The Economics of Electricity Markets

Preface

Around the world, the electricity industry is in the process of undergoing a fundamental transition. Twenty years ago, electricity was primarily generated at large, industrial-scale generating plants, and transported in one direction to consumers via the transmission and distribution networks. The large generators were typically closely integrated into the operation of the transmission and distribution networks. Electricity consumers, on the other hand, were treated as essentially passive.

This paradigm has changed and will change further. Around the world, a number of regions have chosen to introduce competition and competitive markets into the generation of electricity. In most of these regions, the operation of generation and transmission is coordinated through market mechanisms. This required a substantial change in the way the electricity industry is organised and operated.

However, further transformations are underway. With increasing pressure for decarbonisation of the energy sector, there is increasing penetration of renewable generation and increasing take-up of electric vehicles. Changes in battery technology threatens to substantially change the way electricity is stored and consumed. Just as importantly, the IT and communication revolutions have opened up the scope for a host of new devices and appliances, allowing small-scale consumers for the first time to respond to local electricity market conditions.

The full benefits of these developments will only ...