Power Systems Engineering Research Center

Power Markets Research

The electric power industry in the US and worldwide is undergoing a major transformation. It is changing from a vertically integrated industry in which generation transmission and distribution system in a geographical region were owned by single entities with tight coordination of the planning, scheduling, and operations of these industry components. By contrast, the new industry paradigm is based on dispersed ownership, separation of the generation, transmission, and distribution, and on coordination through markets. This transition is propelled by social, political and economic forces and by technological developments, particularly the emergence of small scale generation, advances in power electronics, reliable and inexpensive communication, metering and computer technologies, and by the rapid growth in electronic commerce.

As new technologies emerge or become economically feasible we may see further evolution in the industry structure as well as in the planning, scheduling and operational paradigms. For example in the long term, mass deployment of FACTS devices may result in a switch able transmission system that will lead to different market organization. Similarly proliferation of distributed generation and storage technologies could lead to new operational paradigms, direct access at the distribution level, and new market structures. This emergence of new technologies has become sufficiently recognized that the term “Smart Grid” has become popular, which highlights the impacts that these developments will have on market structure.

In addition, markets are facing challenges of adapting to new state and federal regulatory requirements that address climate change and energy security. Requirements such as increasing the use of renewable energy to 20%, 33%, or more of total energy use within the 2020 to 2030 timeframe, and/or reducing the emissions of carbon dioxide into the atmosphere by 50-80% by 2050, will have profound implications for the electric utility industry. The likely effects on electricity production will be to increase the use of renewable sources of energy, increase the use of electricity for transportation with the introduction of Plug-in Hybrid Electric Vehicles (PHEV), and put a priority on developing new technologies for Carbon Capture and Sequestration (CCS) for traditional fossil power plants.

Unlike new initiatives like the Smart Grid, for example, many of these changes are being imposed on the industry from outside forces without having a clear understanding of the implications for system reliability or the financial viability of the current providers of electricity services. Examples include:

  • Renewable Portfolio Standards (RPS) set by politicians,
  • net-metering and “feed-in” tariffs to accept energy from distributed sources as a way to subsidize customers who install solar panels or other on-site generation, and
  • putting a price on emissions of carbon in a cap-and-trade market.

Initial studies indicate that these developments will create challenges for markets including increased cycling of existing generation, ramping of system dispatch, and additional requirements for regulation. New types of resources are anticipated to grow in their market size, including energy storage and price-responsive demand resources that are more flexible than traditional emergency response programs. Market mechanisms for carbon management such as cap-and-trade and carbon taxes are being debated, while early research results indicate that initial market results have not always accomplished their goals, making this a potentially fruitful area for further research to identify effective mechanisms. Hence, an important objective for new research in the Market Stem is to evaluate how these types of change will affect the industry and to identify preferred ways to make the transition to a low-carbon economy in a more orderly way.

Our primary research goal in this stem is to focus on short to medium term issues concerning the interaction between the technical and economic aspects of the restructured industry given the current technological landscape. In particular this stem focuses on a new market based paradigm that will replace the traditional functional timeline leading from years to cycles prior to real time, which includes long term demand forecasting, capacity planning and expansion, maintenance, short term forecasting, scheduling, dispatch, and real time control. The research under this stem emphasizes the design and analysis of market institutions, mechanisms and computational tools that will facilitate coordination, efficient investment, operational efficiency, and system reliability, while recognizing the economic and technical realities of the electric power industry.

The scope of work under this stem can be broken down by subject area and by methodological approach, recognizing the fact that some approaches may be better suited for certain problem areas. These general goals are pursued by means of the following methodological approaches that complement and support each other:

  • Analytical methods that can be further classified into:
    • Theoretical analysis focusing on conceptual abstract modeling and analysis, employing techniques of operations research, systems analysis, microeconomics, stochastic modeling, game theory, and auction theory.
    • Empirical analysis focusing on interpretation of empirical data and on estimation and validation of theoretical models using econometric methods, financial engineering approaches, statistical analysis and data mining.
  • Computational methods employing numerical methods and agent-based models to simulate and forecast market outcomes under realistic modeling of the electric power system in conjunction with behavioral models of economic agents that control various aspects of the system and interact in the marketplace.
  • Experimental economic approaches employing controlled laboratory experiments with live and artificial agents in order to explore decision patterns under alternative rules and system conditions, and to test behavioral assumptions upon which such rules are founded.