Designing Power Markets to Support Socially Optimal Decisions
Restructuring of the power industry was intended to provide incentives for more efficient operation and investment. By "efficiency", I mean full accounting of all social benefits and costs, so that private incentives and social net benefits. Designers of markets have to balance the desire for “supporting prices” and “incentive compatibility” with needs for transparency and computational practicality, as well as political objectives, such as to provide support for certain favored technologies.
This talk will review some specific circumstances in which there have been difficult tradeoffs in market design. One example is day-ahead "spot" markets, in which strong non-convexities in start-up costs and other features mean that socially optimal schedules might be money losing for power providers. How do we keep such providers in the market without greatly distorting consumer costs and luring in producers whose costs are too high? Another is carbon markets; under the Obama Administration's Clean Power Plan, different states could have different systems for capping power market emissions, leading to higher costs and emissions than a consistent national system would. A third is long-run capacity markets, where the marginal contribution of a resource to system reliability is not always what is rewarded. European and US markets are contrasted, where EU markets tend to prefer simple linear bids and disregard network constraints, while US markets generally attempt to calculate prices that reflect as many network limits as practical while modeling individual generator limits in detail. As computational power increases, should the US continue in the direction of ever more complex clearing mechanisms for power markets?
Benjamin F. Hobbs is the Theodore M. and Kay W. Schad Chair of Environmental Management at the Johns Hopkins University, and has been a member of the faculty of that university’s Department of Geography & Environmental Engineering since 1995. His research and teaching concerns the application of optimization, economics, and decision analysis to electric power policy, planning, and operations and to water and ecosystem management.
Since 2010, he has been the inaugural Director of the JHU Environment, Energy, Sustainability & Health Institute. He co-directs the Yale-JHU SEARCH (Solutions for Energy, Air, Climate, and Health) Center. Previously, he was at Brookhaven and Oak Ridge National Laboratories, and on the faculty of the departments of Systems Engineering and Civil Engineering at Case Western Reserve University. He earned a Ph.D. in Environmental Systems Engineering in 1983 from Cornell University.
Dr. Hobbs has had visiting appointments at the Helsinki University of Technology, University of Washington, ECN (Netherlands Energy Research Center), Cambridge University, and Churchill College, where he was Overseas Fellow. He is presently on sabbatical at the Department of Electrical Engineering, the University of Washington, and at the California Institute of Technology.
Dr. Hobbs chairs the Market Surveillance Committee of the California Independent System Operator, and is a Fellow of IEEE and INFORMS