General Resources on the
Restructuring of Electric Power Systems
Table of Contents
-
Site Disclaimer:
-
Unfortunately, links to many excellent electric power system resources originally posted here are now broken and had to be removed. Below are annotated pointers to remaining still-available online resources (plus journal-published materials) that visitors might find useful for their work or of historical interest.
Introduction
Since the mid-1990s the U.S. electric power industry has undergone substantial changes in both its structure (ownership and technology aspects) and its architecture (operational and oversight aspects).
The industry has shifted away from highly regulated markets with administered cost-based pricing and towards competitive markets in which prices more fully reflect supply and demand forces.
The intended purpose of these changes has been to give U.S. electric power industry participants more incentive to control costs and to engage in innovative product development.
These efforts have resulted in the formation of seven grid-supported wholesale electric power markets, centrally-managed by Independent System Operators (ISOs) and Regional Transmission Organizations (RTOs).
The primary goal of this resource site, since its launch in 1999, has been to encourage researchers to tackle the restructuring of the U.S. electric power industry from a multi-disciplinary perspective that considers both economic and engineering concerns.
The U.S. electric power industry is now facing a major new challenge that dramatically increases the need for this multi-disciplinary perspective.
In response to both private economic incentives and public policy initiatives, the industry is transitioning from its traditional heavy reliance on fossil-fuel based power to an increased reliance on renewable power -- e.g., wind and photovoltaic (PV) solar power.
This transition is resulting in more uncertain and volatile
grid net load, i.e., customer power withdrawals and inadvertent power losses minus non-dispatched power injections by renewable power facilities not fully firmed by storage. In consequence, it is becoming harder for central managers to ensure the advance availability of dispatchable power resources with sufficient flexibility in their power-production capabilities to permit the continual real-time balancing of grid net load by means of centrally-dispatched
power injections, a basic requirement for reliable grid operation.
This major new challenge is explained and analyzed with care in the following linked materials:
-
The Integrated Transmission and Distribution (ITD)
Project: ISU Homepage
-
Leigh Tesfatsion (2023), "Locational Marginal Pricing: When and Why Not?"
(WP,pdf),
Economics Working Paper No. 23003 (13pp), ISU Digital Repository, Iowa State University, Ames, Iowa.
-
Leigh Tesfatsion (2023), "Economics of Grid-Supported Electric Power Markets: A Fundamental Reconsideration"
(WP,pdf),
(HandOutKeyPoints,pdf),
(SlideSetShort,pdf),
(YouTube FERC talk, 6/28/2023, Day 2, 7:34:00)
Research on possible resolutions to this major new challenge is now so extensive that no one resource site can do justice to the literature. However, it is hoped that the annotated linked/cited resources provided below will be of some use to those who wish to understand the motivation, ideas, and initiatives that have led the U.S. electric power industry to its current form and that continue to drive efforts for its further change.
Online Resource Sites
- The
Energy Information Administration (EIA)
publishes
Annual Energy Outlook Reports
that present projections and analysis of US energy supply, demand, and prices using an approximately twenty year planning horizon.
- The
International Association for Energy Economics (IAEE),
founded in 1977, provides a forum for the exchange of ideas, experience, and
issues among professionals interested in energy economics. As part of its
varied activities, the IAEE sponsors the publication of The Energy
Journal.
- The
International Energy Agency (IEA)
provides a wide variety of links to news items, journal articles, and other types of publications focusing on the current state of energy resources worldwide.
-
The IEA also annually releases influential
World Energy Outlook Reports.
Each report presents up-to-date international energy projections for the next several decades, together with insights into what these projections imply for energy security, climate change, economic development, and universal access to modern energy services.
-
Resources for the Future (RFF)
provides pointers to a wide variety of research articles and working papers
on electricity restructuring by RFF researchers. Issues addressed include
environmental protection, stranded costs, demand-side management, externality
estimates, and political economy aspects.
Historical Background Materials
- EE/Econ 458 (Iowa State University), an introductory course on
Economic Systems for Electric Power Planning,
last team-taught by Leigh Tesfatsion (with Jim McCalley) in 2011. The principal required text for the course was the first edition of D. Kirschen and G. Strbac, Fundamentals of Power System Economics; see below for book details.
-
FERC,
"Report to Congress on Competition in the Wholesale and Retail Markets for Electric Energy
(pdf,961KB),
U.S. Federal Energy Regulatory Commission, Released June 5, 2006. See, also, the
comment
on this report released on 6/26/06 by Lynne Kiesling and Michael Giberson (Mercatus Center, George Mason University).
- Abstract: This FERC report (required by Section 1815 of the Energy Policy Act of 2005) and accompanying commentary summarizes economic, political, and physical feasibility issues surrounding early attempts to restructure the U.S. electric power industry to achieve increased wholesale and retail competition.
-
Fernando L. Alvarado, "Controlling Power Systems with Price Signals"
(pdf,469KB),
Decision Support Systems 40(3), 2005, 495–504.
- Richard J. Arnott,
William Vickrey: Contributions to Public Policy
(pdf,61KB),
Springer Volume 5(1), February 1998, 93-113.
-
Timothy J. Brennan, Karen L. Palmer, and Salvador A. Martinez,
Alternating Currents: Electricity Markets and Public Policy, Resources for the Future, Washington, D.C., 2002
226pp.
- Abstract:
The authors provide an overview and analysis of the concerns facing
industry regulators, legislators, and others as they consider whether, when,
and how to open electricity markets to increased competition.
- Derek W. Bunn, Ed., Modeling Prices in Competitive Electricity Markets,
John Wiley & Sons, Ltd, UK, 2004.
- Abstract:
This compilation of chapters from international authors provides econometric
analyses of whole power markets around the world. The goal is to provide greater understanding
of their particular characteristics and to assess the applicability of various methods
of price modeling.
- Michael S. Caramanis, Roger E. Bohn, and Fred C. Schweppe, Optimal Spot Pricing: Practice and Theory
(pdf,4MB),
IEEE Transactions on Power Apparatus and Systems PAS-101(No. 9), 1982, 3234-3245.
- Abstract:
This seminal paper presents an electricity pricing concept, referred to as "spot pricing", which eventually resulted in the implementation of locational marginal pricing (LMP) in various electric energy regions in the U.S. and elsewhere.
