1. Is there a deregulated electricity market operating in the world today?Sean Meyn Department of Electrical and Computer Engineering and the Coordinated Science Laboratory University of Illinois

2. Is there a deregulated electricity market operating in the world today?Short answer: No, and why you should be grateful 3. Is there a deregulated electricity market operating in the world today?Short answer: No, and why you should be gratefulKey question:How should we regulate? 4. I Why Markets?ORGANIC FLOUR 5. Market GoalsIncentives for improved services, reduced cost Decentralized regulation of activitiesAlso require Reliability and AdaptationDetails of the market depend on these goals,and the intended application... Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion- the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals - the technique of the marketplace. -MF Only two ways? 6. Market GoalsIncentives for improved services, reduced cost Decentralized regulation of activitiesAlso require Reliability and AdaptationDetails of the market depend on these goals,and the intended application... Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion- the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals - the technique of the marketplace. -MF Only two ways? 7. Market GoalsIncentives for improved services, reduced cost Decentralized regulation of activitiesAlso require Reliability and AdaptationDetails of the market depend on these goals,and the intended application... Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion- the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals - the technique of the marketplace. -MF Only two ways? 8. Market GoalsIncentives for improved services, reduced cost Decentralized regulation of activitiesAlso require Reliability and AdaptationDetails of the market depend on these goals,and the intended application... Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion- the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals - the technique of the marketplace. -MF Only two ways? 9. Market GoalsIncentives for improved services, reduced cost Decentralized regulation of activitiesAlso require Reliability and AdaptationDetails of the market depend on these goals,and the intended application... Fundamentally, there are only two ways of coordinating the economic activities of millions. One is central direction involving the use of coercion- the technique of the army and of the modern totalitarian state. The other is voluntary cooperation of individuals - the technique of the marketplace. -MF Only two ways? 10. How Should We Think About Market Design? Commodities Flour free of bugs Garbage Collection Flour free of gluten(?)ORGANIC FLOURProper trash disposalGarbage truck tra cServices for the poorTransportationService guaranteesSafety Incentives for construction Service guaranteesDisincentives to harm environmentIncentives for re department given volatile market Services How should we think about market design in di erent settings? 11. How Should We Think About Market Design? Commodities Flour free of bugs Garbage Collection Flour free of gluten(?)ORGANIC FLOURProper trash disposalGarbage truck tra cServices for the poorTransportationService guaranteesSafety Incentives for construction Service guaranteesDisincentives to harm environmentIncentives for re department given volatile market Services How should we think about market design in di erent settings? 12. II How do others regulate?Control Algorithm ContinuousGlucose SensorInsulinPump 13. Goals and Methods from Control EngineeringGoals: Regulation, Reliability, Adaptation, Reasonable costs 14. Goals and Methods from Control EngineeringGoals: Regulation, Reliability, Adaptation, Reasonable costs Typical steps for design: 1. Build simple models that capture key features 2. Construct control solution based on model, taking into account constraints and costs 3. Simulate design, and revise 4. Test on physical system in highly controlled environment 5. Revise design, add additional redundancy and safety enhancements 15. Goals and Methods from Control EngineeringGoals: Regulation, Reliability, Adaptation, Reasonable costs Typical steps for design: 1. Build simple models that capture key features 2. Construct control solution based on model, taking into account constraints and costs 3. Simulate design, and revise 4. Test on physical system in highly controlled environment 5. Revise design, add additional redundancy and safety enhancementsChoices for step 2: PID, Loop shaping, MPC, HJB, MDP, Q/TD-Learning ...Approach depends on system and goals. 