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An electricity market is a system for effecting the purchase and sale of electricity using supply and demand to set the price. Wholesale transactions in electricity are typically cleared and settled by the grid operator or a special-purpose independent entity charged exclusively with that function. Markets for certain related commodities required by (and paid for by) various grid operators to ensure reliability, such as spinning reserve, operating reserves, and installed capacity, are also typically managed by the grid operator. In addition, for most major grids there are markets for electricity derivatives, such as electricity futures and options, which are actively traded. These markets developed as a result of the deregulation of electric power systems around the world. This process has often gone on in parallel with the deregulation of natural gas markets. The supply and demand model describes how prices vary as a result of a balance between product availability at each price (supply) and the desires of those with purchasing power at each price (demand). ...
Derivatives traders at the Chicago Board of Trade. ...
In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. ...
In finance options are types of derivative contracts, including call options and put options, where the future payoffs to the buyer and seller of the contract are determined by the price of another security, such as a common stock. ...
Deregulation is the process by which governments remove, reduce, or simplify restrictions on business and individuals in order to (in theory) encourage the efficient operation of markets. ...
Early history
The earliest introduction of market concepts and privatization to electric power systems took place in Chile in the late 1970s, in parallel with other market-oriented reforms associated with the Chicago Boys. The Chilean model was generally perceived as successful in bringing rationality and transparency to power pricing, but it contemplated the continuing dominance of several large incumbents and suffered from the attendant structural problems. Argentina improved on the Chilean model by imposing strict limits on market concentration and by improving the structure of payments to units held in reserve to assure system reliability. One of the principal purposes of the introduction of market concepts in Argentina was to privatize existing generation assets (which had fallen into disrepair under the government-owned monopoly, resulting in frequent service interruptions) and to attract capital needed for rehabilitation of those assets and for system expansion. The World Bank was active in introducing a variety of hybrid markets in other Latin American nations, including Peru, Brazil and Colombia, during the 1990s, with limited success. This article does not adequately cite its references or sources. ...
The Chicago Boys (c. ...
A key event for electricity markets occurred in 1990 when the UK Government under Margaret Thatcher privatised the UK Electricity Supply Industry. The process followed by the British was then used as a model or at least a catalyst for the deregulation of several other Commonwealth countries, notably Australia and New Zealand, and regional markets such as Alberta. However, in many of these other instances the market deregulation occurred without the widespread privatisation that characterised the UK example. UK redirects here. ...
Margaret Hilda Thatcher, Baroness Thatcher, LG, OM, PC (born October 13, 1925), former Prime Minister of the United Kingdom, in office from 1979 to 1990. ...
For Government policy, see Energy policy of the United Kingdom Energy use and conservation in the United Kingdom has been receiving increased attention over recent years. ...
This article needs additional references or sources for verification. ...
Motto: Fortis et liber(Latin) Strong and free Capital Edmonton Largest city Calgary Official languages English (see below) Government - Lieutenant-Governor Norman Kwong - Premier Ed Stelmach (PC) Federal representation in Canadian Parliament - House seats 28 - Senate seats 6 Confederation September 1, 1905 (split from Northwest Territories) (8th [Province]) Area Ranked...
In different deregulation processes the institutions and market designs were often very different but many of the underlying concepts were the same. These are: separate the contestable functions of generation and retail from the natural monopoly functions of transmission and distribution; and establish a wholesale electricity market and a retail electricity market. The role of the wholesale market is to allow trading between generators, retailers and other financial intermediaries both for short-term delivery of electricity (see spot price) and for future delivery periods (see forward price). Electricity generation is the first process in the delivery of electricity to consumers. ...
Electricity retailing is the final process in the delivery of electricity from generation to the consumer. ...
In economics, the term natural monopoly is used to refer to two different things. ...
Power line redirects here. ...
11kV/400V-230V transformer in an older suburb of Wellington, New Zealand Electricity distribution is the penultimate stage in the delivery (before retail) of electricity to end users. ...
The spot price of a commodity or a security or a currency is the price that is quoted for settlement (payment and delivery) of the transaction immediately. ...
The forward price is the agreed upon price of an asset in a forward contract. ...
Wholesale electricity market
Typical daily consumption of electrical power in Germany A wholesale electricity market exists when competing generators offer their electricity output to retailers. Image File history File links Download high resolution version (792x612, 12 KB) Summary Typical daily consumption of electrical power in Germany Own Diagram based on a publication of the Rheinisch-Westfälisches Elektrizitätswerk (RWE) Licensing File links The following pages link to this file: Electricity market ...
