Dynamic models for electric power markets
Seminar Room 1, Newton Institute
AbstractThe goal of this tutorial is to lay a foundation for understanding the role of uncertainty and constraints in electric power networks and markets. While power generation, the transmission grid, and demand for power are complex beyond imagination, relatively simple models based on AC or DC power flow approximations can give a great deal of insight. If these models are augmented through the introduction of volatility in supply and demand, then the DC power flow model is essentially equivalent to a version of the inventory models considered in the 50 year old work of Clark and Scarf. Based on this analogy we can explain the high reserves demanded in typical electricity markets, and how reserves must grow with increasing uncertainty.
In highly deregulated markets, wholesale prices for power can oscillate in just a few minutes from zero, to ten thousand dollars - more than 100 times the average price for power. These prices may even become negative in some markets. It is argued that such exotic behavior can be explained, even in the absence of "market power", by considering the dynamic game of suppliers and consumers that includes the fundamental fact that power supply is subject to strict ramp constraints.