Deregulating Electric Power: Market Design Issues and Experiments

In this section we will articulate our view as to what are the key issues in the design, behavior and performance of deregulated competitive electricity markets. These issues arise from two prominent distinguishing characteristics of electricity markets: Energy is injected and withdrawn for consumption at various nodes of a network with limited ability to control the energy flows; coordination is necessary to achieve balance, reliability and frequency control. The nonstorability of electricity, often listed as a distinguishing characteristic, is neither unique nor critical, as all transportation and accommodation (hotel/motel) industries have this property, and where they are competitive engage in time of use pricing without having to be ordered to do so by a regulatory commission. This is because peaking capital requirements will not be supplied without an incentive return, and competition responds to all relevant margins of cost in space and time.

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