Image File history File links Download high resolution version (792x612, 12 KB) Summary Typical daily consumption of electrical power in Germany Own Diagram based on a publication of the Rheinisch-Westfälisches Elektrizitätswerk (RWE) Licensing File links The following pages link to this file: Electricity market ...
Electricity generation is the first process in the delivery of electricity to consumers. ...
Electricity retailing is the final process in the delivery of electricity from generation to the consumer. ...
Electricity is by its nature difficult to store and has to be available on demand. Consequently, unlike other products, it is not possible, under normal operating conditions, to keep it in stock, ration it or have customers queue for it. Demand and supply vary continuously. There is therefore a physical requirement for a controlling agency, the transmission system operator, to coordinate the dispatch of generating units to meet the expected demand of the system across the transmission grid. If there is a mismatch between supply and demand the generators speed up or slow down causing the system frequency (either 50 or 60 hertz) to increase or decrease. If the frequency falls outside a predetermined range the system operator will act to add or remove either generation or load. Lightning strikes during a night-time thunderstorm. ...
In electrical power business, Transmission System Operator (TSO) refers to the operator that transmits electrical power from generation plants to the regional or local electricity distribution operators. ...
Power line redirects here. ...
FreQuency is a music video game developed by Harmonix and published by SCEI. It was released in November 2001. ...
MHZ redirects here. ...
In addition, the laws of physics determine how electricity flows through an electricity network. Hence the extent of electricity lost in transmission and the level of congestion on any particular branch of the network will influence the economic dispatch of the generation units. This article needs additional references or sources for verification. ...
This article or section does not adequately cite its references or sources. ...
This article contains information that has not been verified and thus might not be reliable. ...
For an economically efficient electricity wholesale market to flourish it is essential that a number of criteria are met. Professor William Hogan of Harvard University has identified these. Central to his criteria is a coordinated spot market that has "bid-based, security-constrained, economic dispatch with nodal prices". Other academics such as Professors Shmuel Oren and Pablo Spiller of the University of California, Berkeley have proposed other criteria. Variants of Professor Hogan's model have largely been adopted in the US, Australia and New Zealand. Harvard University (incorporated as The President and Fellows of Harvard College) is a private university in Cambridge, Massachusetts, USA and a member of the Ivy League. ...
Sather tower (the Campanile) looking out over the San Francisco Bay and Mount Tamalpais. ...
Bid-based, security-constrained, economic dispatch with nodal prices The theoretical price of electricity at each node on the network is a calculated "shadow price", in which it is assumed that one additional kilowatt-hour is demanded at the node in question, and the hypothetical incremental cost to the system that would result from the optimized redispatch of available units establishes the hypothetical production cost of the hypothetical kilowatt-hour. This is known as locational marginal pricing (LMP) or nodal pricing and is used in some deregulated markets, most notably in the PJM, New York and New England markets in the USA and in New Zealand. However, many established markets do not employ nodal pricing, examples being the UK, Powernext and Nord Pool (Scandinavia and Finland). While in theory the LMP concepts are useful and not evidently subject to manipulation, in practice system operators have substantial discretion over LMP results through the ability to classify units as running in "out-of-merit dispatch", which are thereby excluded from the LMP calculation. In most systems, units that are dispatched to provide reactive power to support transmission grids are declared to be "out-of-merit" (even though these are typically the same units that are located in constrained areas and would otherwise result in scarcity signals). System operators also normally bring units online to hold as "spinning-reserve" to protect against sudden outages or unexpectedly rapid ramps in demand, and declare them "out-of-merit". The result is often a substantial reduction in clearing price at a time when increasing demand would otherwise result in escalating prices. Hogan and others have noted that a variety of factors, including energy price caps set well below the putative scarcity value of energy, the impact of "out-of-merit" dispatch, the use of techniques such as voltage reductions during scarcity periods with no corresponding scarcity price signal, etc., results in a "missing money" problem. The consequence is that prices paid to suppliers in the "market" are substantially below the levels required to stimulate new entry. The markets have therefore been useful in bringing efficiencies to short-term system operations and dispatch, but have been a failure in what was advertised as a principal benefit: stimulating suitable new investment where it is needed, when it is needed. Powernext manages the European energy exchange based in Paris. ...
Nord Pool ASA, the Nordic Power Exchange, is the worlds only multinational exchange for trading electric power. ...
Reactive power is an abstract quantity, typically used by power engineers to describe a certain type of energy flow in an electric distribution system. ...
