An Energetic Exposition: notes about electricity markets

Melbourne Terminal substation

Electricity markets can be quite complex. They have many features which are rarely discussed in econ 101. For instance, my microeconomics textbook has three chapters on the environment, pollution and natural resources (it’s a bit lefty) but has a single reference to energy and none to electricity. Let me clarify that in 2009, the subsidy for renewables amounted to 4 billion USD, while fossil fuels received an astonishing subsidy of 550 billion USD.

Some History

It is trite to note that electricity is always present in modern life, yet we infrequently contemplate it. We might say that there are three major historical applications which have driven the mass-adoption of electricity:

  1. lighting
  2. electric engine - our primary engine with which we are familiar is the ICE engine, but electric engines made the impact on manufacturing first and then to consumer devices. We use the mechanical energy from an electric energy in a washing machine or drill. But indirectly through the motor in the compressor forcing coolant through a heat exchange in a refrigerator, be it our home fridge or air-con system.
  3. portability of energy - surprising, as I think of internal combustion engines as the primary mode of transport for most of the 20th century, but this is very passenger centric. A very popular mode of transport (for goods, not people) has been the diesel trains or, more properly, diesel-electric transmissions. These use diesel engines to generate electricity, which is then used to power electric motors which have been popular with trains, ships and submarines.

generation and usage

Electricity must be generated. Electricity generators are the cause of much global warming.

energy and electricity are obvious different, but the discussion is linked since some things are do not have direct electricity use but are still energy intensive e.g. - transport - heating

In, 2020-2021 Australian final energy consumption totaled 4121.9 PJ, and is broken down as follows:

notes: renewables includs bioenergy( mostly bagaasse, biogas, and wood)

How does compare with other countries? We can divide countries up into 4 categories based on their income level:

basic properties of electricity

basic terms:

P = RI*2

Key units:

More terms:

Markets I: Structure

the electricity supply chain:

market structures:

  1. monopoly
  2. monopsony (independent power producers)
    • owenership unbundling
    • tolling agreements
    • virtual power plants

  3. wholesale

    • grid operator
    • distribution companies
    • organised by pool market or power exchange
      • pool market
        • uniform price
        • central entitiy matches bids and offers
        • spot market or market coupling
      • power exchange ()
        • real-time price variation
        • price determined through trading, not central entity
        • clearing price determing
        • not necessarily phyusical exchange of
        • like stock exchange
        • includes derivatives (futures, options, swaps)

  4. wholesale +retail

Markets II: Economics of Generation

A simple model for cost is as follows:

$$ C_i (Q_i) = FC_i + Fl_f *a_{f,i} * Q_i $$

and we have Q_i_subbar and Q_i_superbar are the upper production limits of powerplant i so Q_i_subbar <= Q_i <= Q_i_superbar

where

this says very little about the technologies

we could have term quadratic term in Q_i, which would be a good model for a gas turbine, but not for a hydro plant. - quasi-fixed costs: - no-load costs - start-up costs (hydro plants minutes,, thermal power hours)

Markets III: Complexities

A friend of mine asked me whether the complexity of electricity markets was intrinsic or due to neo-liberal fuckery. I'm still not sure about the answer but as I think the following problems will show there are some centralised planning problems which appear to be at the core of the industry.

prototypical problems I: DC optimal power flow

$$ \min \sum c_i P_{G_i} \\ \text{s.t.} P^{\min}_{G_i} \leq P_{G_i} \leq P^{\max}_{G_i} \\ B \cdot \theta = P_G − P_D \\ |\theta_i − \theta_j | / x_{ij} \leq P_{ij,\max}\\ $$

power flow study

prototypical problems II: Unit commitment problem

a mixed-integer conic quadratic optimization problem

prototypical problems III: resource planning

references

General LP /MILP/ Convex optimisation resources

I'm obviously quite interested in learning more about optimisation, but all the optimisation of interest is outside of the scope. So let me put down some pointers here.

Optimisation and Electricity