{"product_id":"the-economics-of-electricity-markets-isbn-9781118775752","title":"The Economics of Electricity Markets","description":"\u003cb\u003eBridges the knowledge gap between engineering and economics in a complex and evolving deregulated electricity industry, enabling readers to understand, operate, plan and design a modern power system\u003c\/b\u003e \u003cp\u003eWith an accessible and progressive style written in straight-forward language, this book covers everything an engineer or economist needs to know to understand, operate within, plan and design an effective liberalized electricity industry, thus serving as both a useful teaching text and a valuable reference. The book focuses on principles and theory which are independent of any one market design. It outlines where the theory is not implemented in practice, perhaps due to other over-riding concerns. The book covers the basic modelling of electricity markets, including the impact of uncertainty (an integral part of generation investment decisions and transmission cost-benefit analysis). It draws out the parallels to the Nordpool market (an important point of reference for Europe). Written from the perspective of the policy-maker, the first part provides the introductory background knowledge required. This includes an understanding of basic economics concepts such as supply and demand, monopoly, market power and marginal cost. The second part of the book asks how a set of generation, load, and transmission resources should be efficiently operated, and the third part focuses on the generation investment decision. Part 4 addresses the question of the management of risk and Part 5 discusses the question of market power. Any power system must be operated at all times in a manner which can accommodate the next potential contingency. This demands responses by generators and loads on a very short timeframe. Part 6 of the book addresses the question of dispatch in the very short run, introducing the distinction between preventive and corrective actions and why preventive actions are sometimes required. The seventh part deals with pricing issues that arise under a regionally-priced market, such as the Australian NEM. This section introduces the notion of regions and interconnectors and how to formulate constraints for the correct pricing outcomes (the issue of \"constraint orientation\"). Part 8 addresses the fundamental and difficult issue of efficient transmission investment, and finally Part 9 covers issues that arise in the retail market.\u003c\/p\u003e \u003cul\u003e \u003cli\u003eBridges the gap between engineering and economics in electricity, covering both the economics and engineering knowledge needed to accurately understand, plan and develop the electricity market\u003c\/li\u003e \u003cli\u003eComprehensive coverage of all the key topics in the economics of electricity markets\u003c\/li\u003e \u003cli\u003eCovers the latest research and policy issues as well as description of the fundamental concepts and principles that can be applied across all markets globally\u003c\/li\u003e \u003cli\u003eNumerous worked examples and end-of-chapter problems\u003c\/li\u003e \u003cli\u003eCompanion website holding solutions to problems set out in the book, also the relevant simulation (GAMS) codes\u003c\/li\u003e \u003c\/ul\u003e  \u003cp\u003ePreface xv\u003c\/p\u003e \u003cp\u003eNomenclature xvii\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART I INTRODUCTION TO ECONOMIC CONCEPTS 1\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e1 Introduction to Micro-economics 3\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e1.1 Economic Objectives 3\u003c\/p\u003e \u003cp\u003e1.2 Introduction to Constrained Optimisation 5\u003c\/p\u003e \u003cp\u003e1.3 Demand and Consumers’ Surplus 6\u003c\/p\u003e \u003cp\u003e1.3.1 The Short-Run Decision of the Customer 7\u003c\/p\u003e \u003cp\u003e1.3.2 The Value or Utility Function 7\u003c\/p\u003e \u003cp\u003e1.3.3 The Demand Curve for a Price-Taking Customer Facing a Simple Price 7\u003c\/p\u003e \u003cp\u003e1.4 Supply and Producers’ Surplus 10\u003c\/p\u003e \u003cp\u003e1.4.1 The Cost Function 11\u003c\/p\u003e \u003cp\u003e1.4.2 The Supply Curve for a Price-Taking Firm Facing a Simple Price 