Spot Pricing of Electricity
There is a need for fundamental changes in the ways society views electric energy. Electric energy must be treated as a commodity which can be bought, sold, and traded, taking into account its time-and space-varying values and costs. This book presents a
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THE KLUWER INTERNATIONAL SERIES IN ENGINEERING AND COMPUTER SCIENCE
POWER ELECTRONICS & POWER SYSTEMS
Consulting Editor
THOMAS A. LlPO University of Wisconsin
~
Madison
SPOT PRICING OF ELECTRICITY by
FRED C. SCHWEPPE
Massachusetts Institute of Technology
MICHAEL C. CARAMANIS Boston University
RICHARD D. TABORS
Massachusetts Institute of Technology
ROGER E. BOHN
Harvard Business School
KLUWER ACADEMIC PUBLISHERS BOSTONjDORDRECHTjLONDON
Distributors for North America: Kluwer Academic Publishers 101 Philip Drive Assinippi Park Norwell, Massachusetts 02061, USA Distributors for the UK and Ireland: Kluwer Academic Publishers Falcon House, Queen Square Lancaster LAI IRN, UNITED KINGDOM Distributors for all other eountries: Kluwer Academic Publishers Distribution Centre Post Office Box 322 3300 AH Dordrecht, THE NETHERLANDS
Library of Congress Cataloging-in-Publication Data Spot pricing of electricity/by Fred C. Schweppe ... let al.]. p. em. - (The Kluwer international series in engineering and computer science. Power electronics and power systems) Includes index ISBN-13: 978-1-4612-8950-0
e-ISBN-13: 978-1-4613-1683-1
001: 10.1007/978-1-4613-1683-1
I. Electric utilities-Rates. 2. Commodity exchanges. I. Schweppe, Fred c., 1933II. Series. HG6047.E43S66 1987 338.4'336362 - dc 19
87-36643 CIP
Copyright 1988 by Kluwer Academic Publishers. Fourth Printing 2000. Softcover reprint of the hardcover 1st edition 2000 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher, Kluwer Academic Publishers, 101 Philip Drive, Assinippi Park, Norwell, Massachusetts 02061
DEDICATION To Mary Alice Sanderson, long live the sponge; and to our children, Carl, Christina, Constantine, Daniel, David, Edmund, Fritz (Charles), Kristen, and Malaika. Shortly before completion of this book Fred C. Schweppe, our friend, colleague and senior author died suddenly. Fred created spot pricing and proved, again, that "The forecast is always wrong!"
T ABLE OF CONTENTS
xvii
Preface
3
Overview 1.1 1.2 1.3 1.4 1.5 1.6
Goal of Book Three Steps to an Energy Marketplace How Will Customers Respond? Energy Marketplace Operation: A Developed Country Energy Marketplace Operation: A Developing Country Discussion of Chapter I Supplement to Chapter I: Summary of Issues Historical Notes and References: Chapter I Notes
3 9 II 15 19 19
20 26 27
PART I: THE ENERGY MARKETPLACE
29
Preface to Part I: The Energy Marketplace
29
2
Behavior of Hourly Spot Prices
31
2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9
Defini tion of Hourly Spot Price Components of Hourly Spot Prices Operating Cost Components Quality of Supply Components Aggregated Network Revenue Reconciliation Components Buy-Back Rates Expected Price Trajectories Price Duration Curves
32 34
vii
35
38 41 42 44 45 47
viii Contents
2.10 Customer Response 2. II Discusion of Chapter 2 Historical Notes a