Since the introduction of the market, New Zealand has experienced shortages in 2001 and 2003, high prices all through 2005 and even higher prices and the risk of a severe shortage in 2006 (as of April 2006). These problems arose because NZ is at risk from drought due to its high proportion of electricity generated from hydro. Similar shortages arose during the 1970s before the electricity market was introduced. The absence of shortages during the 1980s appears to be due to the large increase in capacity as a result of the "Think Big" projects started during the 1970s. The difference the market has made is that now cuts in electricity demand are made voluntarily while in the 1970s cuts were imposed. If the users of electricity know more about what they prefer to cut than the government, this has led to an increase in efficency. See Evans, Meade, 2006.
In LMP markets, where constraints exist on a transmission network, there is a need for more expensive generation to be dispatched on the downstream side of the constraint. Prices on either side of the constraint separate giving rise to congestion pricing and constraint rentals. A constraint is a limitation of possibilities. ...
Road pricing is a generic term for charging for the use of roads using direct methods, charging the users of a specific section of the road network for its use. ...
A constraint can be caused when a particular branch of a network reaches its thermal limit or when a potential overload will occur due to a contingent event (e.g., failure of a generator or transformer or a line outage) on another part of the network. The latter is referred to as a security constraint. Transmission systems are operated to allow for continuity of supply even if a contingent event, like the loss of a line, were to occur. This is known as a security constrained system.
The system price in the day-ahead market is, in principle, determined by matching offers from generators to bids from consumers at each node to develop a classic supply and demand equilibrium price, usually on an hourly interval, and is calculated separately for subregions in which the system operator's load flow model indicates that constraints will bind transmission imports. In practice, the LMP algorithm described above is run, incorporating a security-constrained, least-cost dispatch calculation (see below) with supply based on the generators that submitted offers in the day-ahead market, and demand based on bids from load-serving entities derinig supplies at the nodes in question. In most systems the algorithm used is a "DC" model rather than an "AC" model, so constraints and redispatch resulting from thermal limits are identified/predicted, but constraints and redispatch resulting from reactive power deficiencies are not. Some systems take marginal losses into account. The prices in the real-time market are determined by the LMP algorithm described above, balancing supply from available units. This process is carried out for each 5-minute, half-hour or hour (depending on the market) interval at each node on the transmission grid. The hypothetical redispatch calculation that determines LMP must respect security constraints and the redispatch calculation must leave sufficient margin to maintain system stability in the event of an unplanned outage anywhere on the system. This results in a spot market with "bid-based, security-constrained, economic dispatch with nodal prices". The supply and demand model describes how prices vary as a result of a balance between product availability at each price (supply) and the desires of those with purchasing power at each price (demand). ...
The supply and demand model describes how prices vary as a result of a balance between product availability at each price (supply) and the desires of those with purchasing power at each price (demand). ...
Power line redirects here. ...
Risk management Financial risk management is often a high priority for participants in deregulated electricity markets due to the substantial price and volume risks that the markets can exhibit. A consequence of the complexity of a wholesale electricity market can be extremely high price volatility at times of peak demand and supply shortages. The particular characteristics of this price risk are highly dependent on the physical fundamentals of the market such as the mix of types of generation plant and relationship between demand and weather patterns. Price risk can be manifest by price "spikes" which are hard to predict and price "steps" when the underlying fuel or plant position changes for long periods.
"Volume risk" is often used to denote the phenomenon whereby electricity market participants have uncertain volumes or quantities of consumption or production. For example, a retailer is unable to accurately predict consumer demand for any particular hour more than a few days into the future and a producer is unable to predict the precise time that they will have plant outage or shortages of fuel. A compounding factor is also the common correlation between extreme price and volume events. For example, price spikes frequently occur when some producers have plant outages or when some consumers are in a period of peak consumption. The introduction of substantial amounts of intermittent power sources such as wind energy may have an impact on market prices. Intermittent power sources are sources of power generation, primarily electricity, whose power output is either variable or intermittent. ...
This article needs to be cleaned up to conform to a higher standard of quality. ...
Electricity retailers, who in aggregate buy from the wholesale market, and generators who in aggregate sell to the wholesale market, are exposed to these price and volume effects and to protect themselves from volatility, they will enter into "hedge contracts" with each other. The structure of these contracts varies by regional market due to different conventions and market structures. However, the two simplest and most common forms are simple fixed price forward contracts for physical delivery and contracts for differences where the parties agree a strike price for defined time periods. In the case of a contract for difference, if a resulting wholesale price index (as referenced in the contract) in any time period is higher than the "strike" price, the generator will refund the difference between the "strike" price and the actual price for that period. Similarly a retailer will refund the difference to the generator when the actual price is less than the "strike price". The actual price index is sometimes referred to as the "spot" or "pool" price, depending on the market. In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. ...