11\u003c\/p\u003e \u003cp\u003e1.5 Achieving Optimal Short-Run Outcomes Using Competitive Markets 14\u003c\/p\u003e \u003cp\u003e1.5.1 The Short-Run Welfare Maximum 14\u003c\/p\u003e \u003cp\u003e1.5.2 An Autonomous Market Process 15\u003c\/p\u003e \u003cp\u003e1.6 Smart Markets 17\u003c\/p\u003e \u003cp\u003e1.6.1 Smart Markets and Generic Constraints 17\u003c\/p\u003e \u003cp\u003e1.6.2 A Smart Market Process 18\u003c\/p\u003e \u003cp\u003e1.7 Longer-Run Decisions by Producers and Consumers 20\u003c\/p\u003e \u003cp\u003e1.7.1 Investment in Productive Capacity 20\u003c\/p\u003e \u003cp\u003e1.8 Monopoly 22\u003c\/p\u003e \u003cp\u003e1.8.1 The Dominant Firm – Competitive Fringe Structure 24\u003c\/p\u003e \u003cp\u003e1.8.2 Monopoly and Price Regulation 25\u003c\/p\u003e \u003cp\u003e1.9 Oligopoly 26\u003c\/p\u003e \u003cp\u003e1.9.1 Cournot Oligopoly 27\u003c\/p\u003e \u003cp\u003e1.9.2 Repeated Games 27\u003c\/p\u003e \u003cp\u003e1.10 Summary 28\u003c\/p\u003e \u003cp\u003eQuestions 29\u003c\/p\u003e \u003cp\u003eFurther Reading 30\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART II INTRODUCTION TO ELECTRICITY NETWORKS AND ELECTRICITY MARKETS 31\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e2 Introduction to Electric Power Systems 33\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e2.1 DC Circuit Concepts 33\u003c\/p\u003e \u003cp\u003e2.1.1 Energy, Watts and Power 34\u003c\/p\u003e \u003cp\u003e2.1.2 Losses 35\u003c\/p\u003e \u003cp\u003e2.2 AC Circuit Concepts 36\u003c\/p\u003e \u003cp\u003e2.3 Reactive Power 38\u003c\/p\u003e \u003cp\u003e2.3.1 Mathematics of Reactive Power 40\u003c\/p\u003e \u003cp\u003e2.3.2 Control of Reactive Power 42\u003c\/p\u003e \u003cp\u003e2.3.3 Ohm’s Law on AC Circuits 43\u003c\/p\u003e \u003cp\u003e2.3.4 Three-Phase Power 44\u003c\/p\u003e \u003cp\u003e2.4 The Elements of an Electric Power System 45\u003c\/p\u003e \u003cp\u003e2.5 Electricity Generation 46\u003c\/p\u003e \u003cp\u003e2.5.1 The Key Characteristics of Electricity Generators 49\u003c\/p\u003e \u003cp\u003e2.6 Electricity Transmission and Distribution Networks 52\u003c\/p\u003e \u003cp\u003e2.6.1 Transmission Networks 54\u003c\/p\u003e \u003cp\u003e2.6.2 Distribution Networks 57\u003c\/p\u003e \u003cp\u003e2.6.3 Competition and Regulation 59\u003c\/p\u003e \u003cp\u003e2.7 Physical Limits on Networks 60\u003c\/p\u003e \u003cp\u003e2.7.1 Thermal Limits 61\u003c\/p\u003e \u003cp\u003e2.7.2 Voltage Stability Limits 64\u003c\/p\u003e \u003cp\u003e2.7.3 Dynamic and Transient Stability Limits 64\u003c\/p\u003e \u003cp\u003e2.8 Electricity Consumption 66\u003c\/p\u003e \u003cp\u003e2.9 Does it Make Sense to Distinguish Electricity Producers and Consumers? 67\u003c\/p\u003e \u003cp\u003e2.9.1 The Service Provided by the Electric Power Industry 69\u003c\/p\u003e \u003cp\u003e2.10 Summary 70\u003c\/p\u003e \u003cp\u003eQuestions 71\u003c\/p\u003e \u003cp\u003eFurther Reading 72\u003c\/p\u003e \u003cp\u003e\u003cb\u003e3 Electricity Industry Market Structure and Competition 73\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e3.1 Tasks Performed in an Efficient Electricity Industry 73\u003c\/p\u003e \u003cp\u003e3.1.1 Short-Term Tasks 73\u003c\/p\u003e \u003cp\u003e3.1.2 Risk-Management Tasks 75\u003c\/p\u003e \u003cp\u003e3.1.3 Long-Term Tasks 75\u003c\/p\u003e \u003cp\u003e3.2 Electricity Industry Reforms 76\u003c\/p\u003e \u003cp\u003e3.2.1 Market-Orientated Reforms of the Late Twentieth Century 77\u003c\/p\u003e \u003cp\u003e3.3 Approaches to Reform of the Electricity Industry 79\u003c\/p\u003e \u003cp\u003e3.4 Other Key Roles in a Market-Orientated Electric Power System 81\u003c\/p\u003e \u003cp\u003e3.5 An Overview of Liberalised Electricity Markets 82\u003c\/p\u003e \u003cp\u003e3.6 An Overview of the Australian National Electricity Market 85\u003c\/p\u003e \u003cp\u003e3.6.1 Assessment of the NEM 87\u003c\/p\u003e \u003cp\u003e3.7 The Pros and Cons of Electricity Market Reform 88\u003c\/p\u003e \u003cp\u003e3.8 Summary 89\u003c\/p\u003e \u003cp\u003eQuestions 90\u003c\/p\u003e \u003cp\u003eFurther Reading 90\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART III OPTIMAL DISPATCH: THE EFFICIENT USE OF GENERATION, CONSUMPTION AND NETWORK RESOURCES 