- Jack Casazza and Frank Delea, Understanding Electric Power Systems: An Overview of the Technology and the Marketplace, IEEE Press/Wiley-Interscience, Piscataway, NJ, 2003.
- Abstract: "(This book) bridges the gap between technology, government policy, economics and finance, business arrangements, and the Internet - helping the reader to understand the interrelationship of the many aspects of the provision of electric power supply. ... For engineers, policymakers, and students alike, (this book) provides a high-level overview of how electric power is generated, transmitted, and controlled in the United States."
-
William W. Hogan,
"Market Design and Electricity Restructuring"
(pdf,209KB),
Presentation to the Association of Power Exchanges (APEx), 2005 Annual Conference, Orlando, Florida, November 1, 2005.
- Abstract: The author reviews the tortured history of electricity restructuring in the U.S. and outlines the requirements for SMD ("Successful Market Design").
-
Sally Hunt,
Making Competition Work in Electricity,
Finance Series, John Wiley, 2002, 464pp.
- Sally Hunt and Graham Shuttleworth, Competition and Choice in Electricity, John Wiley and Sons, Chichester, UK, 1996.
- Frank Huntowski, Neil Fisher, and Aaron Patterson, Embrace Electric Competition or it's Déjà Vu All Over Again
(pdf,586KB),
The Northbridge Group, October 2008.
- Abstract: The authors provide a comprehensive extensively-documented evaluation of electricity market restructuring from the 1970s through 2008. They conclude that, despite many challenges and remaining problems, the case for competition is still compelling, supported both by economic theory and an examination of empirical evidence.
-
Paul Joskow,
"Markets for Power in the United States: An Interim Assessment"
(pdf,5.4MB),
The Energy Journal,
Volume 27, Number 1, 2006, 1-36.
- Abstract: "The transition to competitive wholesale and retail markets for electricity in the U.S. has been a difficult and contentious process. This paper examines the progress that has been made in the evolution of wholesale and retail electricity market institutions. Various indicia of the performance of these market institutions are presented and discussed. Significant progress has been made on the wholesale competition front but major challenges must still be confronted. The framework for supporting retail competition has been less successful, especially for small customers. Empirical evidence suggests that well-designed competitive market reforms have led to performance improvements in a number of dimensions and benefited customers through lower retail prices.
-
Daniel S. Kirschen and Goran Strbac (2004), Fundamentals of Power System Economics, Wiley, 2004, 284pp.
ISBN: 0-470-84572-4.
- Abstract:
Topics include: basic concepts from economics; markets for electrical
energy; participating in markets for electrical energy; system security and
ancillary services; transmission networks and electricity markets; investing
in generation; and investing in transmission. This book is aimed at
first-year graduate students and final-year undergraduate students
specializing in power engineering. It includes problems and selected problem
answers. The authors are both faculty members at the University of
Manchester Institute of Science and Technology (UMIST), Manchester, UK.
- Andrew N. Kleit (Ed.), Electric Choices: Deregulation and the Future of Electric Power, Rowman & Littlefield Publishers, Inc., New York, 2007.
- Abstract: "The virtues of market forces can play a large role in bringing about a more efficient electricity sector. But electricity restructuring requires careful policy choices. The chapters in this volume lay out various means for reaching more competitive and better-operating electricity markets."
- Fred C. Schweppe, Michael C. Caramanis, Richard D. Tabors, and Roger E. Bohn, Spot Pricing of Electricity, Kluwer Academic Publishers, First Edition 1988, Second Edition 1995, 355pp.
-
Fred C. Schweppe, Bahman Daryanian, and Richard D. Tabors,
Algorithms for a Spot Price Responding Residential Load Controller
(pdf,2.4MB),
IEEE Transactions on Power Systems 4(2), May 1980, 507-516.
-
Fred C. Schweppe, Richard D. Tabors, James L. Kirtley, Jr., Hugh R. Outhred, Frederick H. Pickel, Alan J. Cox, Homeostatic Utility Control
(pdf,4.5MB),
IEEE Transactions on Power Apparatus and Systems, Vol. PAS-99, 3 May/June, 1980.
- Abstract: "A concept called `Homeostatic Utility Control' is proposed for maintaining an internal equilibrium between supply and demand. Equilibrating forces are obtained over longer time scales (5 minutes and up) by economic principles through an Energy Marketplace using time-varying spot prices. Faster supply-demand balancing is obtained by employing `governor-type' action on certain types of loads using a `Frequency Adaptive Power Energy Rescheduler (FAPER)' to assist or even replace conventional turbine-governed systems and spinning reserve."
- Mohammad Shahidehpour, Hatim Yamin, and Zuyi Li, Market Operations in Electric
Power Systems: Forecasting, Scheduling and Risk Management, IEEE Inc., New York, and
John Wiley & Sons, Inc., New York, 2002.
- Abstract: Using real-world case studies, this survey offers engineers, consultants, researchers,
financial managers, university professors, students, and other professionals in the industry a
comprehensive review of electricity restructuring and how its radical effects will shape the market.
-
Steven Stoft, Power System Economics: Designing Markets for
Electricity, IEEE Press, Wiley-Interscience, 2002.
-
Abstract:
The author provides an introduction to the fundamental economics
of market power design and analysis.
- William Vickrey (1992), Principles of Efficient Congestion Pricing
(html),
Columbia University Notes, Available from: Victoria Transport Policy Institute.
-
Robert Wilson, "Architecture of Power Markets"
(pdf preprint,75KB),
Econometrica, Volume 70, No. 4 (July, 2002), 1299-1340.
- Abstract: Liberalization of infrastructure industries presents classic economic issues about how organization and procedure affect market performance. These issues are examined in wholesale power markets. The perspective from game theory complements standard economic theory to examine effects on efficiency and incentives.
Electric Power System Operations
Authored Readings:
-
Fernando Alvarado
(Engineering, University of Wisconsin) is interested in a variety of issues
related to power system operation - in particular, market design, security,
interactions between markets and power systems, stability issues, ancillary
services, congestion management, market power, application of FACTS devices,
and demand management. Citations and pointers to his work can be found at
his website.