16. Goals and Methods from Control EngineeringGoals: Regulation, Reliability, Adaptation, Reasonable costs Typical steps for design: 1. Build simple models that capture key features 2. Construct control solution based on model, taking into account constraints and costs 3. Simulate design, and revise 4. Test on physical system in highly controlled environment 5. Revise design, add additional redundancy and safety enhancements Choices for step 2: PID, Loop shaping, MPC, HJB, MDP, Q/TD-Learning ...Approach depends on system and goals.Justi cation for 1? Control solution is highly robust, so thatsignificant modeling error is tolerated. 17. Applications of Control AerospaceAtomic ClocksWind Farms HVACSoil-Moisture HysteresisChemical Engineering Tokamak PlasmasInventory SystemsArti cial OrgansControl AlgorithmContinuous Glucose SensorPancreasPancreaticInsulin duct Pumpduct DuodenumDesign involves common principles, but details are very di erent! 18. Regulation of Gigawatts or Glucose Control AlgorithmContinuous Glucose SensorPancreasPancreaticInsulin duct Pumpduct Duodenum Design involves common principles, but details are very di erent! A mechanical pancreas does not tell each cell what to doIt measures global variables and sends global signals to ensure that the cells have resources necessary to do their individual jobsThis is precisely our goal when we design a market for electricity 19. MechanismsThe value of markets is clear The question is, how we can create markets that will achieve the diverse, critical goals in the energy industry ? Price caps 5000 Purchase Price $/MWh Long-term contracts; capacity supply obligation Previous week4000 3000 Penalties2000 10000 Mon TuesWeds Thurs Fri Dynamic prices and responsive demand On windy nights in northern Germany, consumers are paid to keep the lights on...- April 23 (bloomberg.com) Load Shedding New technology for generation and storage Market architecture redesign? 20. MechanismsThe value of markets is clear The question is, how we can create markets that will achieve the diverse, critical goals in the energy industry ? Price caps 5000 Purchase Price $/MWh Long-term contracts; capacity supply obligation Previous week4000 3000 Penalties2000 10000 Mon TuesWeds Thurs Fri Dynamic prices and responsive demand On windy nights in northern Germany, consumers are paid to keep the lights on...- April 23 (bloomberg.com) Load Shedding New technology for generation and storage Market architecture redesign? 21. III Whats special about power? 22. Economics Challenges ComplexityPower Networks are ComplexInterconnected network ofENTSO-E http://www.entsoe.eu 23. Economics ChallengesUncertainty 32 Available Resources Forecast (GW)30 28California ISO26www.caiso.com24 22Day Ahead Demand Forecast20Actual Demand (GW) 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 HourCalifornia ISO Mission For the bene t of our customers, we: * Operate the grid reliably and e ciently* Provide fair and open transmission access* Promote environmental stewardship* Facilitate e ective markets and promote infrastructure development 24. 32Available Resources Forecast (GW) 30 Economics Challenges Uncertainty28 26 24 22 Day Ahead Demand Forecast Will the wind blow tomorrow?20Actual Demand (GW)00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21 22 23 Hour 7 Load (GW) Bonneville Power Administration 6Load and available wind generation 5January 16 - 22, 2010Wind generation 1 0SunMon TuesWeds Thurs Fri Sat250150 April 20, 2010 April 21, 2010 April 22, 2010 200 Day ahead forecast generation (MW) 200 Real-time generation (MW) 150100 150 100100 50 50500 EirGrid plc 25. Economics ChallengesDynamicsPower Networks are Dynamic Malin substation August 10, 1996Growing oscillations seen at the California-Oregon border 4600 MW4400 4200 4000Time in SecondsMass-spring model 26. Economics ChallengesPolitical Renewable Portfolio Standardswww.dsireusa.org / February 2010VT: (1) RE meets any increaseME: 30% x 2000WA: 15% x 2020*New RE: 10% x 2017 MN: 25% x 2025in retail sales x 2012;MT: 15% x 2015 (Xcel: 30% x 2020) (2) 20% RE & CHP x 2017NH: 23.8% x 2025 OR: 25% x 2025 (large utilities)* ND: 10% x 2015 MI: 10% + 1,100 MW MA: 15% x 20205% - 10% x 2025 (smaller utilities) x 2015* + 1% annual increase(Class I RE)SD: 10% x 2015 WI: Varies by utility; NY: 29% x 2015 10% x 2015 goal RI: 16% x 2020NV: 25% x 2025*CT: 23% x 2020IA: 105 MW W OH: 25% x 2025CO: 20% by 2020 (IOUs) PA: 18% x 2020 10% by 2020 (co-ops & large munis)* IL: 25% x 2025 WV: 25% x 2025* NJ: 22.5% x 2021 CA: 33% x 2020UT: 20% by 2025*KS: 20% x 2020 VA: 15% x 2025*MD: 20% x 2022MO: 15% x 2021DC DE: 20% x 2019*AZ: 15% x 2025 NC: 12.5% x 2021 (IOUs) DC: 20% x 2020010% x 2018 (co-ops & munis)NM: 20% x 2020 (IOUs) 10% x 2020 (co-ops)TX: 5,880 MW x 2015 HI: 40% x 