Completing Market Structures for Electricity: A Return to Basics

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Completing Market Structures for ElectricityA
Return to Basics

• Richard E. Schuler
• Cornell University
• Workshop on Demand Response Products
• MLK Holiday
• Ithaca, NY

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Dimensions of a Market

• Product Attributes (for Electricity)
• - Energy Flow
• - At the Flip of a Switch
• - Public Good Aspects
• Principle Need as many instruments as
  objectives!
• Space
• Time

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Key Factors That Affect Market Design

• All Markets are Discrete
• Balance Four Factors
• Equating MB and MC of Participants
• Transactions (Decision-Making) Costs
• Cost of Arbitrage (Across Boundaries)
• Market Size and Market Power
• Basic Assumption All Parties Have and Can
  React to Full Information!

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So What Should Be the Primary Requirement for a
Smart Grid?

• Answer Real-Time Meters
• and Real-Time Pricing!

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Early Cornell ExperimentsFP-DRP-RTP

• RTP more efficient
• RTP curbs price spikes
• Line Flow Volatility Lower w/ RTP
• Participants Prefer RTP - - After Trying It!

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Significant Reversal of Preferences


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Implied Line and Generation Capacity Requirements
by Market Treatment Simulated Results
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Additional Market Enhancements

• Two-Part Prices
• - Energy
• - Capacity
• (with market cleared based on least-cost
  combination)
• Forward Markets (Physical and Financial)

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Two-Part Prices ( instruments objectives)
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But - - Lets Get RTP Done First!