- Soren Borenstein, Understanding Competitive Pricing and Market Power
in Wholesale Electricity Markets, Working Paper PWP-067, August 1999,
Program on Workable Energy Regulation, University of California Energy Institute.
- Soren Borenstein,
The Trouble With Electricity Markets (and Some
Solutions), Working Paper PWP-081, January 2001, Program on Workable
Energy Regulation, University of California Energy Institute (UCEI).
- Timothy F. Bresnahan, "Empirical Studies of Industries with
Market Power", in Richard Schmalensee and Robert Willig, eds.,
Handbook of Industrial Organization, Vol. 2, New York: North Holland, 1989,
pp. 1010-1057.
- Derek W. Bunn and Fernando S. Oliveira, "Agent-Based Simulation: An
Application to the New Electricity Trading Arrangements of England and
Wales", IEEE Transactions on Evolutionary Computation, Vol. 5, No. 5,
October, 2001, 493-503.
- Hung-po Chao, Stephen Peck, Shmuel Oren, and Robert Wilson,
"Flow-Based Transmission Rights and Congestion Management", Electricity Journal, October 2000.
-
Nils-Henrik M. von der Fehr
(Department of Economics, University of Oslo): Regulation of utilities
(electric and other); Oligopoly and other forms of market imperfection;
Auctions; Competitive policy.
- Richard J. Gilbert and Edward P. Kahn, Eds., International
Comparisons of Electricity Regulation, Cambridge University Press,
Cambridge, UK, 1996.
- Scott M. Harvey and William Hogan,
"Market Power and Market Simulations", Working Paper, Center
for Business and Government, John F. Kennedy School of Government, Harvard
University, Cambridge, MA, July 16, 2002.
- William H. Hayt, Jr., Jack E. Kemmerly, and Steven M. Durbin, Engineering
Circuit Analysis, Sixth Edition, McGraw Hill, New York, 2002.
- Abstract:
The goal of this well-known textbook is to help readers develop a strong intuitive
understanding of linear circuit analysis through the use of many examples and expanded
explanations of important topics.
-
William Hogan,
"Transmission Market Design", Working Paper, Center for
Business and Government, John F. Kennedy School of Government, Harvard
University, Cambridge, MA, April 4, 2003.
-
William Hogan,
"Financial Transmission Right Formulations", Working Paper,
Center for Business and Government, John F. Kennedy School of Government,
Harvard University, Cambridge, MA, March 31, 2002.
-
William Hogan,
"Contract Networks for Electric Power Transmission",
Electricity Journal 9(9), 1996, pp. 42-55.
-
Abstract: The author considers ways to encourage efficient transmission pricing.
He proposes selling transmission rights at the economic value of the marginal
transmission.
Paul L. Joskow,
"The Difficult Transition to Competitive Electricity Markets in the
U.S.", May 2003, Prepared for the conference "Electricity Deregulation:
Where From Here?" at the Bush Presidential Conference Center, Texas A&M
University, April 4, 2003.
-
Paul L. Joskow and Nancy Rose, "The Effects of Economic Regulation,", Chapter
25, pp. 1449-1506 in R. Schmalensee and R. D. Willig (eds.), Handbook of
Industrial Organization, Volume II, Elsevier Science Publishers, 1989.
-
Paul L. Joskow,
"Restructuring, Competition, and Regulatory
Reform in the U.S. Electricity Sector,"
Journal of Economic Perspectives 11(3), 1997, 119-138.
- Abstract:
The first half of the paper discusses the physical attributes of
electric power networks, the industrial and regulatory structure that emerged
during the last century to govern resource allocation in the sector, the
performance attributes of the sector, and the sources of pressure for reform.
The second half of the paper discusses a number of issues that must be
confronted to create efficient competitive markets for generation services
and to reform the regulation of the residual monopoly segments to support the
efficient evolution of the competitive segments that must rely on them.
-
Paul L. Joskow and Jean Tirole,
"Transmission Rights and Market Power on
Electric Power Networks"
(pdf,284KB),
RAND Journal of Economics, Vol. 31, No. 3, 2000, 450-487.
- J. J. Laffont and Jean Tirole, A Theory of Incentives in
Procurement and Regulation, MIT Press, Cambridge, MA, 1993.
-
Abstract:
Among many other topics, the authors discuss "performance based
regulation" for governing residual monopoly services in partially
deregulated electricity markets.
- Hongyan Li, Junjie Sun, and Leigh Tesfatsion, "Dynamic LMP Response Under Alternative Price-Cap and Price-Sensitive Demand Scenarios"
(pdf,465KB),
Proceedings, IEEE Power Engineering Society General Meetings, Carnegie-Mellon University, Pittsburgh, July 20-24, 2008.
- Abstract: This study investigates the complicated nonlinear effects of demand-bid price sensitivity and supply-offer price caps on Locational Marginal Prices (LMPs) for bulk electric power when profit-seeking generators can learn over time how to strategize their supply offers. Systematic computational experiments are conducted using AMES, an open-source agent-based testbed developed by the authors. AMES models a restructured wholesale power market operating through time over an AC transmission grid subject to line constraints, generation capacity constraints, and strategic trader behaviors.
- David M. Newbery, Privatization, Restructuring, and Regulation of
Network Utilities, MIT Press, Cambridge, MA, 1999.
- James Nicolaisen, Valentin Petrov, and Leigh Tesfatsion, "Market Power
and Efficiency in a Computational Electricity Market with Discriminatory
Double-Auction Pricing"
(IEEEPreprint,pdf,367KB),
IEEE Transactions on Evolutionary
Computation, Vol. 5, No. 5, October, 2001, 504-523.
(WP,pdf,162KB),
(SlideSet,pdf,116KB).
- Abstract: This study reports experimental market
power and efficiency outcomes for a computational wholesale electricity
market operating in the short run under systematically varied concentration
and capacity conditions. The pricing of electricity is determined by means
of a clearinghouse double auction with discriminatory midpoint pricing.
Buyers and sellers use a modified Roth-Erev individual reinforcement learning
algorithm to determine their price and quantity offers in each auction round.
It is shown that high market efficiency is generally attained, and that
market microstructure is strongly predictive for the relative market power of
buyers and sellers independently of the values set for the reinforcement
learning parameters. Results are briefly compared against results from an
earlier electricity study in which buyers and sellers instead engage in
social mimicry learning via genetic algorithms.
