Electricity market basics

Slides [link]

Key Points

Reading and response questions

Lecture 1

Response questions:

  1. What are some unique aspects of electricity supply and demand, compared to other markets? (2-3 sentences)
  2. Why is energy storage important for renewable energy? (2-3 sentences)

Lecture 2

Regulation

This classes will be about the economics of regulation, with an emphasis on natural monopolies.

Required reading

Response questions:

  1. At a high level, how were prices set in regulated electric power markets? (3-4 sentences is plenty)
  2. What determines the amount of profit that a regulated utility makes? (1-2 sentences)

Lecture 3

Response questions:

  1. Why are electricity prices so volatile? (2-4 sentences)
  2. Consumers are generally shielded from this volatility. What is the problem with stable monthly bills and volatile marginal costs? (one paragraph)

Lecture 4

Electricity Game Intro

To help reinforce the concepts discussed last week, this week we’re going to be playing the Stanford Energy Market Game. This game simulates the California electricity market.

Response questions:

  1. How do generators make money in a uniform price auction like the one described in the last video? Do you think power plants make more money if they bid their true costs or if the bid higher or lower? Response should one paragraph. Don’t worry if you don’t “know” the answer, just try to reason through it.

Lecture 5

Response questions:

  1. What are the channels through which a tax on carbon emissions from electric generators reduces carbon emissions?
  2. Which channel do you think will be most important (ie will result in the biggest drop in emissions)?

Additional material