Ahead Market Designs 13 p. 1 Defining Day-Ahead Auctions 2 Four Designs 3 The Impact of Startup Insurance 4 Transmission Bids and Virtual Bids 3-7 Multi-Part Unit Commitment? 16 p. 1 How Big is the Unit Commitment Problem? 2 Market Design #1: A Pure Energy Auction 3 Market Design #3: A Unit Commitment Auction 3-8 A Market for Operating Reserves 11 p. 1 Bid-Based Pricing. 2 Opportunity-based pricing Part 4: Market Power 56 p. Part 5: The One-Line Network 63 p.
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Stoft, Power System Economics © 2001 DRAFT: July 13, 2001 Chapter 3-1 Questions of Market Architecture M ARKET ARCHITECTURE CONCERNS THE KEY DESIGN ELEMENTS . While Part 2 abstracts from all questions of market design to focus on market structure, Part 3 considers alternative designs for the realtime market, the day-ahead forward markets and the relationship between the two. It also discusses several controversies, such as the degree of centralization, that have often plagued the design process. Design elements are considered in just enough detail to allow comparisons between the main alternative approaches. While Part 3 moves forward from real-time it does not move past the day- ahead market, and it does not consider private bilateral markets that operate beside the markets organized by the system operator (SO). It focuses only on those markets that are typically part of an ISO design. Section 1: Spot Markets, Forward Markets and Settlements. Forward markets are financial markets while the realtime (spot) market is a physical market. To the extent power sold in the day-ahead market is not provided by the seller, the seller can buy replacement power in the spot market. This is the basis of the two-settlement system that underlies one standard market design in which the SO conducts both day-ahead and spot energy markets. Section 2: Controversies. Three major controversies have beset the design of power markets. First is the conflict over how decentralized the market should be. One view holds that both day-ahead and spot markets should be bilateral energy markets, and the SO should have no dealings that involve the price of energy but instead sell (or ration) only transmission.
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