-
Shmuel Oren, Pablo Spiller, Pravin Varaiya, and Felix Wu,
"Nodal Prices and Transmission Rights: A Critical Appraisal"
(pdf,3.6MB),
The Electricity Journal, Vol. 8, No. 3, 1995, 24-35.
- Abstract: The authors argue that the pricing of transmission services and
the compensation of transmission owners on the basis of nodal price
differences will not produce the right incentives for transmission assets or
rights in a decentralized ownership network. They assert that new methods to
deal with transmission ownership compensation and expansion are needed if the
move towards a competitive wholesale electricity market is not to be bogged
down in a regulatory quagmire.
- Stephen J. Rassenti, Vernon L. Smith, and
Bart J. Wilson,
"Using Experiments to Inform the
Privatization/Deregulation Movement in Electricity"
(pdf,236KB),
The Cato Journal 22 (3), Winter, 2002, 515-544.
- Vernon L. Smith, "Regulatory Reform in the Electric Power
Industry", Regulation 1, 1996, 33-46.
- Junjie Sun, "U.S. Financial Transmission Rights: Theory and Practice", ISU Economics Working Paper No. 05008, March 2005.
- Abstract: This paper reviews both theoretical and empirical studies of
financial transmission rights (FTRs) in the major U.S. wholesale power markets. Although the
current literature hold more negative views
about FTRs, this paper presents a simple illustrative 2-stage model to study the competitive behaviors
of electricity generators and load serving entities (LSEs) and analyzes the welfare effects of FTRs in
the restructuring U.S. wholesale power market framework. The analysis focuses on a competitive two-node
electricity network model where there is one generator and one LSE in each node with linear marginal cost
and demand function, supervised by an independent system operator (ISO). In the first-stage of modeling,
a no-rights benchmark model is developed to solve for the optimal quantity of power production and consumption
and derive the locational marginal price for each node, which serve as the building blocks to solve for the
optimal FTR hedge positions in the second-stage model. Once a stochastic parameter shock is introduced,
the second-stage model shows that the acquisition of optimal FTRs by the risk averse generators and LSEs
increases and in general strictly increases the social welfare compared with the case where there is no
FTRs available. This result provides a counterexample to the somewhat negative views about FTRs held by
other economists in the literature and provides some economic explanations to the fact that FTRs are widely
adopted as a financial hedge instrument in the major U.S. wholesale power markets.
- Junjie Sun and Leigh Tesfatsion, "An Agent-Based Computational Laboratory for Wholesale Power Market Design"
(pdf,724KB),
Proceedings, IEEE Power Engineering Systems General Meeting, Tampa, Florida, June 2007 (electronic).
- Abstract:This proceedings paper is an abridged version of ISU Economics Working Paper No. 06025 (below). It reports on the model development and open-source implementation (in Java) of an agent-based computational wholesale power market organized in accordance with core FERC-recommended design features and operating over a realistically rendered transmission grid subject to congestion effects.
- Junjie Sun and Leigh Tesfatsion, "Dynamic Testing of Wholesale Power Market Designs: An Open-Source Agent-Based Framework"
(WP,pdf,2.2MB),
(SlideSet,pdf,658KB),
Computational Economics, Vol. 30, No. 3, 2007, 291-327.
- Abstract: In April 2003 the U.S. Federal Energy Regulatory Commission proposed a complicated market design - the Wholesale Power Market Platform (WPMP) - for common adoption by all U.S. wholesale power markets. Versions of the WPMP have been implemented in New England, New York, the mid-Atlantic states, the Midwest, and the Southwest, and adopted for implementation in California. Strong opposition to the WPMP persists among some industry stakeholders, however, due largely to a perceived lack of adequate performance testing. This study reports on the model development and open-source implementation (in Java) of a computational wholesale power market organized in accordance with core WPMP features and operating over a realistically rendered transmission grid subject to congestion effects. The traders within this market model are strategic profit-seeking agents whose learning behaviors are based on data from human-subject experiments. Our key experimental focus is the complex interplay among structural conditions, market protocols, and learning behaviors in relation to short-term and longer-term market performance. Findings for a dynamic 5-node transmission grid test case are presented for concrete illustration.
- Junjie Sun and Leigh Tesfatsion, "Open-Source Software for Power Industry Research, Teaching, and Training: A DC-OPF Illustration"
(pdf,115KB),
Proceedings, IEEE Power Engineering Systems General Meeting, Tampa, Florida, June 2007 (electronic).
- Abstract: This proceedings paper is an abridged version of ISU Economics Working Paper No. 06014 (below). It reports on the development and implementation of a stand-alone open-source Java solver for DC optimal power flow (DC-OPF) problems suitable for research, teaching, and training purposes. The DC-OPF solver is shown to match or exceed the accuracy of BPMPD (a proprietary third-party QP solver highly recommended by MatPower) when tested on a public repository of small to medium-sized QP problems. The capabilities of the DC-OPF solver are illustrated for a 5-node DC-OPF test case commonly used for training purposes.
- Junjie Sun and Leigh Tesfatsion, DC Optimal Power Flow Formulation and Testing Using QuadProgJ
(pdf,519KB),
ISU Economics Working Paper No. 06014, Department of Economics, Iowa State University, Revised June 2006.
- Abstract:
Nonlinear AC Optimal Power Flow (OPF) problems are commonly approximated by linearized DC OPF problems to obtain real power solutions for restructured wholesale power markets. We first present a standard DC OPF problem, which has the numerically desirable form of a strictly convex quadratic programming (SCQP) problem when voltage angles are eliminated by substitution. We next augment this standard DC OPF problem in a physically meaningful way, still retaining an SCQP form, so that solution values for voltage angles and locational marginal prices are directly obtained along with real power injections and branch flows. We then show how this augmented DC OPF problem can be solved using QuadProgJ, an open-source Java SCQP solver newly developed by the authors that implements the well-known dual active-set SCQP algorithm by Goldfarb and Idnani (1983). To demonstrate the accuracy of QuadProgJ, comparative results are reported for a well-known suite of numerical QP test cases with up to 1500 decision variables plus constraints. Detailed QuadProgJ results are also reported for 3-node and 5-node DC OPF test cases taken from power systems texts and ISO-NE/MISO/PJM training manuals.
