Markets for Electricity

Peter Zweifel, Aaron Praktiknjo and Georg Erdmann
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Aaron Praktiknjo: RWTH Aachen University
Georg Erdmann: Berlin University of Technology

Chapter 12 in Energy Economics, 2017, pp 269-296 from Springer

Abstract: Abstract The electric value chain consists of the following elements: generation, wholesale trade, transmission, distribution, marketing, and metering. In many countries around the world, vertically integrated utilities used to assume all of these functions similar to the vertically integrated companies in other energy sectors (see Sect. 8.2.1). For several reasons, the European Union has mandated the electric industry to unbundle Unbundling the grid from its other activities along the value chain (see Sect. 13.2.4). Therefore, it seems reasonable to structure the economic analysis of power markets accordingly. In this chapter the economic aspects of electricity generation and sales are discussed, whereas Chap. 13 is devoted to the economics of transmission and distribution. For the time being, storing electricity is practically impossible in view of its cost. Therefore, electricity generation and electricity consumption must be synchronized continuously. In order to secure the supply of electrical energy for all customers, it is necessary to permanently maintain an amount of capacity in power generation which exceeds the maximum load. Starting in the 1990s, the electricity industry (especially the generation sector) has been liberalized in many countries. This move, combined with the growing share of electricity from renewable sources and distributed generation, has led to a major transformation that continues to this day. Based on the experience gained from these recent developments, the following issues are addressed in this chapter: How might electricity markets work in a competitive business environment, although power has to be delivered through a single grid? What does generation dispatch look like in a competitive market? What are the particularities and pricing mechanisms of power exchanges? How can sufficient investment in backup and excess capacities be secured? How can the abuse of market power in the generation market be prevented? What are the possibilities to manage the transformation to ‘green’ power generation?

Date: 2017
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DOI: 10.1007/978-3-662-53022-1_12

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