Two-Sided Electricity Markets: Self-Healing Systems

Schuler, Richard | Two-sided Markets for Energy
download file (343 KB, 10 pages)
Schuler, Richard, Richardson, H.W., Gordon, P., Moore II, J.E.
The Economics Impacts of Terrorist Attacks II, Edger Elgar, Cheltenham, U.K. (forthcoming)

High voltage electricity systems may become more reliable under market-based dispatch than they were under cost-based, regulated assignments if customers are faced with real-time prices. As an example, in Australia where all electricity is transacted through a spot energy market without any regulatory price caps, retail suppliers and large customers have installed frequency-sensing devices to turn off or reduce power to designated loads when the systemâ??s frequency falls below a pre-set level. While most of these relay installations were required by the grid managers, some of the automated load-shedding is also purchased as a market service. These mechanisms were put to the test in summer 2004 when the system suddenly lost 3,100 MW of generation. Sufficient load was shed automatically so the system re-stabilized within 30 seconds. In periods when demand exceeds the systemâ??s supply capability, either because of unexpected high demand or supply disturbances, there is an inverse relationship between frequency and the price of electricity. So automatic load-shedding devices could also help buyers avoid price spikes.

While there is little experience in the United States with widespread direct customer participation in electricity markets, economic experiments have been conducted at Cornell University with human subjects. These trials of full two-sided electricity markets are cleared subject to the laws of physics over Cornellâ??s PowerWeb, 30 bus, 6 generator, simulated A.C. power network. The results demonstrate the ability of a small portion (20 percent) of active customers to mute the market-power exercised by sophisticated players representing the generators, all without regulated price caps or strictures against withholding capacity. Furthermore, simulations of electrical flows on individual lines suggest that the capacity needs of the system per MW of overall demand are up to ten percent smaller with active customer participation, compared to a regulated regime, and that would provide more breathing room for existing facilities. Those line flows are also more predictable when customers are actively engaged in power markets, making the job of dispatching and controlling the system easier. So if we want to reap the full benefits of markets for power in the U.S., including enhanced reliability and robust rapid responses to natural or terrorist inflicted assault, we need to get the customers into the game as full participants.