The Economics of Electricity Markets

2Introduction to Electric Power Systems

All electric power systems consist of three primary physical elements: Devices for converting energy in other forms into electrical energy (also known as generators), devices associated with transporting or delivering electrical energy to where it is consumed (wires and networks), and devices for converting that electrical energy into the myriad goods and services that make up modern life (such as lights, heaters, motors and electronic devices).

Although there are countless small stand-alone electric power systems in operation (such as those in remote locations or remote communities), for reasons which we will discuss further below, for the past century the bulk of electric power consumed has been provided through a centralised, interconnected electricity network connecting hundreds or thousands of generating units to many millions of customers. Although, as we will see, there are some forces that tend towards decentralisation and possible splintering of future electric power systems, it seems likely that for the foreseeable future most electric power will be produced and consumed through large electric power systems connecting very large numbers of generating units and electricity consumers across hundreds or thousands of kilometres. It is these centralised interconnected electric power systems that are the focus of the electricity power industry and the subject matter of this book.

To start, however, we must have some basic understanding ...