- Gerald L. Thompson and Sten Thore, Computational Economics, The Scientific Press, N.Y., 1992.
- Note: Chapters of Particular Interest are: Chapters 1-8:Linear and
Nonlinear Programming Applied to Market Analysis (pp. 3-119); and Chapter
18: Energy Modeling (pp. 229-238).
- Paul Twomey, Richard Green, Karsten Neuhoff, and David Newbery,
A Review of the Monitoring of Market Power: The Possible Roles of TSOs in Monitoring for Market Power Issues in
Congested Transmission Systems
(WP pdf,664KB),
(SlideSet,pdf,897KB),
Center for Energy and Environmental Policy Research, Sloan School of Management, MIT, 05-002 WP, March 2005.
- Abstract:
The paper surveys the literature and publicly available information on market
power monitoring in electricity wholesale markets. After briefly reviewing definitions,
strategies and methods of mitigating market power we examine the various methods of
detecting market power that have been employed by academics and market
monitors/regulators. These techniques include structural and behavioral indices and
analysis as well as various simulation approaches. The applications of these tools range
from spot market mitigation and congestion management through to long-term market
design assessment and merger decisions. Various market-power monitoring units already
track market behavior and produce indices. Our survey shows that these units collect a
large amount of data from various market participants and we identify the crucial role of
the transmission system operators with their access to dispatch and system information.
Easily accessible and comprehensive data supports effective market power monitoring
and facilitates market design evaluation. The discretion required for effective market
monitoring is facilitated by institutional independence.
- Jürgen Weiss,
"Market Power Issues in the Restructuring of the Electricity Industry:
An Experimental Investigation",
Harvard Business School, Harvard University, Cambridge, MA, 1997. Also available
are "Notes on J. Weiss's `Market Power Issues...'"
(html)
by L. Tesfatsion (1999).
- Abstract: The Weiss paper reports on results from a number of experiments with
industry subjects conducted over the Internet that illustrate the impact of
seller concentration, demand side bidding, transmission constraints, and two
alternative pricing rules (nodal spot pricing and uniform pricing) on the
nature of competition in a simulated market for electricity. More realistic
modeling of the technological aspects of the industry reveals important
additional incentives to exercise market power that are not seen in the
simpler modelings underlying previous electricity industry studies.
- Steven Widergren, Junjie Sun, and Leigh Tesfatsion, Market Design Test Environments
(Preprint,pdf,136KB),
Proceedings, IEEE Power and Energy Society General
Meeting, Montreal, June 2006 (electronic). Original Posting: 1/10/06.
- Abstract: Power industry restructuring continues
to evolve at multiple levels of system operations. At the bulk electricity
level, several organizations charged with regional system operation are
implementing versions of a Wholesale Power Market Platform (WPMP) in response
to U.S. Federal Energy Regulatory Commission initiatives. Recently the Energy
Policy Act of 2005 and several regional initiatives have been pressing the
integration of demand response as a resource for system operations. These
policy and regulatory pressures are driving the exploration of new market
designs at the wholesale and retail levels. The complex interplay among
structural conditions, market protocols, and learning behaviors in relation
to short-term and longer-term market performance demand a flexible computational
environment where designs can be tested and sensitivities to power system and market
rule changes can be explored. This paper discusses the use of agent-based
computational methods for the study of electricity markets at the wholesale and
retail levels, and explores distinctions in problem formulation between these levels.
- Allen J. Wood and Bruce F. Wollenberg (1996), Power Generation, Operation, and
Control, John Wiley & Sons, New York 1996.
- Abstract: This book offers a practical hands-on guide to
theoretical developments and to the application of advanced operations research methods to
realistic electric power engineering problems. The text also addresses the interaction
between human and economic factors to prepare readers to make real-world decisions that
go beyond the limits of mere technical calculations.
- Felix Wu and Pravin Varaiya,
"Coordinated Multilateral Trades for Electric Power",
Working Paper, Department of Electrical Engineering and Computer Science, UC Berkeley, April, 1997.
-
Abstract:
The authors propose an operating paradigm in which the decision
mechanisms regarding economics and reliability (security) of system operation
are separated. Economic decisions are carried out by private multilateral
trades among generators and consumers. The function of reliability is
coordinated through the power system operator who provides publicly
accessible data based upon which generators and consumers can determine
profitable trades that meet the secure transmission loading limits.
- Felix Wu, Pravin Varaiya, Pablo Spiller, and
Schmuel Oren, "Folk Theorems on Transmission Access: Proofs and Counterexamples"
(pdf,2.9MB),
Journal of Regulatory Economics Vol. 10, (1996), pp. 5-23.
-
Abstract:
Various proposals to restructure electric power
transmission systems for an open and competitive market rely on
concepts such as nodal prices, congestion revenues, transmission
rights, etc. Implicit assertions are made concerning the regulation
of transmission access, properties of economic dispatch, and the
operation of competitive power markets. In this paper the authors
formulate these "folk theorems" as explicit mathematical assertions,
prove the ones that are true, and present counterexamples to those
that are not. In particular, the authors argue that William Hogan's
concept of a contract network - a centerpiece of his recent
proposal for establishing a Poolco in the operation of a
restructured electric utility that is based on nodal pricing and
transmission capacity rights - is not compatible with the promotion
of economic efficiency.
-
Fredrik Ygge,
Market-Oriented Programming and its Application to Power Load
Management, Ph.D. Thesis, Department of Computer Science, Lund University, 1998.
- This entire thesis, plus additional work by Ygge (EnerSearch AG,
Gothenburg, Sweden) on applying the market-oriented programming approach of
Michael Wellman (see below) to power load management issues, can be accessed
at Ygge's website. Especially relevant for the project are: Chapter 2: On
the Foundations of Market-Oriented Programming (pp. 13-42); Chapter 9:
Power Load Management Principles and Benefits (pp. 131-140); and Appendix A: Glossary (pp. 191-200).
On-Line Sites Focusing on the Electric Power Industry:
- Leigh Tesfatsion (Economics, Iowa State University, Ames) maintains a
website on the
Agent-Based Computational Modeling of
Restructured Electricity Markets.
The site provides annotated links to readings, software, individual
researchers, and research groups stressing the agent-based computational
modeling of restructured electricity markets.
