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Control and Optimization Methods for Electric Smart Grids pp 35–62Cite as

Dynamic Competitive Equilibria in Electricity Markets

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Part of the book series: Power Electronics and Power Systems ((PEPS,volume 3))

Abstract

This chapter addresses the economic theory of electricity markets, viewed from an idealized competitive equilibrium setting, taking into account volatility and the physical and operational constraints inherent to transmission and generation. In a general dynamic setting, we establish many of the standard conclusions of competitive equilibrium theory: Market equilibria are efficient, and average prices coincide with average marginal costs. However, these conclusions hold only on average. An important contribution of this chapter is the explanation of the exotic behavior of electricity prices. Through theory and examples, we explain why, in the competitive equilibrium, sample-paths of prices can range from negative values, to values far beyond the “choke-up” price—which is usually considered to be the maximum price consumers are willing to pay. We also find that the variance of prices may be very large, but this variance decreases with increasing demand response.

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Notes

  1. 1.

    The ISO is an entity independent of the consumers and the suppliers that coordinates, controls and monitors a large electric power transmission grid and its associated electricity markets.

  2. 2.

    Observe that prices may vary by the location. In the language of electricity markets, they are locational prices.

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Acknowledgements

Research supported in part by the Grainger Endowments to the University of Illinois, DOE awards DE-OE0000097 (TCIPG) and DE-SC0003879, and AFOSR Grant FA9550-09-1-0190.

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Authors and Affiliations

  1. CSL and the ECE Department, University of Illinois, Urbana-Champaign, IL, 61820, USA

    Gui Wang, Matias Negrete-Pincetic, Anupama Kowli, Ehsan Shafieepoorfard & Sean Meyn

  2. ISE Department, University of Illinois, Urbana-Champaign, IL, 61820, USA

    Uday V. Shanbhag

Authors
  1. Gui Wang
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  2. Matias Negrete-Pincetic
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  3. Anupama Kowli
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  4. Ehsan Shafieepoorfard
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  5. Sean Meyn
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  6. Uday V. Shanbhag
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Corresponding author

Correspondence to Gui Wang .

Editor information

Editors and Affiliations

  1. , Electrical and Computer Engineering, North Carolina State University, Keystone Bldg 100-26, Raleigh, 27695, North Carolina, USA

    Aranya Chakrabortty

  2. , Electrical & Computer Engineering, Carnegie Mellon University, Forbes Ave. 5000, Pittsburgh, 15213-3890, Pennsylvania, USA

    Marija D. Ilić

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Wang, G., Negrete-Pincetic, M., Kowli, A., Shafieepoorfard, E., Meyn, S., Shanbhag, U.V. (2012). Dynamic Competitive Equilibria in Electricity Markets. In: Chakrabortty, A., Ilić, M. (eds) Control and Optimization Methods for Electric Smart Grids. Power Electronics and Power Systems, vol 3. Springer, New York, NY. https://doi.org/10.1007/978-1-4614-1605-0_2

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  • DOI: https://doi.org/10.1007/978-1-4614-1605-0_2

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