Effective design for competitive electricity markets

The deregulation of the electricity supply industry has resulted in the formation and growth of numerous electricity markets including retail, wholesale and ancillary markets. Effective design of electricity markets seeks to integrate principles of market economics with the physical characteristics of power system operation. An efficient electricity market should produce cost reflective prices, reliable and secure electricity supplies and adequate infrastructure. It should be transparent, providing a level playing field for all market participants and have a mechanism to detect and deter market power abuse. Most importantly, the market should be robust enough so as not to result in the collapse of the power system in the presence of market flaws. This paper looks into various types of markets among the deregulated electricity supply industries and analyses market design principles for efficient and competitive markets. The paper puts special emphasis on wholesale energy markets as they form the major trading hub in the electricity market.