91\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e4 Efficient Short-Term Operation of an Electricity Industry with no Network Constraints 93\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e4.1 The Cost of Generation 93\u003c\/p\u003e \u003cp\u003e4.2 Simple Stylised Representation of a Generator 96\u003c\/p\u003e \u003cp\u003e4.3 Optimal Dispatch of Generation with Inelastic Demand 97\u003c\/p\u003e \u003cp\u003e4.3.1 Optimal Least Cost Dispatch of Generation Resources 98\u003c\/p\u003e \u003cp\u003e4.3.2 Least Cost Dispatch for Generators with Constant Variable Cost 99\u003c\/p\u003e \u003cp\u003e4.3.3 Example 101\u003c\/p\u003e \u003cp\u003e4.4 Optimal Dispatch of Both Generation and Load Assets 102\u003c\/p\u003e \u003cp\u003e4.5 Symmetry in the Treatment of Generation and Load 104\u003c\/p\u003e \u003cp\u003e4.5.1 Symmetry Between Buyer-Owned Generators and Stand-Alone Generators 104\u003c\/p\u003e \u003cp\u003e4.5.2 Symmetry Between Total Surplus Maximisation and Generation Cost Minimisation 105\u003c\/p\u003e \u003cp\u003e4.6 The Benefit Function 105\u003c\/p\u003e \u003cp\u003e4.7 Nonconvexities in Production: Minimum Operating Levels 106\u003c\/p\u003e \u003cp\u003e4.8 Efficient Dispatch of Energy-Limited Resources 108\u003c\/p\u003e \u003cp\u003e4.8.1 Example 109\u003c\/p\u003e \u003cp\u003e4.9 Efficient Dispatch in the Presence of Ramp-Rate Constraints 110\u003c\/p\u003e \u003cp\u003e4.9.1 Example 111\u003c\/p\u003e \u003cp\u003e4.10 Startup Costs and the Unit-Commitment Decision 113\u003c\/p\u003e \u003cp\u003e4.11 Summary 115\u003c\/p\u003e \u003cp\u003eQuestions 116\u003c\/p\u003e \u003cp\u003eFurther Reading 117\u003c\/p\u003e \u003cp\u003e\u003cb\u003e5 Achieving Efficient Use of Generation and Load Resources using a Market Mechanism in an Industry with no Network Constraints 119\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e5.1 Decentralisation, Competition and Market Mechanisms 119\u003c\/p\u003e \u003cp\u003e5.2 Achieving Optimal Dispatch Through Competitive Bidding 121\u003c\/p\u003e \u003cp\u003e5.3 Variation in Wholesale Market Design 123\u003c\/p\u003e \u003cp\u003e5.3.1 Compulsory Gross Pool or Net Pool? 124\u003c\/p\u003e \u003cp\u003e5.3.2 Single Price or Pay-as-Bid? 125\u003c\/p\u003e \u003cp\u003e5.4 Day-Ahead Versus Real-Time Markets 126\u003c\/p\u003e \u003cp\u003e5.4.1 Improving the Quality of Short-Term Price Forecasts 127\u003c\/p\u003e \u003cp\u003e5.4.2 Reducing the Exercise of Market Power 129\u003c\/p\u003e \u003cp\u003e5.5 Price Controls and Rationing 129\u003c\/p\u003e \u003cp\u003e5.5.1 Inadequate Metering and Involuntary Load Shedding 131\u003c\/p\u003e \u003cp\u003e5.6 Time-Varying Demand, the Load-Duration Curve and the Price-Duration Curve 133\u003c\/p\u003e \u003cp\u003e5.7 Summary 135\u003c\/p\u003e \u003cp\u003eQuestions 137\u003c\/p\u003e \u003cp\u003eFurther Reading 137\u003c\/p\u003e \u003cp\u003e\u003cb\u003e6 Representing Network Constraints 139\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e6.1 Representing Networks Mathematically 139\u003c\/p\u003e \u003cp\u003e6.2 Net Injections, Power Flows and the DC Load Flow Model 141\u003c\/p\u003e \u003cp\u003e6.2.1 The DC Load Flow Model 144\u003c\/p\u003e \u003cp\u003e6.3 The Matrix of Power Transfer Distribution Factors 145\u003c\/p\u003e \u003cp\u003e6.3.1 Converting between Reference Nodes 146\u003c\/p\u003e \u003cp\u003e6.4 Distribution Factors for Radial Networks 146\u003c\/p\u003e \u003cp\u003e6.5 Constraint Equations and the Set of Feasible Injections 147\u003c\/p\u003e \u003cp\u003e6.6 Summary 151\u003c\/p\u003e \u003cp\u003eQuestions 152\u003c\/p\u003e \u003cp\u003e\u003cb\u003e7 Efficient Dispatch of Generation and Consumption Resources in the Presence of Network Congestion 153\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e7.1 Optimal Dispatch with Network Constraints 153\u003c\/p\u003e \u003cp\u003e7.1.1 Achieving Optimal Dispatch Using a Smart Market 155\u003c\/p\u003e \u003cp\u003e7.2 Optimal Dispatch in a Radial Network 156\u003c\/p\u003e \u003cp\u003e7.3 Optimal Dispatch in a Two-Node Network 157\u003c\/p\u003e \u003cp\u003e7.4 Optimal Dispatch in a Three-Node Meshed Network 159\u003c\/p\u003e \u003cp\u003e7.5 Optimal Dispatch in a Four-Node Network 161\u003c\/p\u003e \u003cp\u003e7.6 Properties of Nodal Prices with a Single Binding Constraint 162\u003c\/p\u003e \u003cp\u003e7.7 How Many Independent Nodal Prices Exist? 