IEEE Power & Energy Magazine - July/August 2015 - 25

discern between likely winners and losers in demand, transport, and production rather than using manual engineer-inthe-loop assumptions. In other words economic optimizations can provide guidance of plausible capacity additions
and retirements to better inform network design.

resources. Some countries are exploring cooptimizations and
are becoming educated on the advantages of cooptimizations
as this places all options on a level playing field i.e. transmission solutions compete with resource solutions leading to system
development that is consistent with open access outcomes.

Integrated Computational Tools

Power Market Structures

Integrated computational tools have been developed that
embody facets of power engineering technical analysis
along with economic optimizations to justify the assumptions that go into the technical analysis. The trend of low
cost multicore CPUs has facilitated advancement in parallel
computing such that it is feasible to perform calculations in
a relatively cheap server cluster.
Thus, today it is possible not only to assess snapshot power
flows at peak loads but to run hourly and subhourly production cost with inputs from capacity expansion algorithms
that can be populated with a universe of expansion options to
choose from based on least-cost economics. In summary, the
objective of the power engineer can no longer be least-cost
innovative network designs to obtain reliability but least-cost
network designs that minimize costs across energy prices,
ancillary services prices, capacity prices, and the cost of reliability. This is better stated as the minimization of the nexus
of short-run production costs and capital costs subject to reliability constraints, as shown in Figure 5.

Over the past decade or so, the world has observed many
deregulations of supply via wholesale power markets around
the globe. Many products have been developed alongside the
electricity energy day ahead markets such as real time market,
reserves, and regulation products, congestion products, derivatives, forwards and futures, capacity markets, and others. We
see many permutations in terms of vertical markets and liberalized markets and a diversity of regulations and market rules.

Considering All Options

Competition Pricing
Largely, power markets have been successful in making
short-run electricity prices transparent and bringing competition to supply. Some competitive power markets have
attempted to address pricing of and securing capacity; however, these capacity markets tend to be designed similar to
spot markets that do not match the time frame of capacity
technical and economic life.
When designing capacity market key parameters for
cost of new entry and shortage price-setting, economists
approach the problem in terms of what it will take to incentivize reference technologies to enter markets to maintain
minimum grid reliability standards. Should we meet a reliability standard at an incentive capacity price for a reference technology? Or should we take the viewpoint of the

In an era of many options, superior planning processes will
place all options both economically and technically on a level
playing field in terms of capital and production costs during the assessment of future
grids, including transmission options competing with
resource options. We see an
Cost $
interesting trend in dereguTotal Cost C(x)+P(x)
lated or liberalized markets
that have adapted and have
adopted many of the emergInvestment Cost/
ing trends in the planning
Capital Cost C(x)
process including advancing
market structures to provide
incentive signals to options
of demand response and
energy efficiency.
However, most planning
Production Cost P(x)
processes still sequentially
optimize transmission in more
of a reactive manner. Given
the advancements of computing power and optimization
Minimum
Investment x
algorithms, only a few of the
Cost Plan x
world's planning processes
have adopted cooptimization figure 5. Ideal nexus of production costs and capital costs. (Source: Energy Exemplar.
of transmission with other PLEXOS Ingegrated Energy mode.)
july/august 2015

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