Incorporating Network Effects in a Competitive Electricity Industry: An Australian Perspective

An electricity industry consists of primary energy resources, electricity producers, an electricity network and electricity consumers. In a competitive electricity industry, some or all of these participants function as independent commercial entities. Two important problems must then be resolved in the commercial arrangements between the participants: There is no cost effective means of storing electrical energy so that electrical energy can only be produced if it is immediately consumed. “Operation scheduling” can compensate for the lack of intermediate storage by coordinating participants’ decisions, but must take into account uncertainty and participant operating constraints. The resulting financial risk must be managed. Electrical energy flows in an network according to the laws of physics rather than commercial contractual arrangements. Also, the pattern of flow must lie within stability-related boundaries to maintain secure operating conditions. The location of a participant as well as the operation of the network and the behavior of other participants can affect his or her commercial opportunities.