- An interdisciplinary research team at Iowa State University is pursuing a number of research project under the following umbrella IRW project:
Integrated Retail and Wholesale (IRW) Power System Operations with Smart-Grid Functionality.
- The
Argonne National Laboratory (ANL) Homepage
provides pointers to various types of electric power system research ongoing at ANL.
- The Pacific Northwest National Laboratory (PNNL) maintains a website focusing on
Renewable Energy.
The goal of the site is to provide ready access to information about the Federal Energy Management Program (FEMP) charted in 1973.
The FEMP works to reduce the cost and environmental impacts of the Federal government through energy efficiency and water conservation, promotion of the use of distributed and renewable energy, and improvement of utility management decisions at Federal sites. This resource website features both current news items (e.g., state-by-state restructuring status reports) and
background information.
- The U.S. Department of Energy (DOE) maintains a site on
Electricity.
- Created by U.S. electric utilities in 1973, the
Electric Power Research Institute (EPRI)
is a large research consortium linked to a global network of technical
specialists and EPRI scientists and engineers. The goal of EPRI is to
develop the science and technology to make the generation, delivery, and use
of electricity affordable, efficient, and environmentally sound. Resources
available at the site include links to a variety of EPRI-sponsored research
groups involved in electricity restructuring issues.
- The
IEEE Power and Energy Society (PES)
maintains a variety of links to resources on electric power as well as
publishing the IEEE Transactions on Power Systems, the IEEE Transactions on Smart Grid, and the IEEE Transactions on Sustainable Energy, among others.
- The University of California Energy Institute (UCEI) at UC Berkeley maintains a list of
downloadable working papers
on the electricity industry available through the Center for the Study of
Energy Markets (CSEM).
Agent-Based Computational Economics (ACE)
Authored Readings:
- Joshua M. Epstein and Robert Axtell (1996), Growing Artificial
Societies: Social Science from the Bottom Up, MIT Press/Brookings,
Cambridge, MA. A
review (pdf,28KB)
of this book by L. Tesfatsion appeared in the March 1998 issue of the
Journal of Economic Literature.
- Leigh Tesfatsion (2001), "Agent-Based Computational Economics: A Brief Guide to the Literature",
Reader's Guide to the Social Sciences, Fitzroy-Dearborn, London, UK, March 2001.
- Leigh Tesfatsion (2002), "Agent-Based Computational Economics: Growing
Economies from the Bottom Up",
Artificial Life,
Volume 8, Number 1, 55-82, published by the MIT Press
(pdf preprint,216KB).
- Abstract: This study outlines the main objectives and
defining characteristics of agent-based computational economics
(ACE), and discusses similarities and distinctions between ACE and
artificial life research. Eight ACE research areas are identified,
and a number of publications in each area are highlighted for
concrete illustration. Open questions and directions for future ACE
research are also considered. The study concludes with a discussion
of the potential benefits of the ACE approach, as well as some
potential difficulties.
ACE-Related Websites:
-
Guideline for Newcomers to Agent-Based Modeling in the Social Sciences:
This site, maintained by Robert Axelrod (U of Michigan) and Leigh Tesfatsion (Iowa State U) since 2005,
provides annotated pointers to introductory readings and demonstration software on agent-based
modeling in the social sciences, along with advice for getting started on ABM social science research.
- The
ACE Website,
maintained by Leigh Tesfatsion (Iowa State University) since 1997, provides an
extensive list of pointers to resources related to Agent-based
Computational Economics (ACE), the computational study of economic processes
modeled as dynamic systems of interacting agents. These resources include surveys, an
annotated syllabus of readings, research resource sites, software,
teaching materials, individual researchers, and research groups.
- A site focusing on the
ACE modeling of Restructured Electricity Markets,
maintained by Leigh Tesfatsion (Iowa State University) since 2001, provides annotated
links to readings, software, individual researchers, and research groups
stressing an agent-based computational approach to the study of restructured
electricity markets.
-
Annotated List of Pointers to Other ACE-Related Websites
Auction Mechanisms (Pricing Protocols)
Authored Readings:
- Dan Friedman and John Rust, eds. (1993), The Double
Auction Market: Institutions, Theories, and Evidence, Santa Fe
Institute Studies in the Sciences of Complexity, Proceedings Volume
XIV, New York: Addison-Wesley.
- D. Gode and Shyam Sunder (1993), "Allocation Efficiency of
Markets with Zero Intelligence Traders: Market as a Partial
Substitute for Individual Rationality", Journal of Political
Economy 101, pp. 119-137.
- Charles A. Holt (1995), "Industrial Organization: A Survey of
Laboratory Research", in: John H. Kagel and Alvin E. Roth,
Handbook of Experimental Economics, Princeton University Press,
Princeton, N.J., Chapter 5, pp. 349-443.
-
Abstract:
This excellent survey by a well known experimental economist provides
a careful thoughtful look at human-subject laboratory experiments focusing on
market efficiency effects of alternative auction mechanisms. The chapter is
organized around four themes: (1) monopoly regulation and potential entry;
(2) concentration and market power; (3) conditions that facilitate
cooperation; and (4) product differentiation.
- Sally Hunt and Graham Shuttleworth (1996), Competition and Choice in
Electricity, John Wiley and Sons.
- This book provides detailed descriptions of alternative pricing mechanisms (e.g., auctions) for power pools.
Paul D. Klemperer,
ed. (2000), The Economic Theory of Auctions, Edward
Elgar, Cheltenham, UK.
-
Paul D. Klemperer,
"Auction Theory: A Guide to the Literature" (book chapter, 2000),
"What Really Matters in Auction Design" (J. Econ. Perspectives, Vol.
16(1), Winter 2002, 169-189.
- R. Preston McAfee and John McMillan (June 1987), "Auctions and
Bidding", Journal of Economic Literature 25, pp. 699-738.
- K. McCabe, S. Rassenti, and V. L. Smith (1990), "Auction
Design for Composite Goods: The Natural Gas Industry", Journal
of Economic Behavior and Organization 14, pp. 127-149.
- P. R. Milgrom and R. J. Weber (September 1982), "A Theory of Auctions
and Competitive Bidding", Econometrica 50, pp. 1089-1122.