In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. ...
The strike price, or exercise price, is a key variable in a derivatives contract between two parties. ...
Many other hedging arrangements, such as swing contracts, Financial Transmission Rights, call options and put options are traded in sophisticated electricity markets. In general they are designed to transfer financial risks between participants. It has been suggested that this article or section be merged into Hedge (finance). ...
This article does not cite any references or sources. ...
This article does not cite any references or sources. ...
A put option (sometimes simply called a put) is a financial contract between two parties, the buyer and the writer of the option. ...
Wholesale electricity markets Scandinavia is a historical and geographical region centered on the Scandinavian Peninsula in Northern Europe and includes the three kingdoms of Denmark, Norway and Sweden. ...
Nord Pool ASA, the Nordic Power Exchange, is the worlds only multinational exchange for trading electric power. ...
Powernext manages the European energy exchange based in Paris. ...
European Energy Exchange AG is Germanys energy exchange the leading energy exchange in Central Europe. ...
Up to 1994, the New Zealand Electricity Market had a system of monopoly providers of generation, transmission, distribution and retailing. ...
Retail electricity market -
A retail electricity market exists when end-use customers can choose their supplier from competing electricity retailers; one term used in the United States for this type of consumer choice is 'energy choice'. A separate issue for electricity markets is whether or not consumers face real-time pricing (prices based on the variable wholesale price) or a price that is set in some other way, such as average annual costs. In many markets, consumers do not pay based on the real-time price, and hence have no incentive to reduce demand at times of high (wholesale) prices or to shift their demand to other periods. Demand response may use pricing mechanisms or technical solutions to reduce peak demand. Electricity retailing is the final process in the delivery of electricity from generation to the consumer. ...
Electricity retailing is the final process in the delivery of electricity from generation to the consumer. ...
Explanation of demand response effects on a quantity (Q) - price (P) graph. ...
Generally, electricity retail reform follows from electricity wholesale reform. However, it is possible to have a single electricity generation company and still have retail competition. If a wholesale price can be established at a node on the transmission grid and the electricity quantities at that node can be reconciled, competition for retail customers within the distribution system beyond the node is possible. In the German market, for example, large, vertically integrated utilities compete with one another for customers on a more or less open grid. Power line redirects here. ...
11kV/400V-230V transformer in an older suburb of Wellington, New Zealand Electricity distribution is the penultimate stage in the delivery (before retail) of electricity to end users. ...
Although market structures vary, there are some common functions that an electricity retailer has to be able to perform, or enter into a contract for, in order to compete effectively. Failure or incompetence in the execution of one or more of the following has led to some dramatic financial disasters:
- Meter reading
- Meter rental
- Billing
- Credit control
- Customer management via an efficient call centre
- Distribution use-of-system contract
- Reconciliation agreement
- "Pool" or "spot market" purchase agreement
- Hedge contracts - contracts for differences to manage "spot price" risk
The two main areas of weakness have been risk management and billing. In the USA in 2001, California's flawed regulation of retail competition led to the California electricity crisis and left incumbent retailers subject to high spot prices but without the ability to hedge against these (see Manifesto on The Californian Electricity Crisis). In the UK a retailer, Independent Energy, with a large customer base went bust when it could not collect the money due from customers. Automatic meter reading, or AMR, is the technology of automatically collecting data from water meter or energy metering devices (water, gas, electric) and transferring that data to a central database for billing and/or analyzing. ...
Billing may mean: The process of sending accounts to customers for goods or services is called billing. ...
A very large collections call center in Lakeland, FL. A call centre or call center (see spelling differences) is a centralized office used for the purpose of receiving and transmitting a large volume of requests by telephone. ...
11kV/400V-230V transformer in an older suburb of Wellington, New Zealand Electricity distribution is the penultimate stage in the delivery (before retail) of electricity to end users. ...
In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. ...
For non-business risks, see risk or the disambiguation page risk analysis. ...
Billing may mean: The process of sending accounts to customers for goods or services is called billing. ...
Official language(s) English Capital Sacramento Largest city Los Angeles Area Ranked 3rd - Total 158,302 sq mi (410,000 km²) - Width 250 miles (400 km) - Length 770 miles (1,240 km) - % water 4. ...
