Syllabus for EE/Econ 458

Restructuring of
Wholesale Power Markets



Last Updated: 28 March 2015

Latest Course Offering: Spring 2009
Meeting Time: Tuesday/Thursday 5:30pm-7:00pm
Meeting Place: Coover 1011

Instructor:
Leigh Tesfatsion
Professor of Econ, Math, and ECpE
Department of Economics
Iowa State University
Ames, Iowa 50011-1070
http://www2.econ.iastate.edu/tesfatsi/
tesfatsi AT iastate.edu

Instructor Office/Office Hours:
Room 375, Heady Hall
Hours: Thursdays 12:30-3:40pm,
   and by appointment

Teaching Assistant:
Ms. Qun Zhou (ECpE)
Tel: 515-294-2525
zhouqun8508 AT gmail.com

Teaching Assistant Office/Office Hours:
Room 24, Active Learning Complex (ALC), Coover Hall
Hours: Tuesdays 10-12, and by appointment
Transmission Lines Graphic

Homepage (objectives, structure, grade policy)
General Electricity Restructuring Resources
Required Texts & Useful On-Line Materials
Course Outline
Topics, Readings, and Exercises


The Web http://www2.econ.iastate.edu/classes/econ458/tesfatsion/

Required Texts & Useful On-Line Materials

Required Textbooks (Bookstore):

On-Line Resource Materials:

Fun Stuff:

Course outline

  1. Power Market Restructuring: Overview
  2. Microeconomic Basics for Power Markets
    1. Market Principles and the Theory of the Firm
    2. Strategic Market Behavior (Game Theory)
    3. Markets, Risks, and Contracts
  3. Optimization Basics for Power Markets
    1. Introduction to Constrained Optimization
    2. Optimization Tools for Economic Dispatch
  4. Operation of Restructured Wholesale Power Markets
    1. Organization of Power Markets
    2. Power Market Trading Subject to Transmission Constraints
      1. Power Systems and LMP Fundamentals
      2. Bid/Offer-Based Optimal Power Flow: Illustrative Experimental Findings
    3. Market Power Mitigation
    4. Real-World Examples: Policy Concerns
  5. Financial and Operational Risk Management
    1. System Reliability
    2. Financial Transmission Rights
  6. Investment for the Future
    1. Investment in New Generation
    2. Investment in New Transmission
  7. Environmental Issues
    1. Emission Control
    2. Potential for "Green Power"
  8. Future Prospects for Restructuring

Topics, Readings, and Exercise Assignments

This power economics course covers topics essential for understanding current controversies surrounding the restructuring of wholesale power markets both here in the U.S. and abroad. Required readings are marked below with two asterisks (**), and recommended materials are marked below with a single asterisk (*).

Lecture materials, exercises, and some additional required and recommended materials will be posted at the syllabus as the course proceeds. All such additions will be announced in class and will be marked with a "new" icon for at least one week after the modification is made.

I. Power Market Restructuring: Overview

** EXERCISE 1 (Individual): Real-World Case Study of a Restructured Wholesale Power Market (with attached energy region assignments) (pdf,29K). Due: Thursday, January 29, 2009, 5:30pm.

Required Readings:

II. Microeconomic Basics for Power Markets


A. Market Principles and the Theory of the Firm

Required Readings:

  • ** L. Tesfatsion, Market Organization with Price-Setting Agents, (Notes,html,8K) and (Slides,pdf,100K) ON-LINE/CLASS PRESENTATION

  • ** L. Tesfatsion, Market Basics for Price-Setting Agents (pdf,422K). ON-LINE/CLASS PRESENTATION

  • ** L. Tesfatsion, Illustration of Demand & Supply Schedule Construction (pdf,168K). ON-LINE/CLASS PRESENTATION

  • ** Kirschen/Strbac, Chapter 2 (Sections 2.1-2.3 and 2.5), pp. 11-33 & 39-47, TEXTBOOK

  • ** Lecture Notes on Kirschen/Strbac, Chapter 2 (Section 2.2): Fundamentals of Markets (pdf,197K). ON-LINE/CLASS PRESENTATION

  • ** Lecture Notes on Kirschen/Strbac, Chapter 2 (Sections 2.3 & 2.5): Theory of the Firm (pdf,417K). ON-LINE/CLASS PRESENTATION


