Overview of electricity markets

• It is hard to store electricity and expensive to transmit electricity over long distance ==> No unified national electricity market, instead just a collection of small regional markets with their own unique characteristics and regulations.In each market, supply and demand must constantly be matched, resulting in highly volatile prices.
• Regulations of regional markets
• Each regional is coordinated by its own Transmission Service Operator(TSO).
• In regulated markets, TSOs are government-sponsored monopolies
• In deregulated markets, TSOs are either Independent Service Operators (ISOs) or Regional Transmission Organizations (RTOs)
• ISOs are limited to doing services in a single state and are exempt from federal jurisdiction.
• RTOs are do business across several states and fall under federal jurisdiction.
• Some RTOs began in a single state as ISOs and became RTOs when they expanded across state boundaries, but they still keep ISO as part of their names.
• Deregulated markets use economic incentives to effect changes, while regulated markets use legislative mandates.



• In deregulated markets, the power price for a transmission grid is set by daily auctions
• Power producers submit the price at which they are willing to supply power, and are activated in order from the lowest to highest bid.
• All winning bidders get paid the same price regardless of their bids ==> non-discriminatory auctions
• The power price for every producer and every wholesale consumer is set to a single price ==> clearing price or wholesale price.
• Smaller customers pay a slightly higher power price ==> retail price
• The cost of bringing the last unit of electricity into the market is called the marginal price, and the most recently activated plant is the marginal producer ==> In deregulated markets, the clearing price is set by the marginal price of power.
• ISOs coordinate two types of auctions
1. Day-ahead auction (DA)
• sets the power price for the following day in one-hour increments
• commonly completed in the early afternoon on the day before delivery ==> allows power producers have sufficient time to arrange fuel and operating schedules for the delivery day
• this auction is based on a prediction of next days' demands
2. Real-time auction (RT)
• runs continuously throughout the actual delivery day
• balances the actual demand against the prediction of demand made in the previous day
• typically bid in five-minute increments
• Power plants participating in real-time auctions must have the capability of turning on and off quickly