2030 State renewable portfolio standardMinimum solar or customer-sited requirement 29 states + *State renewable portfolio goalExtra credit for solar or customer-sited renewables DC have an RPSSolar water heating eligible (6 states have goals)6Includes non-renewable alternative resources 27. Economics ChallengesMarket PowerRipping o those poor grandmothersSempra agrees to major refund for energy crisisCalifornia, July 2000 Spinning reserve prices PX prices $/MWh Enron traders openly discussed manipulating pay about $410 million to settle claims Sempra Energy has agreed to Californias power played Enron-style games with California's electricity market that it market during profanity-laced70 250 telephone conversations in which they merrily during the 2000-01 energy crisis, state o cials said Wednesday. gloated about ripping o those poor60 200 grandmothers during the states energy crunch 50 in 2000-01 ... money will be refunded to California utility customers, who are The [AP by Kristen Hays, 06/03/04]15040 still paying the costs of the crisis through a charge on their monthly 30 But how competitiveSempra was just one of the companies accused of manipu- bills. . . . is the electricity market? 10020 lating California's newly deregulated energy market, starting in the What makes California's power crisis politically 50 explosive summer of 2000it's not just aboutis the suspicion that 10 inadequate capacity, but also about arti cially0 in ated prices.WedsThurs FriSat SunMon Tues Weds . . . The crisis forced the state to buy expensive long-term power con- How might market manipulation work?are still paying o ,July, with air-conditioners across the state running full blast tracts that Californians Suppose that it's a hot month by month, on their and the power industry near the limits of its capacity. If some of that capacity suddenly went o line for whatever reason, utility bills. . . . the resulting shortage would send wholesale electricity prices sky high. So a large producer could actually increase its pro ts by inventing technical problems that shut down some of its generators, thereby driving up the price it gets on its remaining output.Does this really happen? A recent National Bureau of Economic Research working paper by Severin Borenstein, James Bushnell and Frank Wolak cites evidence that exactly this kind of market manipulation took place in Britain before 1996[David R. Baker, Chronicle Sta Writer Thursday, April 29, 2010] and in California during the summers of 1998 and 1999. [NYT by Paul Krugman, 12/10/00] 28. Economics ChallengesMarket PowerRipping o those poor grandmothersSempra agrees to major refund for energy crisisCalifornia, July 2000 Spinning reserve prices PX prices $/MWh Enron traders openly discussed manipulating pay about $410 million to settle claims Sempra Energy has agreed to Californias power played Enron-style games with California's electricity market that it market during profanity-laced70 250 telephone conversations in which they merrily during the 2000-01 energy crisis, state o cials said Wednesday. gloated about ripping o those poor60 200 grandmothers during the states energy crunch 50 in 2000-01 ... money will be refunded to California utility customers, who are The [AP by Kristen Hays, 06/03/04]15040 still paying the costs of the crisis through a charge on their monthly 30 But how competitiveSempra was just one of the companies accused of manipu- bills. . . . is the electricity market? 10020 lating California's newly deregulated energy market, starting in the What makes California's power crisis politically 50 explosive summer of 2000it's not just aboutis the suspicion that 10 inadequate capacity, but also about arti cially0 in ated prices.WedsThurs FriSat SunMon Tues Weds . . . The crisis forced the state to buy expensive long-term power con- How might market manipulation work?are still paying o ,July, with air-conditioners across the state running full blast tracts that Californians Suppose that it's a hot month by month, on their and the power industry near the limits of its capacity. If some of that capacity suddenly went o line for whatever reason, utility bills. . . . the resulting shortage would send wholesale electricity prices sky high. So a large producer could actually increase its pro ts by inventing technical problems that shut down some of its generators, thereby driving up the price it gets on its remaining output.Does this really happen? A recent National Bureau of Economic Research working paper by Severin Borenstein, James Bushnell and Frank Wolak cites evidence that exactly this kind of market manipulation took place in Britain before 1996[David R. Baker, Chronicle Sta Writer