163\u003c\/p\u003e \u003cp\u003e7.8 The Merchandising Surplus, Settlement Residues and the Congestion Rents 163\u003c\/p\u003e \u003cp\u003e7.8.1 Merchandising Surplus and Congestion Rents 163\u003c\/p\u003e \u003cp\u003e7.8.2 Settlement Residues 164\u003c\/p\u003e \u003cp\u003e7.8.3 Merchandising Surplus in a Three-Node Network 165\u003c\/p\u003e \u003cp\u003e7.9 Network Losses 166\u003c\/p\u003e \u003cp\u003e7.9.1 Losses, Settlement Residues and Merchandising Surplus 167\u003c\/p\u003e \u003cp\u003e7.9.2 Losses and Optimal Dispatch 168\u003c\/p\u003e \u003cp\u003e7.10 Summary 169\u003c\/p\u003e \u003cp\u003eQuestions 170\u003c\/p\u003e \u003cp\u003eFurther Reading 170\u003c\/p\u003e \u003cp\u003e\u003cb\u003e8 Efficient Network Operation 171\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e8.1 Efficient Operation of DC Interconnectors 171\u003c\/p\u003e \u003cp\u003e8.1.1 Entrepreneurial DC Network Operation 173\u003c\/p\u003e \u003cp\u003e8.2 Optimal Network Switching 173\u003c\/p\u003e \u003cp\u003e8.2.1 Network Switching and Network Contingencies 174\u003c\/p\u003e \u003cp\u003e8.2.2 A Worked Example 174\u003c\/p\u003e \u003cp\u003e8.2.3 Entrepreneurial Network Switching? 176\u003c\/p\u003e \u003cp\u003e8.3 Summary 177\u003c\/p\u003e \u003cp\u003eQuestions 178\u003c\/p\u003e \u003cp\u003eFurther Reading 178\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART IV EFFICIENT INVESTMENT IN GENERATION AND CONSUMPTION ASSETS 179\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e9 Efficient Investment in Generation and Consumption Assets 181\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e9.1 The Optimal Generation Investment Problem 181\u003c\/p\u003e \u003cp\u003e9.2 The Optimal Level of Generation Capacity with Downward Sloping Demand 183\u003c\/p\u003e \u003cp\u003e9.2.1 The Case of Inelastic Demand 185\u003c\/p\u003e \u003cp\u003e9.3 The Optimal Mix of Generation Capacity with Downward Sloping Demand 186\u003c\/p\u003e \u003cp\u003e9.4 The Optimal Mix of Generation with Inelastic Demand 189\u003c\/p\u003e \u003cp\u003e9.5 Screening Curve Analysis 191\u003c\/p\u003e \u003cp\u003e9.5.1 Using Screening Curves to Assess the Impact of Increased Renewable Penetration 192\u003c\/p\u003e \u003cp\u003e9.5.2 Generation Investment in the Presence of Network Constraints 193\u003c\/p\u003e \u003cp\u003e9.6 Buyer-Side Investment 193\u003c\/p\u003e \u003cp\u003e9.7 Summary 195\u003c\/p\u003e \u003cp\u003eQuestions 196\u003c\/p\u003e \u003cp\u003eFurther Reading 197\u003c\/p\u003e \u003cp\u003e\u003cb\u003e10 Market-Based Investment in Electricity Generation 199\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e10.1 Decentralised Generation Investment Decisions 199\u003c\/p\u003e \u003cp\u003e10.2 Can We Trust Competitive Markets to Deliver an Efficient Level of Investment in Generation? 201\u003c\/p\u003e \u003cp\u003e10.2.1 Episodes of High Prices as an Essential Part of an Energy-Only Market 201\u003c\/p\u003e \u003cp\u003e10.2.2 The ‘Missing Money’ Problem 202\u003c\/p\u003e \u003cp\u003e10.2.3 Energy-Only Markets and the Investment Boom–Bust Cycle 203\u003c\/p\u003e \u003cp\u003e10.3 Price Caps, Reserve Margins and Capacity Payments 203\u003c\/p\u003e \u003cp\u003e10.3.1 Reserve Requirements 204\u003c\/p\u003e \u003cp\u003e10.3.2 Capacity Markets 205\u003c\/p\u003e \u003cp\u003e10.4 Time-Averaging of Network Charges and Generation Investment 206\u003c\/p\u003e \u003cp\u003e10.5 Summary 207\u003c\/p\u003e \u003cp\u003eQuestions 207\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART V HANDLING CONTINGENCIES: EFFICIENT DISPATCH IN THE VERY SHORT RUN 209\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e11 Efficient Operation of the Power System in the Very Short-Run 211\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e11.1 Introduction to Contingencies 211\u003c\/p\u003e \u003cp\u003e11.2 Efficient Handling of Contingencies 212\u003c\/p\u003e \u003cp\u003e11.3 Preventive and Corrective Actions 213\u003c\/p\u003e \u003cp\u003e11.4 Satisfactory and Secure Operating States 215\u003c\/p\u003e \u003cp\u003e11.5 Optimal Dispatch