B. Strategic Market Behavior (Game Theory)

Required Reading:

  • ** L. Tesfatsion, Game Theory: Basic Concepts and Terminology (pdf,34K). ON-LINE/CLASS PRESENTATION


C. Markets, Risks, and Contracts

Required Readings:

  • ** Kirschen/Strbac, Chapter 2 (Section 2.4): Markets, Risks, and Contracts, pp. 33-29, TEXTBOOK

  • ** Lecture Notes on Kirschen/Strbac, Chapter 2 (Section 2.4): Markets, Risks, and Contracts (pdf,295K). ON-LINE/CLASS PRESENTATION

III. Optimization Basics for Power Markets


A. Introduction to Constrained Optimization

Required Readings:

  • ** L. Tesfatsion, Optimization Basics for Electric Power Markets (pdf,729K). ON-LINE/CLASS PRESENTATION
    Remark: These notes on optimization use basic vector/matrix notation and concepts (e.g., vector multiplication, multiplication of a matrix by a vector, and transposing of vectors and matrices). If you need a review of these concepts, or are new to these concepts, you should study the following "Appendix A" materials (sections A.1-A.5) with care. A mastery of basic vector/matrix concepts is essential for both economists and engineers.

  • ** Appendix A: Vectors and Matrices (pdf,191K), from Applied Mathematical Programming by Bradley, Hax, and Magnanti (Addison-Wesley, 1977). ON-LINE

Recommended Readings:

Recommended Reading (Advanced Level):

  • * Ross Baldick, "Optimization for Engineering Systems (With Illustrations): Advanced Level" (pdf,1M). ON-LINE


B. Optimization Tools for Economic Dispatch

Required Readings:

  • ** D. Kirschen, "Optimization Tools for Economic Dispatch Calculation" (pdf,5.6M) ON-LINE/CLASS PRESENTATION (SOME SECTIONS)

  • ** G. Sheble and J. McCalley, "Cost Function Determination and Economic Dispatch Calculation: Worked Examples" (pdf,277K), PowerLearn Module 3, Electric Power Engineering Education, 2000. ON-LINE

IV. Operation of Restructured Wholesale Power Markets


A. Organization of Power Markets

Required Readings:

  • ** Kirschen/Strbac, Chapter 3: Markets for Electrical Energy, pp. 49-72, TEXTBOOK

  • ** Lecture Notes on Kirschen/Strbac, Chapter 3: Markets for Electrical Energy (pdf,1.4M). ON-LINE/CLASS PRESENTATION

  • ** Kirschen/Strbac, Chapter 4: Participating in Markets for Electrical Energy, pp. 73-104, TEXTBOOK

  • ** Lecture Notes on Kirschen/Strbac, Chapter 4:Part 1 (Participating in Electric Power Markets) (pdf,495K). ON-LINE/CLASS PRESENTATION


B. Power Market Trading Subject to Transmission Constraints


B.1 Power System and LMP Fundamentals

Required Readings:

  • ** Kirschen/Strbac, Chapter 6: Transmission Networks and Electricity Markets, Sections 6.1-6.3.2.9 (pp. 141-175), TEXTBOOK

  • ** Lecture Notes on Kirschen/Strbac, Chapter 6:Sections 6.1-6.3.2.9 (pp. 141-175) (pdf,556K). ON-LINE/CLASS PRESENTATION

Recommended Readings:

  • * Open-Source Software for Electricity Market Research, Teaching, and Training (html) ON-LINE

  • * H. Liu, L. Tesfatsion, and A. A. Chowdhury, "Derivation of Locational Marginal Prices for Restructured Wholesale Power Markets", Journal of Energy Markets, Vol. 2, No. 1, Spring 2009, 1-25.
    Note: An abridged 8-page version to appear in the Proceedings of the 2009 IEEE Power and Energy Society General Meeting (Calgary, CA, July 26-30, 2009) is available here (pdf,240K). ON-LINE

  • * L. Tesfatsion, Auction Basics for Power Markets: Objectives and Pricing Rules (pdf,510K), Proceedings, IEEE Power and Energy Society General Meeting, Calgary, CA, July 2009. ON-LINE

  • * E. Litvinov, "Power System and LMP Fundamentals" (pdf,4M), Training Materials, ISO New England, 2008. ON-LINE


