A Wholesale Electricity Market Design Sans Missing Money and Price Manipulation

39 Pages Posted: 25 Apr 2019

See all articles by CK Woo

CK Woo

The Education University of Hong Kong - Department of Asian and Policy Studies

Asher Tishler

Tel Aviv University - Faculty of Management; CENTRUM Business School

Jay Zarnikau

Frontier Associates LLC

Date Written: April 24, 2019

Abstract

Using reliability differentiation via tolling agreements with diverse heat rates and fuel types, we propose an efficient wholesale electricity market design under demand and supply uncertainty. Mainly based on North America’s market experience, our proposed design adopts an independent system operator’s (ISO’s) existing practice of least-cost dispatch of heterogeneous generation units, real-time energy price determination and capacity rationing. It solves the missing money problem of inadequate incentive for generation investment, without requiring the ISO to operate centralized capacity auctions, make capacity payments, set high energy price caps, or subsidize market entry. It preempts independent power producers’ price manipulation in the ISO’s real-time market for energy, thus easing the ISO’s burden of market monitoring. It suggests two-part pricing of end-use consumption of a load serving entity’s retail customers, meaningfully linking the wholesale and retail markets. It is applicable to countries that have implemented wholesale competition or are in the process of doing so. Hence, its policy implication is that it should be considered in the ongoing debate of electricity reliability and market competition.

Keywords: electricity market design, wholesale competition, reliability differentiation, tolling agreements, missing money, price manipulation

JEL Classification: D2, D43, L11, L94

Suggested Citation

Woo, CK and Tishler, Asher and Zarnikau, Jay, A Wholesale Electricity Market Design Sans Missing Money and Price Manipulation (April 24, 2019). USAEE Working Paper No. 19-401. Available at SSRN: https://ssrn.com/abstract=3377032 or http://dx.doi.org/10.2139/ssrn.3377032

CK Woo (Contact Author)

The Education University of Hong Kong - Department of Asian and Policy Studies ( email )

Hong Kong
China

Asher Tishler

Tel Aviv University - Faculty of Management ( email )

P.O. Box 39010
Ramat Aviv, Tel Aviv, 69978
Israel

CENTRUM Business School

Daniel Alomía Robles s/n
Los Alamos de Monterrico
Surco, Lima, Lima 00001
Peru

Jay Zarnikau

Frontier Associates LLC ( email )

1515 S Capital of Texas Hwy
Suite 110
Austin, TX 78746-6544
United States

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