in the Very Short Run 216\u003c\/p\u003e \u003cp\u003e11.6 Operating the Power System Ex Ante as though Certain Contingencies have Already Happened 218\u003c\/p\u003e \u003cp\u003e11.7 Examples of Optimal Short-Run Dispatch 219\u003c\/p\u003e \u003cp\u003e11.7.1 A Second Example, Ignoring Network Constraints 221\u003c\/p\u003e \u003cp\u003e11.7.2 A Further Example with Network Constraints 222\u003c\/p\u003e \u003cp\u003e11.8 Optimal Short-Run Dispatch Using a Competitive Market 223\u003c\/p\u003e \u003cp\u003e11.8.1 A Simple Example 224\u003c\/p\u003e \u003cp\u003e11.8.2 Optimal Short-Run Dispatch through Prices 227\u003c\/p\u003e \u003cp\u003e11.8.3 Investment Incentives 228\u003c\/p\u003e \u003cp\u003e11.9 Summary 229\u003c\/p\u003e \u003cp\u003eQuestions 230\u003c\/p\u003e \u003cp\u003eFurther Reading 230\u003c\/p\u003e \u003cp\u003e\u003cb\u003e12 Frequency-Based Dispatch of Balancing Services 231\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e12.1 The Intradispatch Interval Dispatch Mechanism 231\u003c\/p\u003e \u003cp\u003e12.2 Frequency-Based Dispatch of Balancing Services 232\u003c\/p\u003e \u003cp\u003e12.3 Implications of Ignoring Network Constraints when Handling Contingencies 233\u003c\/p\u003e \u003cp\u003e12.3.1 The Feasible Set of Injections with a Frequency-Based IDIDM 235\u003c\/p\u003e \u003cp\u003e12.4 Procurement of Frequency-Based Balancing Services 238\u003c\/p\u003e \u003cp\u003e12.4.1 The Volume of Frequency Control Balancing Services Required 238\u003c\/p\u003e \u003cp\u003e12.4.2 Procurement of Balancing Services 239\u003c\/p\u003e \u003cp\u003e12.4.3 Allocating the Costs of Balancing Services 240\u003c\/p\u003e \u003cp\u003e12.5 Summary 241\u003c\/p\u003e \u003cp\u003eQuestions 242\u003c\/p\u003e \u003cp\u003eFurther Reading 242\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART VI MANAGING RISK 243\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e13 Managing Intertemporal Price Risks 245\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e13.1 Introduction to Forward Markets and Standard Hedge Contracts 245\u003c\/p\u003e \u003cp\u003e13.1.1 Instruments for Managing Risk: Swaps, Caps, Collars and Floors 246\u003c\/p\u003e \u003cp\u003e13.1.2 Swaps 246\u003c\/p\u003e \u003cp\u003e13.1.3 Caps 247\u003c\/p\u003e \u003cp\u003e13.1.4 Floors 248\u003c\/p\u003e \u003cp\u003e13.1.5 Collars (and Related Instruments) 249\u003c\/p\u003e \u003cp\u003e13.2 The Construction of a Perfect Hedge: The Theory 249\u003c\/p\u003e \u003cp\u003e13.2.1 The Design of a Perfect Hedge 250\u003c\/p\u003e \u003cp\u003e13.3 The Construction of a Perfect Hedge: Specific Cases 252\u003c\/p\u003e \u003cp\u003e13.3.1 Hedging by a Generator with no Cost Uncertainty 252\u003c\/p\u003e \u003cp\u003e13.3.2 Hedging Cost-Shifting Risks 254\u003c\/p\u003e \u003cp\u003e13.4 Hedging by Customers 256\u003c\/p\u003e \u003cp\u003e13.4.1 Hedging by a Customer with a Constant Utility Function 257\u003c\/p\u003e \u003cp\u003e13.4.2 Hedging Utility-Shifting Risks 258\u003c\/p\u003e \u003cp\u003e13.5 The Role of the Trader 259\u003c\/p\u003e \u003cp\u003e13.5.1 Risks Facing Individual Traders 261\u003c\/p\u003e \u003cp\u003e13.6 Intertemporal Hedging and Generation Investment 263\u003c\/p\u003e \u003cp\u003e13.7 Summary 264\u003c\/p\u003e \u003cp\u003eQuestions 265\u003c\/p\u003e \u003cp\u003e\u003cb\u003e14 Managing Interlocational Price Risk 267\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e14.1 The Role of the Merchandising Surplus in Facilitating Interlocational Hedging 267\u003c\/p\u003e \u003cp\u003e14.1.1 Packaging the Merchandising Surplus in a Way that Facilitates Hedging 269\u003c\/p\u003e \u003cp\u003e14.2 Interlocational Transmission Rights: CapFTRs 269\u003c\/p\u003e \u003cp\u003e14.3 Interlocational Transmission Rights: Fixed-Volume FTRs 271\u003c\/p\u003e \u003cp\u003e14.3.1 Revenue Adequacy 271\u003c\/p\u003e \u003cp\u003e14.3.2 Are Fixed-Volume FTRs a Useful Hedging Instrument? 