viernes, abril 25, 2008

A Universal System with Price Spikes

An Unjustified Universal System

Jim had responded himself earlier by writing “regarding a market innovation, rather than a technical one, I can see his point to some extent. If IMEUC is meant to be for all customers, then it might have to prove itself pretty thoroughly for that to be accepted. A system that could allow for multiple strategies might be more easy to get approved, as long as no free rides are allowed, as Jose has indicated.”

Len had also responded himself too on December 25, 2006. In very rare level 3 win-win communication mode participation, he wrote: “Agreed Jose Antonio on Switchboard model. The point is, once the transaction costs are zeroed with full automation, the large generating entities have no reason to object to selling directly to the smallest customers as well as "large customers". And the market manager is not monopolizing retail, simply the means of recording transactions. IF any would-be retailer can come up with a model which can attract customers away from the generating entities, then they are entirely free to enter the market with offers right alongside the originating generating entites.“

The problem to get to full automation of all of the customers entails investments by many customers, especially a “little old lady” who can perceive she afford a system to respond to real time prices. Her protection from price spikes isn’t pointless. EWPC prevents catastrophic price gouging without the need for price controls, as can be seen in the next post.

Price Spikes (and Unreliable Service)

I have spent time trying to make a clear level 3 win/win communications mode to show how under EWPC service is reliable and without price spikes. I think I got it as intellectual property, unedited, an uncorrected, draft material of The EWPC Textbook.

Price spikes result from incomplete markets and lack of operations planning and demand elasticity. Under EWPC the utility responsibility to serve is shifted to the transportation (T&D natural monopoly) only utility responsibility to transport and for customers to have demand response as a condition of service to enable demand elasticity.

To fulfill its responsibility to transport, the transportation utility performs a non-trivial operations planning process (which I have named as reliability constraint generation and demand commitment). That process results in a time ahead (hour, day, week) supply demand market clearing price, that commits generating units and demand reductions by 2GRs that will be available during real time operation to guarantee reliable service, by having sufficient reserves in time and space. Any generator or 2GRs, that after committing to perform don’t perform, will pay real time prices in that separate market.

The opportunity for the real time (balancing market as it is called as a result of forecasting errors) market segment depends on generators and 2GRs missing their commitments to perform. In a sense this is the other side of the EWPC article IMEUC: Unreliable Service and Price Spikes.

So, under EWPC “little old ladies” don’t need to fear price spikes and are also protected from abuse by prudential regulations. However, if government finds that they require subsidies; those may come from the public welfare system.

Todd: in the open market, I identified earlier three modules: 1) 2GRs compete with 2GRs; generators compete with generators; and 3) 2GRs demand reductions compete with generators supply increases. It is obvious that the survival of 2GRs and generators requires they handle economic transactions very closely.

Jim got it right: price spikes are unreliability are intimately related. EWPC flies like the DC-3 of the great depression, by being the market architecture and design paradigm with commercial quality service. The EWPC EPAct should be expected ASAP to solve the global systemic energy crisis.

The two above comments were posted under the EnergyPulse article Building Models for the Smart Grid Business Case, by Jagoron Mukherjee, Senior Consultant, KEMA

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