Lessons learned from past electricity market design models and a road map for next generation design models

Abstract

This paper elaborates on the basic characteristics of these diverse power market design models and the lessons learned based on actual practical experience. We'll take into account the peculiar features of the electricity industry, including 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 (immobility of generation and transmission faculties, scale economies in generation, non-linearities in transmission), and externalities (mainly in transmission). As regards generation these problems have eased sufficiently in recent decades to enable competitive energy markets, but they remain important considerations in designing these markets