Talk:Electricity market

Deregulation and prices

I generally dislike using the news media, so I am not planning to put it into an article, but here, for the talk page, is a plain-English explanation of recent economic measurements of the effects of deregulation: Why Are Energy Prices So High? Some Experts Blame Deregulation (there is a link to the actual research with conclusions that I have added to the article). This is NYT, so it is behind the paywall, so here is the short summary: in the places with deregulated electricity market, the prices are significantly higher, the average household difference is $40 per month (in the parentheses: this agrees with anecdotal evidence of people who move between the still very regulated US South and significantly deregulated West). The causes are two-fold (see the scientific article) available at [1]: (1) the generator, no longer under the regulatory pressure, extract much higher margins (2) the distribution companies add their own margin on top ("double marginalization" as the professors put it). Викидим (talk) 07:31, 21 May 2023 (UTC)

• Updated version: [2]: cost of generation falls, but wholesale prices increase with deregulation. --Викидим (talk) 00:26, 12 September 2024 (UTC)

Local flexibility markets

@Hhjjkk774: Do I understand correctly that the "local flexibility markets" are just academic ideas at this point? If so, perhaps we should have a special section ("Directions of research"?), where we can separate this type of information so that the reader has easier time distinguishing between the current state of the art and the potential improvements? Викидим (talk) 19:03, 20 June 2023 (UTC)

What to do with this article?

I'd really like to improve this article. I might start making some initial edits now, but I'd appreciate any feedback on the direction.

Some thoughts:

• I think it needs to start with a history section
• The technical content needs a bit more introduction
• Much of the content only applies to some markets, rather than all

These are things I'll try to address for now 20WattSphere (talk) 11:44, 8 April 2024 (UTC)

I agree with your points. Indeed, the restructuring of electric power industry needs to be described somewhere in detail. IMHO it warrants a separate article. Викидим (talk) 19:30, 8 April 2024 (UTC)

I am willing to help out with improving this article, and recommend it is done in stages. I suggest a useful first step is to remove almost all the content in the lead, and merge it into relevant sections in the body. At present, the lead is a poorly-organised diverse mixture of difficult-to-read content. The lead will require rewriting from scratch - but this is perhaps best left for later. I agree that a separate article on history and restructuring of the electric power industry is a good idea. That would allow the remaining content to focus mostly on how electricity markets work at present. I am unsure whether it is best to go for this right now, or take a step-wise approach by first improving the content in this article about the history and restructuring, and then split it out.

I note the tag that says the this article may be too technical for most readers to understand. In response, it may be possible to construct an "Introduction" that provides a reasonably simple overview that most readers could follow. However, the details of modern markets, such as nodal pricing and security or transmission constraints are inevitably quite complex.

One aspect of terminology that I suggest reviewing is the term "traditional market". I don't think this term helps. Perhaps "historic" or "Prior to 1980s reforms" might be better?

I would be happy to be assigned a section or topic as part of a team effort, and will wait for a response. Note that any of my contributions may need to be scrutinised to make sure the are not overly influenced by the market structure and operations in New Zealand. :) Marshelec (talk) 20:27, 8 April 2024 (UTC)

My $0.02:

1. The regulated markets are not "historic": a lot of countries, and about half of the US states, retain this structure and do not plan to change it (the case of US states incidentally demonstrates that the regulated market arguably yields better prices for the consumer[3]). The word "traditional" is used in sources, to the best of my recollection.
2. There is no ownership of articles here, definitely no such feeling on my side. So WP:BEBOLD. My sensitivity is only in providing the inline cites (personally I prefer {{sfn}} style) for all added text and in using mostly the first-class sources: research articles in reputable per-reviewed journals or monographs from scientific publishing houses. Journalists IMHO tend to get carried away in general, and particularly on this subject.
3. The complexity of the subject is indeed high, and, I agree with you, is inherent in this corner of the universe: simple approaches have been tried and do not work, sugarcoating this state of affairs will not be a good thing for the encyclopedia. With time, more rocks on the bottom are being found, and new mechanisms added to avoid them. If our readers (who are also consumers) wants simple markets, the deregulated markets cannot provide this simplicity.
4. Per #3, we will have to keep a sizeable lead to explain this complexity to even a casual reader.

