Smart Markets for a Smart Electricity Grid

  Shmuel S. Oren
  University of California at Berkeley

Socio economic forces, development in generation technologies and environmental considerations have led to restructuring of the electric power systems in part of the USA and in many systems worldwide, transforming them from vertically integrated regulated monopolies to competitive market based systems. From a supply chain perspective competitive electricity markets represent, perhaps, the most challenging supply chain. The commodity is non-storable; demand is uncertain and highly correlated with weather, all the demand must be satisfied instantaneously with a high level of reliability (one day in ten years criteria for involuntary load curtailment). In addition service is provided over a network that is prone to congestion, flows over transmission lines cannot be directly controlled as in a transportation system (flows follow Kirchhoff’s laws) and the market is encumbered by numerous externalities and market power. In spite of such obstacles there has been fascinating developments in the design and operations of competitive electricity markets over the last fifteen years through the use of state of the art optimization tools and economic principles. This talk will describe some of the key challenges in designing and operating competitive electricity markets. I will review the basic elements and alternative approaches adopted in different systems and discuss what we have learned so far in this area. I will also discuss new challenges and opportunities due to massive integration of renewable resources, proliferation of smart grid technologies and electrification of the transportation sector.