273\u003c\/p\u003e \u003cp\u003e14.4 Interlocational Hedging and Transmission Investment 273\u003c\/p\u003e \u003cp\u003e14.4.1 Infinitesimal Investment in Network Capacity 274\u003c\/p\u003e \u003cp\u003e14.4.2 Lumpy Investment in Network Capacity 274\u003c\/p\u003e \u003cp\u003e14.5 Summary 276\u003c\/p\u003e \u003cp\u003eQuestions 277\u003c\/p\u003e \u003cp\u003eFurther Reading 277\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART VII MARKET POWER 279\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e15 Market Power in Electricity Markets 281\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e15.1 An Introduction to Market Power in Electricity Markets 281\u003c\/p\u003e \u003cp\u003e15.1.1 Definition of Market Power 281\u003c\/p\u003e \u003cp\u003e15.1.2 Market Power in Electricity Markets 282\u003c\/p\u003e \u003cp\u003e15.2 How Do Generators Exercise Market Power? Theory 284\u003c\/p\u003e \u003cp\u003e15.2.1 The Price–Volume Trade-Off 284\u003c\/p\u003e \u003cp\u003e15.2.2 The Profit-Maximising Choice of Rate of Production for a Generator with Market Power 286\u003c\/p\u003e \u003cp\u003e15.2.3 The Profit-Maximising Offer Curve 287\u003c\/p\u003e \u003cp\u003e15.3 How do Generators Exercise Market Power? Practice 289\u003c\/p\u003e \u003cp\u003e15.3.1 Economic and Physical Withholding 289\u003c\/p\u003e \u003cp\u003e15.3.2 Pricing Up and the Marginal Generator 291\u003c\/p\u003e \u003cp\u003e15.4 The Incentive to Exercise Market Power: The Importance of the Residual Demand Curve 292\u003c\/p\u003e \u003cp\u003e15.4.1 The Shape of the Residual Demand Curve 293\u003c\/p\u003e \u003cp\u003e15.4.2 The Importance of Peak Versus Off-Peak for the Exercise of Market Power 293\u003c\/p\u003e \u003cp\u003e15.4.3 Other Influences on the Shape of the Residual Demand Curve 295\u003c\/p\u003e \u003cp\u003e15.5 The Incentive to Exercise Market Power: The Impact of the Hedge Position of a Generator 295\u003c\/p\u003e \u003cp\u003e15.5.1 Short-Term Versus Long-Term Hedge Products and the Exercise of Market Power 297\u003c\/p\u003e \u003cp\u003e15.5.2 Hedge Contracts and Market Power 297\u003c\/p\u003e \u003cp\u003e15.6 The Exercise of Market Power by Loads and Vertical Integration 298\u003c\/p\u003e \u003cp\u003e15.6.1 Vertical Integration 299\u003c\/p\u003e \u003cp\u003e15.7 Is the Exercise of Market Power Necessary to Stimulate Generation Investment? 300\u003c\/p\u003e \u003cp\u003e15.8 The Consequences of the Exercise of Market Power 301\u003c\/p\u003e \u003cp\u003e15.8.1 Short-Run Efficiency Impacts of Market Power 301\u003c\/p\u003e \u003cp\u003e15.8.2 Longer-Run Efficiency Impacts of Market Power 302\u003c\/p\u003e \u003cp\u003e15.8.3 A Worked Example 302\u003c\/p\u003e \u003cp\u003e15.9 Summary 304\u003c\/p\u003e \u003cp\u003eQuestions 306\u003c\/p\u003e \u003cp\u003eFurther Reading 306\u003c\/p\u003e \u003cp\u003e\u003cb\u003e16 Market Power and Network Congestion 307\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e16.1 The Exercise of Market Power by a Single Generator in a Radial Network 307\u003c\/p\u003e \u003cp\u003e16.1.1 The Exercise of Market Power by a Single Generator in a Radial Network: The Theory 308\u003c\/p\u003e \u003cp\u003e16.2 The Exercise of Market Power by a Single Generator in a Meshed Network 311\u003c\/p\u003e \u003cp\u003e16.3 The Exercise of Market Power by a Portfolio of Generators 313\u003c\/p\u003e \u003cp\u003e16.4 The Effect of Transmission Rights on Market Power 314\u003c\/p\u003e \u003cp\u003e16.5 Summary 315\u003c\/p\u003e \u003cp\u003eQuestions 315\u003c\/p\u003e \u003cp\u003eFurther Reading 315\u003c\/p\u003e \u003cp\u003e\u003cb\u003e17 Detecting, Modelling and Mitigating Market Power 317\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e17.1 Approaches to Assessing Market Power 317\u003c\/p\u003e \u003cp\u003e17.2 Detecting the Exercise of Market Power Through the Examination of Market Outcomes in the Past 318\u003c\/p\u003e \u003cp\u003e17.2.1 Quantity-Withdrawal Studies 319\u003c\/p\u003e \u003cp\u003e17.2.2 Price–Cost Margin Studies 321\u003c\/p\u003e \u003cp\u003e17.3 Simple Indicators of Market Power 322\u003c\/p\u003e \u003cp\u003e17.3.1 Market-Share-Based Measures and the HHI 322\u003c\/p\u003e \u003cp\u003e17.3.2 The PSI and RSI Indicators 324\u003c\/p\u003e \u003cp\u003e17.3.3 Variants of the PSI and RSI Indicators 326\u003c\/p\u003e \u003cp\u003e17.3.4 Measuring the Elasticity of Residual Demand 328\u003c\/p\u003e \u003cp\u003e17.4 Modelling of Market Power 330\u003c\/p\u003e \u003cp\u003e17.4.1 Modelling of Market Power