Smart Power by Peter Fox-Penner

Author:Peter Fox-Penner
Language: eng
Format: epub
Publisher: Island Press

Setting Local Prices

The idea of using many sellers and buyers of power to establish electricity competitive spot prices was settled quite some time ago, and it is used in many “deregulated” electricity markets today (the quotes around deregulated to remind you that there is still a huge amount of regulation in these markets, it is just that regulators don’t set prices in advance).1 The largest electricity market in the world, the PJM market in the U.S. mid-Atlantic region, sets prices for over eight thousand separate locations on the electric grid every five minutes, and it monitors every single price and location to make sure the price determined by its software is the result of adequate competition.2

There is every expectation that the basic software systems that take supply and demand offers, and from them determine a market-clearing price, can be used for local smart power markets. In fact, this is essentially what the Pacific Northwest Labs researchers did in the Olympic Peninsula experiment. However, establishing the IT platforms that set prices in the wholesale markets while keeping the system functioning reliably has cost the RTOs and ISOs that administer them hundreds of millions of dollars. Ten years after the first of these markets was created, the systems are still exceedingly complex and hard to fix. Pushing this level of complexity into every distribution system will be a considerable challenge.

One aspect of the local price-setting process sure to gain regulators’ attention is market power. In any market, there need to be several buyers and several sellers in order to make competition robust and the resulting prices fair. Depending on the geography of the local grid, there may be places where there are very few sellers of local power. To prevent these sellers from having too much market power, local regulators will need to create backstop power supplies with controlled prices or impose price controls on local sellers. Both approaches have proven necessary in much larger wholesale markets, though especially the latter. In the most advanced bid-based spot markets, FERC rules now require that the price-setting software automatically check to make sure that there are enough buy and sell bids to make every node in the market reasonably competitive. If there aren’t, the price-setting computer automatically limits the prices that can be bid. There must also be a full-time market monitor who examines competitive issues and complaints. Analogous rules and procedures will be needed for local markets.

Spot prices for energy are only part of the value of electricity supplied or saved, and they are the easy part. As we saw in Chapter 5, the majority of the value of demand response (DR) or distributed generation (DG) comes from its ability to defer or displace expansion of the upstream grid and generators, or its capacity value, along with other even more abstract benefits. As we also saw, the value of these benefits often cannot be set easily by markets.3 In this case, regulators must engage in lengthy proceedings to set methods of measuring the

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.