Towards an Understanding of Deregulated Electricity Markets through Time Series Analysis

Washington State University, Pullman WA

Investigators

Abstract

The objective of this study is to gain understanding of the interactions between the behavior of electricity markets under new management regulations and the engineering aspects of large-scale electric power systems. There are numerous practical difficulties in allowing financial mechanisms the freedom to directing day-today operations of the power system. The electric commodity must be generated, distributed and consumed in real-time under strict physical laws and extremely high reliability requirements. This process is far more exacting and complex then the distribution of traditional commodities, such as, oil or agricultural products. Further, the importance of the electric power system to all areas of economic activity suggests caution for any changes that may radically alter system operation. Certainly, assessing the effectiveness of the deregulated markets is of great importance for maintaining reliable power system performance. Neither traditional engineering nor the economics viewpoint can alone provide complete explanations for behavior in trades and other financial instruments. Of direct relevance to the proposed work is the existence of predictable patterns of price movements that may indicate either market or power system problems. These problems include price volatility, poor system reliability, excessive market power leading to high prices, and market inefficiencies. This study will develop techniques to analyze the deregulated electricity market in order to determine if there exists market behavior that represents conditions of concern for proper operation of the power system. In particular, the first task of the proposed study consists of studying relevant power system data applying domain specific knowledge and qualitative data analysis in order to identify interesting phenomena in the time series that represents electricity and ancillary service prices. As a second task, the selected time series will be carefully pre-processed, and subject to an in-depth analysis using methodology developed in our preliminary studies. We will focus on relating identified pricing regimes to power system operating conditions. Subsequently, the third task consists of an in-depth performance analysis for electricity markets corresponding to the time series studied in the second task. The objective of this fanal task is to address the fundamental question in this research: does predictable pricing behavior exist in the electricity markets that indicate market problems and which might distort economic and reliable operation of the power system. The long-term objective is not to seek higher returns but to develop more efficient and effective market regulations. This proposed project is a cross-disciplinary effort that combines our prior research efforts in the development of: (a) effective planning and operation tools that apply the latest computational methods to power system engineering problems; and (b) accurate knowledge discovery systems through data analysis, prior knowledge, and learning from examples in practical complex domains.