in Practice 331\u003c\/p\u003e \u003cp\u003e17.4.2 Linearisation 332\u003c\/p\u003e \u003cp\u003e17.5 Policies to Reduce Market Power 332\u003c\/p\u003e \u003cp\u003e17.6 Summary 333\u003c\/p\u003e \u003cp\u003eQuestions 334\u003c\/p\u003e \u003cp\u003eFurther Reading 334\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART VIII NETWORK REGULATION AND INVESTMENT 335\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e18 Efficient Investment in Network Assets 337\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e18.1 Efficient AC Network Investment 337\u003c\/p\u003e \u003cp\u003e18.2 Financial Implications of Network Investment 338\u003c\/p\u003e \u003cp\u003e18.2.1 The Two-Node Graphical Representation 339\u003c\/p\u003e \u003cp\u003e18.2.2 Financial Indicators of the Benefit of Network Expansion 341\u003c\/p\u003e \u003cp\u003e18.3 Efficient Investment in a Radial Network 342\u003c\/p\u003e \u003cp\u003e18.4 Efficient Investment in a Two-Node Network 344\u003c\/p\u003e \u003cp\u003e18.4.1 Example 345\u003c\/p\u003e \u003cp\u003e18.5 Coordination of Generation and Network Investment in Practice 348\u003c\/p\u003e \u003cp\u003e18.6 Summary 350\u003c\/p\u003e \u003cp\u003eQuestions 351\u003c\/p\u003e \u003cp\u003eFurther Reading 351\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePART IX CONTEMPORARY ISSUES 353\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003e19 Regional Pricing and Its Problems 355\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e19.1 An Introduction to Regional Pricing 355\u003c\/p\u003e \u003cp\u003e19.2 Regional Pricing Without Constrained-on and Constrained-off Payments 357\u003c\/p\u003e \u003cp\u003e19.2.1 Short-Run Effects of Regional Pricing in a Simple Network 360\u003c\/p\u003e \u003cp\u003e19.2.2 Effects of Regional Pricing on the Balance Sheet of the System Operator 361\u003c\/p\u003e \u003cp\u003e19.2.3 Long-Run Effects of Regional Pricing on Investment 363\u003c\/p\u003e \u003cp\u003e19.3 Regional Pricing with Constrained-on and Constrained-off Payments 364\u003c\/p\u003e \u003cp\u003e19.4 Nodal Pricing for Generators\/Regional Pricing for Consumers 367\u003c\/p\u003e \u003cp\u003e19.4.1 Side Deals and Net Metering 367\u003c\/p\u003e \u003cp\u003e19.5 Summary 369\u003c\/p\u003e \u003cp\u003eQuestions 370\u003c\/p\u003e \u003cp\u003eFurther Reading 370\u003c\/p\u003e \u003cp\u003e\u003cb\u003e20 The Smart Grid and Efficient Pricing of Distribution Networks 371\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e20.1 Efficient Pricing of Distribution Networks 371\u003c\/p\u003e \u003cp\u003e20.1.1 The Smart Grid and Distribution Pricing 373\u003c\/p\u003e \u003cp\u003e20.2 Decentralisation of the Dispatch Task 374\u003c\/p\u003e \u003cp\u003e20.2.1 Decentralisation in Theory 374\u003c\/p\u003e \u003cp\u003e20.3 Retail Tariff Structures and the Incentive to Misrepresent Local Production and Consumption 377\u003c\/p\u003e \u003cp\u003e20.3.1 Incentives for Net Metering and the Effective Price 378\u003c\/p\u003e \u003cp\u003e20.4 Incentives for Investment in Controllable Embedded Generation 380\u003c\/p\u003e \u003cp\u003e20.4.1 Incentives for Investment in Intermittent Solar PV Embedded Generation 384\u003c\/p\u003e \u003cp\u003e20.4.2 Retail Tariff Structures and the Death Spiral 385\u003c\/p\u003e \u003cp\u003e20.4.3 An Illustration of the Death Spiral 386\u003c\/p\u003e \u003cp\u003e20.5 Retail Tariff Structures 388\u003c\/p\u003e \u003cp\u003e20.5.1 Retail Tariff Debates 389\u003c\/p\u003e \u003cp\u003e20.6 Declining Demand for Network Services and Increasing Returns to Scale 390\u003c\/p\u003e \u003cp\u003e20.7 Summary 393\u003c\/p\u003e \u003cp\u003eQuestions 395\u003c\/p\u003e \u003cp\u003eReferences 397\u003c\/p\u003e \u003cp\u003eIndex 399\u003c\/p\u003e  \u003cp\u003e\u003cb\u003eDr Biggar\u003c\/b\u003e is Australia’s leading expert on the economics of wholesale electricity markets and the economics of public utility regulation. Since 2002 he has provided economic advice primarily to the Australian Energy Regulator and the Australian Competition and Consumer Commission. He has also provided advice to other government agencies including the Australian Energy Markets Operator, the Australian Energy Markets Commission, and the New Zealand Electricity Authority. He has published a number of papers in academic journals in the economics of electricity markets and the economics of public utility regulation and regularly provides training courses in these areas to government agencies and industry. He has a particular interest in the assessment of market power in wholesale electricity markets and in matters related to wholesale market design.