Summary: Different Types of Market Constructs


Hopefully everyone has a basic understanding
of the grid, its regulation, WAPA, and the three basic market constructs and is ready
for some robust discussion during out meeting in Phoenix on April 9th and 10th. This final summary module will provide a brief
overview of some of the electricity market concepts that we discussed in this material
today. It is generally believed that a market that
is structured well, functions well, and is independent of market manipulation will result
in more efficient operation of the electric grid. This is because a well-functioning market
will allow for more efficient utilization of existing assets. Entities with low-cost generation will be
able to provide energy to entities with higher cost generation. Also, when there are a large number of entities
interconnected and operating together across a large footprint, one entity doesn�t have
to necessarily provide all of the reserves for its single largest contingency. Multiple entities can pool their resources
to ensure that any likely contingency will be covered with the resources in the market
footprint. Another major benefit is that with the increase
in variable generation, having diversity of load and resources across a large geographic
area will allow the variable generation to be utilized instead of curtailed, and can
drive down the market prices for all participants. In addition, RTOs provide for more efficient
planning of the grid, since there�s one entity that can oversee all of the components
within a large geographical area. This big picture view allows RTOs to be able
to determine what is the best way to alleviate transmission constraints and other system
issues. Without this big picture view there are a
just a bunch of different entities trying to figure out what is best for them, and what
is best for them might not be best for the system. Finally, markets provide much better transparency
into wholesale market pricing since the day-ahead and real-time prices are continually updated
and posted. To briefly summarize, the three constructs
that we discussed today. All of these market constructs are in play
across the U.S. today, and it is important to understand the distinction between these
three constructs. It is also important to understand that each
different construct is not necessarily mutually exclusive of the others. For example, in a fully integrated market
the Real-time market functions similar to the EIM market, and bi-lateral transactions
can continue to exist among parties. That being said, there are important differences
and aspects between each of the three market constructs we discussed today. For a bi-lateral market, as a reminder, it
is typically contract between two Vertically Integrated Utilities. The utilities make the generator fleet dispatch
decisions within their balancing authority areas and the balancing authority operators
handle the balancing. In an EIM much of the bi-lateral construct
remains, but there is an extra �layer on the cake� so to speak. In an EIM, SCED is used to settle the difference
between scheduled generation and load and actual generation and load. The primary benefit of this market structure
is that all market resources operate at the economic efficiency point across the footprint. And more competition among generators should
lower the price for spot energy across the market. Finally, as a reminder, a fully integrated
market pretty much rolls everything together and lets the market operator control the generation,
load, and transmission. And allows the market to solve for the most
efficient generation to serve the load across the market footprint given any transmission
constraints in both the Day-ahead and Real-time. Full integrated market is operated by a RTO
that is neutral market maker without any financial interest in the market.

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