The California electricity crisis (also known as the Western Energy Crisis) of 2000 and 2001 followed a failed partial-deregulation, in 1996, of the electricity market in the state. ...
Electricity market experience In the main, experience in the introduction of wholesale and retail competition has been mixed. Many regional markets have achieved some success and the ongoing trend continues to be towards deregulation and introduction of competition. However in 2000/2001 major failures such as the California electricity crisis and the Enron debacle caused a slow down in the pace of change and in some regions an increase in market regulation and reduction in competition. However, this trend is widely regarded as a temporary one against the longer term one towards more open and competitive markets. The California electricity crisis (also known as the Western Energy Crisis) of 2000 and 2001 followed a failed partial-deregulation, in 1996, of the electricity market in the state. ...
Timeline of the Enron scandal: // CFO Andrew Fastow begins committing crimes by creating off-book entities for personal enrichment [1] Andrew Fastow creates Chewco in an effort to hide debt and inflate profits but Chewco doesnt meet requirements to keep it off Enrons balance sheet. ...
Notwithstanding the favorable light in which market solutions are viewed conceptually, the "missing money" problem has to date proved intractable. If electricity prices were to move to the levels needed to incent new merchant (i.e, market-based) transmission and generation, the costs to consumers would be politically difficult. The increase in annual costs to consumers in New England alone were calculated at $3 billion during the recent FERC hearings on the NEPOOL market structure. Several mechanisms that are intended to incent new investment where it is most needed by offering enhanced capacity payments--but only in zones where generation is projected to be short--have been proposed for NEPOOL, PJM and NYPOOL, and go under the generic heading of "locational capacity" or LICAP (the PJM version currently (May 2006) under FERC review is call the "Reliability Pricing Model", or "RPM"). There is substantial doubt as to whether any of these mechanisms will in fact incent new investment, given the regulatory risk and chronic instability of the market rules in US systems, and there are substantial concerns that the result will instead be to increase revenues to incumbent generators, and costs to consumers, in the constrained areas.
See also Image File history File links Portal. ...
Electrical utility is a company that engages in the generation, transmission, and distribution of electricity for sale generally in a in regulated markets. ...
Distributed generation is a new trend in the generation of heat and electrical power. ...
Electricity generation is the first process in the delivery of electricity to consumers. ...
Transmission towers Transmission lines in Lund, Sweden Electric power transmission, or more accurately Electrical energy transmission, is the second process in the delivery of electricity to consumers. ...
Future energy development, providing for the worlds future energy needs, currently faces great challenges. ...
An Independent System Operator (ISO) is an organization formed at the direction or recommendation of the Federal Energy Regulatory Commission (FERC). ...
In electronics, a load profile is a graph of the changes in the electrical load on an electrical device versus time. ...
The North American Electric Reliability Corporation (NERC) is a nonprofit corporation based in Princeton, NJ which was formed March 28, 2006. ...
A NERC Tag, also commonly referred to as an E-Tag, represents a transaction on the North American bulk electricity market scheduled to flow within, between or across electric utility company territories. ...
Power quality is a term used to discuss events on electric power grids that can damage or disrupt sensitive electronic devices. ...
This article or section does not cite its references or sources. ...
Distributed generation is a new trend in the generation of heat and electrical power. ...
The Central Electricity Generating Board (CEGB) was the cornerstone of the British electricity industry for almost 50 years, from its nationalisation in 1947 to privatisation in the 1990s. ...
The National Grid is the high-voltage electric power transmission network in Great Britain, connecting power stations and major substations and ensuring that electricity generated anywhere in Great Britain can be used to satisfy demand elsewhere. ...
This article may be too technical for most readers to understand. ...
Energy demand management is also known as demand side management (DSM). ...
Vehicle to Grid (V2G) technology is a bi-directional grid interface for gridable vehicles such as Battery Electric Vehicles and Plug-in Hybrid Electric Vehicles. ...
Further reading - The EU energy sector inquiry that shows up current impediments for competition in the electricity industry in Europe The EU energy sector inquiry - final report 10 January 2007
- Article by Severin Borenstein on the Trouble with Electricity Markets
- David Cay Johnston, "Competitive Era Fails to Shrink Electric Bills", NYT October 15, 2006
- Lewis Evans, Richard B Meade, "Alternating Currents or Counter-Revolution? Contemporary Electricity Reform in New Zealand", Victoria University Press, 2006.
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