\u003c\/p\u003e \u003cp\u003e\u003cb\u003eDr Hesamzadeh\u003c\/b\u003e is assistant professor in electric power systems division of the school of electrical engineering at KTH Royal Institute of Technology in Stockholm, Sweden. Dr Hesamzadeh is a world leader in the modelling of market power in wholesale electricity markets, particularly in the context of transmission planning. His special fields of interests include Power Systems Planning and Design, Economics of Wholesale Electricity Markets, and Mathematical Modelling and Computing. Hesamzadeh is currently working towards his Docent degree in Electricity Markets at KTH.  \u003c\/p\u003e  \u003cp\u003eWith the transition to liberalized electricity markets in many countries, the shift to more environmentally sustainable forms of power generation and increasing penetration of electric vehicles and smart appliances, a fundamental understanding of the economic principles underpinning the electricity industry is vital. Using clarity and precision, the authors successfully explain economic theory of all liberalized electricity market types from a cross-disciplinary engineering and policy perspective. No prior engineering knowledge or economics expertise is assumed in introducing key ideas such as nodal pricing, optimal dispatch and efficient pricing or in extending those models to areas including investment, risk management and the handling of contingencies.\u003c\/p\u003e \u003cp\u003eKey features:\u003c\/p\u003e \u003cul\u003e \u003cli\u003eComprehensively covers the principles of all liberalized electricity market types, including the US, Europe, New Zealand and Australia.\u003c\/li\u003e \u003cli\u003eProvides up to date coverage of research and policy issues, including design of financial transmission rights, modeling of market power, problems of regional pricing, and design of distribution pricing to facilitate Smart Grid.\u003c\/li\u003e \u003cli\u003eSpans introductory material to cutting-edge thinking on risk-management and short-run dispatch.\u003c\/li\u003e \u003cli\u003eSupports independent learning and teaching with worked examples and problems, enabling the reader to test and further deepen their understanding, whilst also promoting their insight and intuition.\u003c\/li\u003e \u003cli\u003eSolutions to problems and figures are hosted on a companion website. \u003c\/li\u003e \u003c\/ul\u003e \u003cp\u003eThis ground-breaking text is an indispensable resource for the next generation of engineers, economists and policy-makers in or preparing to enter the electricity sector. Graduate students in electrical engineering and economics will benefit from the breadth of material and detailed, economically precise presentation.\u003c\/p\u003e \u003cp\u003eThe book covers many of the topics you would expect to see covered and includes useful references to ‘real world’ markets. Most usefully, it addresses a lot of the areas of contention in respect of the design of electricity markets and their regulation. The discussions of these issues are readable and, although the authors are not shy of saying what they feel, on balance, is the most appropriate way of doing things, they are refreshingly undogmatic and acknowledge different perspectives.\u003c\/p\u003e \u003cp\u003e\u003cb\u003eProfessor Keith Bell, Department of Electronic and Electrical Engineering, University of Strathclyde, Glasgow, UK \u003c\/b\u003e\u003c\/p\u003e","brand":"Wiley-IEEE Press","offers":[{"title":"Default Title","offer_id":47990211576037,"sku":"NP9781118775752","price":146.95,"currency_code":"USD","in_stock":false}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/1842\/7735\/files\/9781118775752.jpg?v=1761786923","url":"https:\/\/k12savings.com\/products\/the-economics-of-electricity-markets-isbn-9781118775752","provider":"K12savings","version":"1.0","type":"link"}