Fundamentals of power system economics.

Abstract

For about a hundred years, the electricity supply industry was in the hands of vertically integrated monopoly utilities. During that time, engineers treated the management of this industry as a set of challenging optimization problems. Over the years, these optimization problems grew in size, complexity and scope. New algorithms were developed, and ever more powerful computers were deployed to refine the planning and the operation of the power systems. With the introduction of competition in the electricity supply industry, a single organization is no longer in charge. Multiple actors with divergent or competing interests must interact to deliver electrical energy and keep the lights on. Conventional optimization problems are often no longer relevant. Instead, dozens of new questions are being asked about a physical system that has not changed. To deliver the promised benefits of competition, old issues must be addressed in radically new ways. To stay in business, new companies must maximize the value of the service they provide. Understanding the physics of the system is no longer enough. We must understand how the economics affect the physics and how the physics constrain the economics.