- Gerry Sheblé (1999),
Computational Auction Methods for Restructured Power Industry Operation,
Kluwer Academic Publishers, Boston.
-
Leigh Tesfatsion, "Auction Basics for Wholesale Power Markets: Objectives and Pricing Rules"
(Paper,pdf,504KB),
(SlideSet,pdf,450KB),
Proceedings, IEEE Power and Energy Society General Meeting, Calgary, Alberta, CA, July 26-30, 2009.
- Abstract: Power systems have distinctive features that greatly
complicate the development of auction designs. This study reviews
the theory and practice of auction design as it relates
specifically to U.S. restructured wholesale power markets, i.e.,
centrally-administered wholesale power markets with congestion
managed by locational marginal prices. Basic auction concepts
such as reservation value, net seller surplus, net buyer surplus,
competitive market clearing, market efficiency, market pricing
rules, supply offers, demand bids, strategic capacity withholding,
and market power are explained and illustrated. Complicating
factors specific to wholesale power markets are clarified, and
recent advances in computational tools designed to address these
complications are briefly noted.
- G. Thompson and S. Thore (1992), Computational Economics, The
Scientific Press, New York.
- Chapters of particular relevance for auctions are Chapter 1:
Transportation Problems (9-21) and Chapter 2: Discrete Auctions (23-32).
-
Michael Wellman (Electrical Engineering and Computer Science, University of Michigan). Work
by Wellman on market-oriented programming and the University of Michigan
AuctionBot can be accessed at Wellman's home page.
Robert Wilson
(Emeritus Professor, Graduate School of Business, Stanford University) is an expert in
auction theory who has designed the rules that will govern the Power
Exchange (PX), a computerized auction house where major utilities and other power producers will sell their electricity. The rules that Wilson has devised have been tested in human subject experiments by Charles Plott (Cal Tech) and found to work well.
- M. Yajima (1997), Deregulatory Reforms of the Electricity Supply
Industry, Quorum Books, Westport.
- Detailed description of alternative pricing mechanisms (e.g.,
auctions) for power pools.
Game Theory (Pricing and Trading Strategies)
Authored Readings:
- R. Axelrod (1997), The Complexity of Cooperation:
Agent-Based Models of Conflict and Cooperation, Princeton
University Press, Princeton, NJ.
- Ken Binmore and Nir Vulkan (1997), "Applying Game Theory to Automated
Negotiation"
(pdf,34KB),
DIMACS Workshop on Economics, Game Theory, and the Internet, Rutgers
University, New Brunswick, April.
- Russell W. Cooper (1999), Coordination Games: Complementarities and Macroeconomics, Cambridge University Press, Cambridge, UK.
- Robert Gibbons (1997), "An Introduction to Applicable Game
Theory", Journal of Economic Perspectives, Vol. 11, pp. 127-149.
- Herbert Gintis (2000), Game Theory Evolving: A Problem-Centered
Introduction to Modeling Strategic Interaction, Princeton University
Press, Princeton, NJ.
- Game theory viewed not as a formal science of rational behavior but as
an evolutionary tool kit for studying behavior in a broad array of social
settings.
- David Kreps (1990), Game Theory and Economic modeling,
Clarendon Press, Oxford, ISBN: 0-19-828381-4 (paperback).
-
Abstract:
This book provides the reader with basic concepts from
noncooperative game theory and explores the strengths, weaknesses, and future
of game theory as a tool of economic modeling and analysis. The author
concludes that many of the weaknesses of game theory can be addressed by a
consideration of individuals who are boundedly rational and learn imperfectly
from the past. The style of the book is largely non-technical. Simple but
intriguing examples are used to illustrate key points.
- J. Rosenschein and G. Zlotkin (1994), Rules of Encounter,
MIT Press, Cambridge, MA.
Learning and the Evolution of Behavioral Rules
Authored Readings:
- Edmund Chattoe, "Just How (Un)realistic are Evolutionary Algorithms as
Representations of Social Processes?"
(html),
Journal of Artificial Societies and Social Simulation, Volume 1,
Number 3, June 1998. (Electronic Journal)
- David Goldberg (1989), Genetic Algorithms in Search,
Optimization, and Machine Learning, Addison-Wesley, Reading, MA.
- John Holland and John Miller (1991), "Artificial Adaptive
Agents in Economic Theory," American Economic Review Papers
and Proceedings 81, 365-370.
- Melanie Mitchell and Stephanie Forrest (1994), "Genetic Algorithms and
Artificial Life", Artificial Life 1, 267-289.
Websites:
- A site on
Learning and the Embodied Mind,
maintained by Leigh Tesfatsion (Iowa State University), provides annotated
pointers to a variety of learning-related resources useful for the modeling
of autonomous adaptive agents.
Network Economics
Websites:
- A website on the
Formation of Economic And Social Networks
is maintained by Leigh Tesfatsion (Economics, Iowa State University).
The site provides annotated pointers to individual researchers, research
groups, resource sites, and books.
- A website on
Evolution of Networks: ACE Research Area
is maintained by Leigh Tesfatsion (Economics, Iowa State University).
The site provides annotated pointers to individual researchers, research
groups, resource sites, and books that might be of particular interest to
those taking an agent-based computational approach to the study of networks.
Software Resources
-
AMES Wholesale Power Market Testbed
- Abstract:
The AMES Wholesale Power Market Testbed (Java),
developed by Hongyan Li (ISU), Junjie Sun (OCC, U.S. Treasury), and Leigh Tesfatsion (ISU),
is an extensible and modular agent-based computational laboratory for
the systematic experimental study of restructured wholesale power markets.
AMES models strategic traders with learning capabilities interacting within an ISO-managed
wholesale power market operating over an AC transmission grid subject to
congestion effects. Congestion on the grid is managed by means of locational
marginal prices derived from bid/offer-based optimal power flow solutions.
AMES is a free open-source tool suitable for research, teaching, and training
applications. A graphical
user interface permits the creation, modification, analysis and storage of scenarios,
parameter initialization and editing, specification of behavioral rules (e.g.
learning methods) for market participants, and output reports through table and chart displays.
AMES is an acronym for Agent-based Modeling of Electricity Systems.