B.2 Bid/Offer-Based Optimal Power Flow: Illustrative Experimental Findings

Required Readings:

  • ** L. Tesfatsion, "Stress-Testing U.S. Wholesale Power Market Designs Via Agent-Based Modeling" (pdf,2M) ON-LINE/CLASS PRESENTATION

Recommended Materials:

  • * AMES Market Package (Java): A Free Open-Source Test Bed for the Agent-Based Modeling of Electricity Systems (html) ON-LINE

  • * H. Li and L. Tesfatsion, "The AMES Wholesale Power Market Test Bed: A Computational Laboratory for Research, Teaching, and Training" (pdf,930K), Proceedings, IEEE Power and Energy Society General Meeting, Calgary, CA, July 2009. ON-LINE

  • * H. Li, J. Sun, and L. Tesfatsion, "Dynamic LMP Response Under Alternative Price-Cap and Price-Sensitive Demand Scenarios" (with Hongyan Li and Junjie Sun) [ (paper,pdf,465K), (slides,pdf,1M)], Proceedings, IEEE Power and Energy Society General Meetings, Carnegie-Mellon University, Pittsburgh, July 20-24, 2008. ON-LINE


C. Market Power Mitigation

Required Readings:

  • ** A. Somani and L. Tesfatsion, "An Agent-Based Test Bed Study of Wholesale Power Market Performance Measures" (pdf,2.8M), IEEE Computational Intelligence Magazine, Vol. 3, No. 4, November 2008, 56-72. ON-LINE

Recommended Materials:

  • * Paul Twomey, Richard Green, Karsten Neuhoff, and David Newbery, “A review of the monitoring of market power: Possible roles of TSOs in monitoring for market power issues in congested transmission systems” [ (Working Paper,pdf,664K), (Slides,897K)], 05-002 WP, Center for Energy and Environmental Policy Research, March 2005. ON-LINE


D. Real-World Examples: Policy Concerns

Required Readings:

  • ** Brennan et al., Chapter 5: The California Crisis, pp. 46-58, TEXTBOOK

  • ** Brennan et al., Chapters 6-9 and 13-14 (Basic Real-World Policy Issues), pp. 61-105 and 136-158, TEXTBOOK

  • ** F. Huntowski, N. Fisher, and A. Patterson, Embrace Electric Competition or it's Déjà Vu All Over Again (pdf,586K), The Northbridge Group, October 2008, Section IV, pages 31-71, ON-LINE

V. Financial and Operational Risk Management


A. System Reliability

Required Readings:

  • ** Brennan et al., Chapters 10-12, pp. 116-135, TEXTBOOK

  • ** Kirschen/Strbac, Chapter 5: System Security and Ancillary Services, pp. 105-140, TEXTBOOK


B. Financial Transmission Rights

Required Readings:

  • ** Kirschen/Strbac, Chapter 6 (Section 6.3.5): Financial Transmission Rights, pp. 191-204, TEXTBOOK

VI. Investment for the Future


A. Investment in New Generation

Required Readings:

  • ** Kirschen/Strbac, Chapter 7: Investing in Generation, pp. 205-226, TEXTBOOK


B. Investment in New Transmission

Required Readings:

  • ** Kirschen/Strbac, Chapter 8: Investing in Transmission, pp. 227-264, TEXTBOOK

  • ** California Independent System Operator (CAISO), 2004, Transmission economic assessment methodology (TEAM), 2004 (pdf,1.4M), Executive Summary (pp. ES-1 through ES-25), Chapter 1:Overview of Transmission Planning and Siting Process (pp. 1-1 through 1-10), and Chapter 2:Quantifying Benefits (pp. 2-1 through 2-21). ONLINE

VII. Environmental Issues


A. Emission Control

Required Readings:

  • ** Brennan et al., Chapter 15, pp. 159-172, TEXTBOOK


B. Potential for "Green Power"

Required Readings:

  • ** Brennan et al., Chapter 16, pp. 173-186, TEXTBOOK

VIII. Future Prospects for Restructuring

Required Readings:

  • ** Brennan et al., Chapter 17, pp. 187-197, TEXTBOOK

  • ** F. Huntowski, N. Fisher, and A. Patterson, Embrace Electric Competition or it's Déjà Vu All Over Again (pdf,586K), The Northbridge Group, October 2008, Section V, pages 72-75, ON-LINE