Викидим (talk) 01:11, 9 April 2024 (UTC)

Thanks for this my friend.

• Re 1 - I'm not familiar enough with academic literature to know the preferred terminology. I could imagine "vertically integrated" being more descriptive than "traditional", but don't have any strong opinion.
• Re 3 - I liked Marshelec's idea of an introduction section to explain technical detail, but for now I could go through the article and add brief explanations at the start of sections?

20WattSphere (talk) 12:02, 9 April 2024 (UTC)

Thanks for the reply Marshelec. I've already made some quick fixes to the lede, I think it looks okay for now but agree that a more substantial rewrite would help later on. I think we should think about the article contents first, and adjust the lede later.

If you'd like to be assigned something to do, here's an idea: how about looking for broad statements about electricity markets, and checking whether they only apply to some markets (and if so, which ones) and making sure the article conveys this correctly. This might often be difficult to find. But you're well-placed to do it, being a New Zealander - you might be able to quickly spot statements that are mainly applicable to the US, for example. I'm Aussie for full disclosure. 20WattSphere (talk) 11:51, 9 April 2024 (UTC)

Section on "Deregulated market experience"

This section badly needs an update. We definitely need some more comprehensive and well-founded coverage of the results of deregulation. I have some amount of expertise here so will try to find some sources and update accordingly.

One particular question is the references to the "missing money problem". Is this not just the Consumer Surplus rebranded? I struggle to see how this can be seen as a problem if markets are meant to be competitive. 20WattSphere (talk) 14:17, 7 September 2024 (UTC)

IMHO, these are very different problems. "Missing money" is very specific to electricity as far as I can tell: at the crunch time, avoiding a blackout might require starting a power station that is not used for the rest of the year (or keeping the station running that is not price-competitive for the rest of the year). There are just two ways to entice the generation provider to build (or keep) such a station: (1) via electricity market setting sky-high pricing at this peak time so that this occasional use is profitable and delivers a decent return on investment, and (2) by a government mandate with a promise of compensation in some form (monopoly rights in a traditional market, outright payments via some kind of "Reliability Must Run" contract, etc.). However, unlimited peak pricing per #1 has been tried and is known to cause political problems (and economic ones for consumers); therefore in all markets I know there is a price cap on wholesale electricity. This creates a "missing money" problem: this peak station will not be built/kept, causing a blackout, so eventually the government will figure this out and do some inevitable regulation to solve this problem (recently, the problem is with "keep", cf. California with its recent governor mandate to keep the nuclear power stations running). Викидим (talk) 15:25, 7 September 2024 (UTC)

Thanks for this context. I will work to clear up what that section is saying in the context of your explanation.

I think we may be insulated from this problem in Australia since we have a very high price cap (I think it's $15,000/MWh) 20WattSphere (talk) 23:38, 7 September 2024 (UTC)

When they tried to do this in California, some guys got really good at gaming the system. Australia might still be waiting for its Enron. Just kidding... (but, seriously, if the market could solve this gaming problem, then there would be no need for a cap at all, n'est-ce pas?) Викидим (talk) 23:47, 7 September 2024 (UTC)

While we're here - I feel that in the economic theory section, we should discuss the basis of why competition is difficult in energy markets. E.g. how and why it's not economical for many competing networks to be built. As I understand it, this is fundamentally why many energy markets didn't exist until recently and why they are still tightly regulated now. 20WattSphere (talk) 13:23, 8 September 2024 (UTC)

To a large extent the specificity of electricity is already addressed there IMHO. The poorly covered aspect is a built-in monopolism of the distribution network (only one set of wires into the house). Викидим (talk) 16:37, 8 September 2024 (UTC)

Network regulation

If anybody can find some good sources on network regulation, it would be great to add more detail. Networks are natural monopolies which means their prices are usually regulated by some kind of public agency. Or at least that's my understanding - different countries would have different regulatory systems for networks. 20WattSphere (talk) 11:36, 12 September 2024 (UTC)

The natural monopoly part only applies to the distribution of electricity AFAIK. There are many approaches being used for deregulation of the transmission network (where the redundant transmission lines are the norm for the electric grid security). See, for example, Transmission rights (electricity market). Викидим (talk) 21:43, 12 September 2024 (UTC)