Power System Economics

An Introduction to the Fundamental Economics of Power Market Design and Analysis

Power System Economics is the first systematic presentation of power-market design principles from economic theory to market architecture. The approach is pragmatic, and the discussion illustrates economic and engineering fundamentals with simple examples. The volume breaks new ground in its analysis of price spikes, market-based unit commitment, and the prediction of market power.

Power System Economics includes five parts. Part 1 introduces key economic, engineering, and market design concepts. Part 2 explains how short-run reliability policies determine long-run average installed capacity and reliability. Part 3 examines classic designs for day-ahead and real-time markets. Part 4 covers market power, and Part 5 covers the effect of networks on prices. Topics include:

• How marginal-cost prices cover fixed costs
• Fundamentals of auction design
• The value of lost load (VOLL) as a price cap: theory versus practice
• Price limits, price spikes, investment, and reliability
• Standard market designs, including PJM
• Power pools versus power exchanges
• Market power fallacies and the HHI
• Losses pricing and congestion pricing