EBF 483
Introduction to Electricity Markets

12.0 Introduction


12.0 Introduction

In its 120 year history, the electric power industry has rarely seen change come very fast. The model of the regulated and vertically-integrated utility lasted nearly a century, built on the grand economies of scale of Tesla’s AC electric power conversion technology. In many parts of the US and the world, this model has been replaced with one favoring more market transactions and less price regulation. While restructured electricity markets have themselves evolved (for years after Regional Transmission Organizations started up, for example, there was no such thing as a “Financial Transmission Right” – those evolved in response to market needs), the basic market concept has now been in place for nearly 20 years. Generators with different efficiencies and marginal costs compete against one another in the energy market run by RTOs. Power distribution utilities are still regulated by the state level, but the size of the bill that you get from the utility every month depends just as much on what the utility has to pay for power in the RTO market as it does decisions by the state regulator.

This market structure, however, is being very rapidly disrupted by new technologies. “Smart” electric grids have enabled individual electricity customers to become active market participants, offering to get paid to reduce electricity demand to balance the grid. Costs for wind and solar power have plummeted, leading to very rapid adoption with serious consequences for prices on RTO electricity markets. Even down at the low-voltage distribution level, the rapid adoption of rooftop solar photovoltaics and the potential for that “other Tesla” to drive down the cost of batteries to store electricity has led to a deep disruption of the electric utility business model and has led many people to question whether we even need electric utilities anymore. Why should we pay the power company a bill when we can buy cool technology from Tesla and Solar City and just make our own power?

This lesson closes out the course by providing an introduction to three of the most important technological changes in electricity markets today: demand response, large-scale wind and solar power, and rooftop solar. Those of you looking for jobs in the electricity sector (or those who already have these jobs) will almost certainly be dealing with these technological changes for a good part of your career.

This lesson will be heavy on external readings. Please make sure you read all of the pieces below, as they will form the basis for assignment questions for this week!

Learning Outcomes

  • Define "demand response" and explain how demand response is compensated in electricity markets
  • Identify the reasons for the persistence of negative electricity prices in some electricity markets
  • Describe ways in which Regional Transmission Organizations are integrating wind and solar energy into electricity markets
  • Define "grid defection" and describe why rooftop solar energy poses a threat to the electric utility business model

Lesson Roadmap

Lesson 12 Roadmap
To Read Online course material
External readings
To Do Homework Assignment 12 - Discussion Forum Post
Remember  Exam 4 follows Lesson 4


If you have questions, please feel free to post them to the Questions about EBF 483 discussion forum. While you are there, feel free to post your own responses if you, too, are able to help a classmate.