EME 801
Energy Markets, Policy, and Regulation

Summary and Final Tasks

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Summary

The electric power grid is one of the most complex engineering feats ever designed by humans. While the supply chain for electricity - generation, transmission, and distribution - sounds simple enough, the reality is that the grid is effectively operated and overseen by a large patchwork of overlapping entities, market structures, and regulation. The material in this lesson is really laying the groundwork for the next few lessons to come, in which we will look more in-depth at the ways in which the electricity industry is changing due to pressures from industry restructuring and regulatory initiatives designed to increase the amount of renewably-generated electricity on the grid. The economics of generation are driven primarily by capital and fuel costs; and in general there is a tradeoff between the cost to build a power plant and the cost to operate it.  Plants that are expensive to build tend to be cheaper to operate, and vice versa. Moreover, there is not a single power plant technology that can meet all the needs of the system at all times. To prevent blackouts, electric grid operators need a combination of low-cost "base load" power plants that can be expected to run reliably for extended periods of time; and "shoulder" and "peaking" plants that are more expensive to operate but operationally flexible enough to allow system operators to adapt to constantly changing electricity demand. The economics of transmission and distribution are not as nuanced, since these assets are almost entirely capital-intensive, with little or no operational costs. For nearly one hundred years, the companies that provided generation, transmission, and distribution service were vertically-integrated public utilities that operated under state regulation. About half of U.S. states have, in the past couple of decades, shifted away from this system in favor of a more competitive and regionally-based industry model.

Reminder - Complete all of the Lesson 5 tasks!

You have reached the end of Lesson 5! Double check the What is Due for Lesson 5? list on the first page of this lesson to make sure you have completed all of the activities listed there before you begin Lesson 6. Note: The Lesson 6 material will open Monday after we finish Lesson 5.

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