Reliability and Competitive Electricity Markets

By P. Joskow, Jean Tirole. 2007

521 citations recorded by the source corpus.

Despite all of the talk about “deregulation” of the electricity sector, a large number of non-market mechanisms have been imposed on emerging competitive wholesale and retail markets. These mechanisms include spot market price caps, operating reserve requirements, non-price rationing protocols, and administrative protocols for managing system emergencies. Many of these mechanisms have been carried over from the old regime of regulated monopoly and continue to be justified as necessary responses to market imperfections of various kinds and engineering requirements dictated by the special physical attributes of electric power networks. This paper seeks to bridge the gap between economists focused on designing competitive market mechanisms and engineers focused on the physical attributes and engineering requirements they perceive as being needed for operating a reliable electric power system. The paper starts by deriving the optimal prices and investment program when there are price-insensitive retail consumers, and their load serving entities can choose any level of rationing they prefer contingent on real time prices. It then examines the assumptions required for a competitive wholesale and retail market to achieve this optimal price and investment program. The paper analyses the implications of relaxing several of these assumptions. First, it analyzes the interrelationships between regulator-imposed price caps, capacity obligations, and system operator procurement, dispatch and compensation arrangements. It goes on to explore the implications of potential network collapses, the concomitant need for operating reserve requirements and whether market prices will provide incentives for investments consistent with these reserve requirements.

Subfields: Electrical and Electronic Engineering

View Paper: https://www.semanticscholar.org/paper/88cc9693c7254fde491c53e79ac789e059d5497d

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In Electrical and Electronic Engineering

Citations in the corpus

Lessons Learned From Electricity Market Liberalization (2008, background): “Thus, these efforts to mitigate market power in the short run may create adverse generation investment incentives in the long run (Joskow and Tirole 2007), a subject to which I shall return presently.”
Markets for Power in the United States: An Interim Assessment (2006, unknown): “…of the regulatory, system operation and market imperfections that seem systematically to lead organized wholesale energy markets to produce inadequate incentives for new investment in generation consistent with prevailing engineering reliability criteria (Joskow (2005a), Joskow and Tirole (2005b)).”
Retail Electricity Competition (2004, unknown): “In this subsection, we assume that (pure) retailers, but not the local grid owner, compete for load-profiled consumers and can offer two-part tariffs if they choose to do so.(8) Retailers’ settlement obligations for wholesale power costs are then based on their customers’ load-profiled consumption.”
Economics and Design of Capacity Markets for the Power Sector (2012, background): “The reason is that the price formation process under scarcity conditions, at least in markets like the US, depends critically on decisions made by the system operator (Joskow and Tirole 2007).”
A Dynamic Analysis of a Demand Curve-Based Capacity Market Proposal: The PJM Reliability Pricing Model (2007, background): “Second, bid and price caps can lower profits so that peaking capacity is unprofitable if there is sufficient capacity to meet typical adequacy standards, such as an LOLP of one day in ten years [19].”
Electricity Scarcity Pricing Through Operating Reserves (2013, background): “( Joskow & Tirole, 2007) In this analysis, both load responses and reserve levels are set to be different depending on the outcome of uncertain events.”
Market-clearing with stochastic security-part I: formulation (2005, background): “In addition, who is responsible for its specification, that is, a regulatory body or the load-serving entities, remains an open issue; see [23] and [25] for theoretical economic discussions.”
Large-Scale Integration of Deferrable Demand and Renewable Energy Sources (2014, methodology): “Sioshansi and Short [2] use this approach in the context of a unit commitment model and Borenstein and Holland [9] and Joskow and Tirole [10], [11] also use this approach for analyzing retail pricing.”
Real Time Pricing and Electricity Markets (2009, background): “…"peaker" power plants earn zero pro ts, meaning that RTP must either reduce peak electricity prices and increase Capacity Market revenues, or vice recent work on market design, including Borenstein (2002), Borenstein and Holland (2005), Joskow and Tirole (2007), Wilson (2002), and Wolak (2007).”
Intermittency and the Value of Renewable Energy (2011, unknown): “Our approach has three parts: (1) a theoretical model that is based on the work of Joskow and Tirole (2007), (2) a process to estimate and calibrate the parameters of this model using publicly available data, and (3) a computational approach to evaluate the impact of counterfactual policies and…”
Stochastic security for operations planning with significant wind power generation (2008, background): “, K only, where the vector vt represents the value of lost load [37].”
A survey on electricity market design: Insights from theory and real-world implementations of capacity remuneration mechanisms (2019, background): “, CRMs, are required to help to ensure generation adequacy efficiently (Cramton and Stoft, 2005; Joskow and Tirole, 2007).”