-
Open-Source Software for Electricity Market Research, Teaching, and Training
- Abstract: Many commercially available packages for power system analysis now incorporate components critical for the simulation of restructured electricity markets (e.g. optimal power flow solvers). However, lack of open-source access prevents users from gaining a complete and accurate understanding of what has been implemented, restricts the ability of users to experiment with new software features, and hinders users from tailoring software to specific needs. In addition, these packages can be cumbersome to use for research, teaching, and training purposes requiring intensive experimentation and sensitivity analyses. The goal of this resource site is to encourage the study of restructured electricity markets from a perspective that adequately addresses both economic and engineering concerns. Annotated pointers are provided to free open-source software facilitating the modeling of electricity markets as commercial networks of strategically interacting traders and regulatory agencies learning to operate through time over realistically rendered transmission grids.
Suggestions regarding additional pertinent links for this resource site are most welcome.
- Examples of proprietary software incorporating both an electricity market
simulation component and real-time dispatch with OPF calculations include:
EMCAS (Argonne); Gridview (ABB); LMPSIM (Shaw PTI);
MAPS (General Electric); Marketecture (Los Alamos National
Laboratory); PROMOD IV (NewEnergyAssociates, a Siemens Company); PROSYM (Henwood);
SEPIA (EPRI); and UPLAN (LCG). Examples of proprietary
software incorporating real-time dispatch with OPF calculations but no
electricity market simulation component include: TRACE (EPRI);
SCOPE (Nexant/PCA); Simulator (PowerWorld); PSSE/E
(PTI); and IPSA/LMP (UMIST). DOE/EIA's National Energy modeling
System (NEMS) incorporates an Electricity Market Module (EMMB) but assumes
unconstrained dispatch (no transmission costs).
- Disclaimer: This information was collected in September 2004.
Check the appropriate company or institutional websites for more current
information.
- J. D. Weber (1997), "Implementation of a Newton-Based Optimal Power Flow
into a Power System Simulation Environment," M.S. Thesis, University of
Illinois at Urbana-Champaign, Department of Electrical Engineering, January.
[The software implementation for the OPF system developed in this thesis has
been further developed by Weber and is now commercially available under the
name
PowerWorld.]
- Researchers at the
Electric Power Research Institute (EPRI)
have developed a
Simulator for Electrical Power Industry Agents (SEPIA)
designed for the Windows platform. SEPIA is a comprehensive, high-fidelity,
and scenario-free modeling and optimization tool with plug-and-play agent
architecture.
- Pointers to
Network-Related Software Tools and Computer Demos
-
Software and Toolkits for Agent-Based Computational Modeling
Case Study Resources
U.S. RESTRUCTURED WHOLESALE ELECTRIC POWER MARKETS: Homepages
CASE STUDIES: GENERAL INFORMATION SOURCES
OTHER CASE STUDY RESOURCES
Online Resources:
Early "Smart Grid" Conceptions
- Demand-side management: Concepts and methods, by Clark W. Gellings and John H. Chamberlin, Fairmont Press, 1988, 465pp.
-
Smart electricity networks based on large integration of renewable sources and distributed generation, by Manuel Sánchez Jiménez, Kassel University Press, 2007, 147pp.
-
The Smart Grid: Enabling Energy Efficiency and Demand Response, by Clark W. Gellings, The Fairmont Press, Inc., 2009, 300pp.
-
Securing the Smart Grid: Next Generation Power Grid Security, by Tony Flick and Justin Morehouse, Elsevier, 2010, 320pp.
-
Smart Power: Climate Change, the Smart Grid, and the Future of Electric Utilities, by Peter Fox-Penner, Island Press, 2010, 327pp.
-
Smart Grid Dictionary, by Christine Hertzog, GreenSpring Marketing LLC, 2010, 288pp.
-
The Smart Grid and Electric Power Transmission Energy Policies, Politics and Prices, by Caitlin G. Elsworth, Nova Science Pub Inc, 2010, 358pp.
-
Smart Grids for Dummies, by Chris Beard, John Wiley and Sons, 2010, 54pp.
-
Control and Optimization Methods for Electric Smart Grids, by Aranya Chakrabortty and Marija D. Ilic, Springer, 2011, 371pp.
-
Design of Smart Power Grid Renewable Energy Systems, by Ali Keyhani, John Wiley and Sons, 2011, 400pp.
-
Smart Energy, by Hans-gerd Servatius, Uwe Schneidewind, and Dirk Rohlfing, Springer, 2011, 550pp.
-
Smart Grid Security: An End-to-end View of Security in the New Electrical Grid, by Gilbert Sorebo and Michael Echols, CRC Press, 2011, 328pp.
-
Smart Grid - Integrating Renewable, Distributed and Efficient Energy, by Fereidoon P. Sioshansi, Academic Press, 2011, 568pp.
-
Smart Grid Applications, Communications and Security, by Lars T. Berger and Krzysztof Iniewski, John Wiley and Sons, 2012, 480pp.
-
Smart Grid: Fundamentals of Design and Analysis, by James Momoh, John Wiley and Sons, 2012, 232pp.
-
Smart Grid: Technology and Applications, by Janaka Ekanayake, Nick Jenkins, Kithsiri Liyanage, Jianzhong Wu, and Akihiko Yokoyama, John Wiley and Sons, 2012, 320pp.
-
Smart Power Grids, by Ali Keyhani and Muhammad Marwali, Springer, 2012, 685pp.
-
The Advanced Smart Grid: Edge Power Driving Sustainability, by Andres Carvallo and John Cooper, Artech House, 2nd Edition, Feb. 2015, 296pp.
Acknowledgments:
The initial development of this website in 1999 was funded in
part by the National Science Foundation under a contract titled "Decision Models for Bulk Energy Transportation Networks." Subsequent development has been funded in part by Electric Power Research Center (EPRC) research grants, by the Los Alamos National Laboratory under a consultancy agreement, and by the Electric Power Research
Institute and the Department of Defense through a contract titled "Innovative Technologies for Defense Against Catastrophic Failures of Complex Interactive Power Networks," a cooperative effort by Iowa State University, the University of Washington, Arizona State University, and Virginia Polytechnic and State University under a Joint Initiative on the Analysis of Complex Dynamical Systems.
Copyright © Leigh Tesfatsion. All Rights Reserved.
