Zonal Supply Curve Estimation in Transmission-Constrained Electricity Markets

42 Pages Posted: 3 Oct 2011

See all articles by Mostafa Sahraei-Ardakani

Mostafa Sahraei-Ardakani

The Pennsylvania State University

Seth Blumsack

Pennsylvania State University

Andrew N. Kleit

Pennsylvania State University

Date Written: October 2, 2011

Abstract

Electricity system operations are often affected by energy policies, but spatial differences in policy impacts are difficult to model. We develop a method for estimating zonal supply curves in transmission-constrained electricity markets that can be implemented quickly by policy analysts with training in statistical methods (not necessarily engineering) and with publicly-available data. Our nonlinear statistical model uses fuel prices and zonal electric loads to determine piecewise supply curves, each segment of which represents the influence of a particular fuel type on the zonal electricity price. Our problem thus requires the simultaneous estimation of the slope of each supply-curve segment, as well as the thresholds defining the endpoints of each segment. We illustrate our methodology by estimating zonal supply curves for the utility zones in the PJM electricity grid. We use our supply curves to estimate regional impacts of a policy initiative in the state of Pennsylvania that requires utilities to reduce annual and peak electric load. For most utilities in Pennsylvania, it would reduce the influence of natural gas on electricity price formation and increase the influence of coal. We also find that the policy reduces electricity prices in most other regions, although the impacts are not uniform across regions.

Keywords: Zonal electricity supply curve, Transmission constraints, Demand response policy

JEL Classification: C53, Q41, Q48

Suggested Citation

Sahraei-Ardakani, Mostafa and Blumsack, Seth and Kleit, Andrew N., Zonal Supply Curve Estimation in Transmission-Constrained Electricity Markets (October 2, 2011). Available at SSRN: https://ssrn.com/abstract=1937411 or http://dx.doi.org/10.2139/ssrn.1937411

Mostafa Sahraei-Ardakani (Contact Author)

The Pennsylvania State University ( email )

University Park, PA 16802
United States

HOME PAGE: http://personal.psu.edu/mus241

Seth Blumsack

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

Andrew N. Kleit

Pennsylvania State University ( email )

University Park
109 Hosler Building
State College, PA 16802
United States
814-865-0711 (Phone)
814-865-3663 (Fax)

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