Thursday, April 29, 2010] and in California during the summers of 1998 and 1999. [NYT by Paul Krugman, 12/10/00] 29. Economics Challenges FrictionTransmission Constraint Separating Tasmania Victoria January 16, 2007 19,000 Tasmania January 16, 200710,0001,400 9,000 Demand 1,2001,000 Price (Aus $/MWh) Price (Aus $/MWh) 8,0001,000 Volume (MW) Volume (MW) 7,000 Demand 6,000 800 10,000 5,0000Prices 600 4,000 3,000 400 2,000 Prices 200 - 1,000 1,000 1,0000- 1,000 0 - 1,500 00:00 01:00 02:00 03:00 04:00 05:00 06:00 07:00 08:00 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 24:00 00:00 01:00 02:00 03:00 04:00 05:00 06:00 07:00 08:00 09:00 10:00 11:00 12:00 13:00 14:00 15:00 16:00 17:00 18:00 19:00 20:00 21:00 22:00 23:00 24:00Power price pledgeSUE NEALESFebruary 16, 2010 09:02amwww.themercury.com.auTHE State Government has pledged to cap power price rises ...Tasmanian power prices have jumped more than 30 per cent in the past three years ...The Government said its pledge to protect Tasmanians for a yearfrom massive power price rises would be funded from government co ers. 30. Economics ChallengesFrictionPrice dynamics in power markets around the worldIllinois, July 1998 Cho & Meyn, 2006 Prices 5000 Purchase Price $/MWhReservesPrevious week Normalized demand 4000choke 30002000r1000 00 MonTues Weds Thurs FriOntario, November 2005 APX Power NL, April 23, 2007Forecast Demand Demand in MW Last Updated 11:00 AM Predispatch 1975.11 Dispatch 19683.5Current Week Volume Current Week Price210007000400Prev. Week Volume Prev. Week Price180006000 300 Price (Euro/MWh) 5000 Volume (MWh)15000 4000Hourly Ontario Energy Price $/MWhLast Updated 11:00 AM Predispatch 72.79 Dispatch 90.82 2002000 3000Forecast Prices1500 20001001000 500 1000 036 9 12 15 18 21 36 9 12 15 18 21 3 6 9 12 15 18 21 Time 0 0TuesWedsThursTues Wed ThusFri Sat SunMon 31. MechanismsThe value of markets is clear The question is, how we can create markets that will achieve the diverse, critical goals in the energy industry ? Price caps 5000 Purchase Price $/MWh Long-term contracts; capacity supply obligation Previous week4000 3000 Penalties2000 10000 Mon TuesWeds Thurs Fri Dynamic prices and responsive demand On windy nights in northern Germany, consumers are paid to keep the lights on...- April 23 (bloomberg.com) Load Shedding New technology for generation and storage Market architecture redesign? 32. MechanismsThe value of markets is clear The question is, how we can create markets that will achieve the diverse, critical goals in the energy industry ? Price caps 5000 Purchase Price $/MWh Long-term contracts; capacity supply obligation Previous week4000 3000 Penalties2000 10000 Mon TuesWeds Thurs Fri Dynamic prices and responsive demand On windy nights in northern Germany, consumers are paid to keep the lights on...- April 23 (bloomberg.com) Load Shedding New technology for generation and storage Market architecture redesign? 33. IV Research Frontiers 34. Research Frontiers Mechanism design: Appropriate tradeo s between e ciency and reliability. Policies must evolve with environment, and with unexpected consequences of regulation. Incentives to achieve long-term societal goals Rethinking Real Time Markets Is this a free market forre ghters? 35. Research Frontiers Mechanism design: Appropriate tradeo s between e ciency and reliability. Policies must evolve with environment, and with unexpected consequences of regulation. Incentives to achieve long-term societal goals Rethinking Real Time Markets Is this a free market forre ghters? 36. Research Frontiers Mechanism design: Appropriate tradeo s between e ciency and reliability. Policies must evolve with environment, and with unexpected consequences of regulation. Incentives to achieve long-term societal goals Rethinking Real Time Markets Is this a free market forre ghters? 37. Research Frontiers Demand response 38. Research Frontiers Demand response 400350300250 Interconnected 200 network ofENTSO-E 150100 500 Mon Tues Weds Thurs Fri Sat Sun Beyond arithmetic. What are the dynamical properties of the power grid in LA county with dynamic pricing, hybrid cars, and automated water pumping? 39. Research FrontiersComplex networks: Control issues in a complex, coupled network. 40. Research FrontiersComplex networks: Control issues in a complex, coupled network. Highways are complex, but complexity is reduced with proper rules of the road 41. Research FrontiersComplex networks: Control issues in a complex, coupled network.Research requires collaboration among economists, control engineers, mathematicians, computer scientists, information theorists, ...Highways are complex, but complexity is reduced with proper rules of the road