Alex Papalexopoulos


RES Integration Challenges: Market Problems and Potential Solutions

Over the last ten years many jurisdictions have transitioned from vertically integrated utility based structures to competitive energy environments organized by competitive markets for generation, transmission facilities operated on an open-access common-carrier basis, and retail competition among power marketers that rely on regulated utility distribution companies for delivery. Regulation of the wholesale and retail energy markets has been reduced to structural requirements and operational guidelines and monitoring, while retaining substantial regulation of the “wires” markets for transmission and distribution. These changes entail unbundling energy from T&D, thereby reversing the vertical integration of utilities. The experience accumulated over the last ten years has provided substantial insights on the market models that yield market efficiencies and value to the consumers.

In this presentation I address mainly the organization of the wholesale markets for energy and transmission and the lessons learned from designing and implementing organized energy markets. Further, I focus on the challenges of the next generation of energy market design structures. The new challenges we face today take into account problems related to sustainable development, security of supply, climate change, renewable generation and demand response. The examination of these issues will benefit from the history of restructuring in many jurisdictions including several states in the U.S, Canada and Europe.

I emphasize the implications of the general principles of market design based on ideas from economics and game theory. These principles also take into account the temporal and stochastic variability of demands and supplies, accentuated by the non-storability of power, multiple technologies with varying sensitivities to capital and fuel costs and environmental and siting restrictions, and dependence on a reliable and secure transmission system. The economic problems include substantial non-convexities, scale economies in generation, non-linearities in transmission), and externalities (mainly in transmission).

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