Economics of Electricity: Markets, Competition and Rules

370 Pages·2019·8.368 MB·English

by  Anna Cretì, Fulvio Fontini

Economics ofElectricity
This comprehensive and up-to-date book explains the economic rationale behind the
production, delivery and exchange of electricity. Cretì and Fontini explain why elec-
tricitymarketsexist,outliningtheeconomicprinciplesbehindtheexchangeandsupply
of power to consumers and firms. They identify the specificities of electricity, as
compared to other goods, and furthermore suggest how markets should be optimally
designedtoproduceanddeliverelectricityeffectivelyandefficiently.Theauthorsalso
addresskeyissues,includinghowelectricitycanbedecarbonized.Writteninatechnical
yetaccessiblestyle,thisbookwillappealtoreadersstudyingpower-systemeconomics
and the economics of electricity, as well as those more generally interested in energy
economics,includingengineeringandmanagementstudentslookingtogainanunder-
standingofelectricity-marketanalysis.
AnnaCretìisProfessorofEconomicsattheParisDauphineUniversity,seniorresearch
associateattheÉcolePolytechniqueandexternalaffiliateoftheSiebelInstituteatthe
University of California, Berkeley. She is the Scientific Director of the Climate
Economics Chair and the Natural Gas Chair at Paris Dauphine University. She is the
authorofnumerousarticlesininternationalpeer-reviewedjournals.
Fulvio Fontini is Professor of Economics at the Department of Economics and
Management,UniversityofPadova(Italy).Hehasbeenco-chairoftheESStaskforce
of the Council of European Energy Regulators (CEER), and member of several task
forcesofCEERandtheAgencyforCooperationofEnergyRegulators(ACER),where
hewassecondedasnationalexpert.Heistheauthorofnumerousarticlesininternational
peer-reviewedjournals.

Economics of Electricity
Markets, Competition and Rules
ANNA CRETÌ
UniversitéParisDauphine,PSLResearchUniversity,France
FULVIO FONTINI
UniversityofPadova,Italy
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www.cambridge.org
Informationonthistitle:www.cambridge.org/9781107185654
DOI:10.1017/9781316884614
©AnnaCretìandFulvioFontini2019
Thispublicationisincopyright.Subjecttostatutoryexception
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noreproductionofanypartmaytakeplacewithoutthewritten
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Firstpublished2019
PrintedandboundinGreatBritainbyClaysLtd,ElcografS.p.A.
AcataloguerecordforthispublicationisavailablefromtheBritishLibrary.
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Names:Cretì,Anna,author.|Fontini,Fulvio,1970–author.
Title:Economicsofelectricity:markets,competitionandrules/AnnaCretì,UniversitedeParisIX
(Paris-Dauphine),FulvioFontini,UniversitadegliStudidiPadova,Italy.
Description:Cambridge,UnitedKingdom;NewYork,NY:CambridgeUniversityPress,2019.|
Includesbibliographicalreferencesandindex.
Identifiers:LCCN2019005623|ISBN9781107185654(hardback:alk.paper)
Subjects:LCSH:Electricutilities.|Electricpowerproduction.|Electricpowerconsumption.
Classification:LCCHD9685.A2C742019|DDC333.793/2–dc23
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Contents
ListofFigures pagexiv
ListofTables xvi
Acknowledgments xvii
Introduction 1
PartI IntroductiontoEnergyandElectricity 5
1 BasicPrinciples,DefinitionsandUnitMeasures 7
1.1 Introduction 7
1.2 BasicPrinciplesofEnergy 7
1.3 PrimaryEnergySourcesandEnergyCarriers 12
1.4 EnergyUnitsandEnergyMeasures 14
2 IntroductiontoElectricity:BriefHistoryofthePowerIndustry 17
2.1 Introduction 17
2.2 BasicPrinciplesofElectricity 17
2.3 BriefHistoryoftheCommercialDevelopmentofElectricity 22
2.4 IntroductiontoPowerGenerationTechnologiesandCosts 25
PartII TheBasicDesignofElectricitySystemsandMarkets 33
3 ElectricitySystemsandtheElectricitySupplyChain 35
3.1 IntroductiontoElectricitySystems 35
3.1.1 PowerPlants 36
3.1.2 Load 37
3.1.3 TransmissionandDistributionNetworks 39
3.2 TheElectricitySupplyChain 44
3.2.1 Production 44
3.2.2 Transmission 44
3.2.3 Distribution 45
viii Contents
3.2.4 MeteringandRetailing 46
3.2.5 Dispatching 47
3.3 RepresentingtheESC 47
4 TheFourMarketDesignsoftheElectricitySystem 50
4.1 Introduction 50
4.2 TheVerticalIntegratedIndustry 50
4.3 TheSingleBuyerModel 51
4.4 TheWholesaleMarket 53
4.5 TheWholesaleandRetailMarketsModel 56
5 EnergyProductsandtheTimeDimensionofElectricityMarkets 59
5.1 Introduction 59
5.2 Energy,AncillaryServicesandGenerationCapacity 59
5.3 TheTimeStructureofElectricityMarkets 61
5.3.1 EnergyMarkets 63
5.3.2 AncillaryServicesMarkets 65
5.3.3 CapacityMarkets 67
5.4 TheSettlementProcess 68
6 SomePrinciplesofElectricitySectorRegulation 72
6.1 Introduction 72
6.2 WhyRegulatetheElectricitySector? 72
6.3 PricingNaturalMonopolies 75
6.4 ElectricityTariffsandBills 79
PartIII SimplifiedIsolatedMarketswithoutNetworkCongestion 81
7 LoadandPowerGeneration 83
7.1 Introduction 83
7.2 TheTimeStructureofLoad 83
7.3 TheCharacteristicsofPowerGenerationCosts 89
8 TheCentralizedSolutionofOptimalDispatching 94
8.1 Introduction 94
8.2 TheCostMinimizationProblemwithTwoPowerPlants 95
8.2.1 CaseI 96
8.2.2 CaseII 99
8.3 TheCostMinimizationProblemwithnPlants 101
8.4 TheWelfareMaximizationProblemwithSeveralConsumers 103