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The Power Market: E-Commerce for All Electricity Products

Fortnightly Magazine - February 1 2000

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Ancillary Services: How to Phase Out

Reserve Requirements

An e-commerce electric market can operate within intervals of 10 minutes or shorter during delivery. With enough participation in this real-time market, the need for RTO-arranged reserves is reduced or eliminated. The owner of a generator that suddenly fails immediately can obtain replacement energy and transmission from an exchange. Prices in the short-notice energy market under such events will rise to the levels necessary to provide others with an incentive to stand ready to provide this service.

The providers of short-notice energy ultimately will be loads rather than generators. Loads with real-time communication links and a willingness to shift usage in time are ideal sources of short-notice energy. Loads are likely to have faster response times and lower standby cost than generators. As e-commerce technology develops, consumers will buy smart appliances, such as air conditioners programmed to respond to the changing real-time and forward prices of electricity.

Until the e-commerce electricity market matures, the RTO will need to require participants to purchase ancillary service capacity reserves. The sellers of reserve capacity will be paid to maintain bids and offers in the real-time markets, which will not discourage voluntary bids and offers and voluntary balancing of supply and demand in real-time.

As the control area operator, the RTO will have a continuing role to curtail load and order increased generation in true emergency situations. Such situations should be rare in a mature e-commerce electricity market.

For loads and generators that are not balancing actual and scheduled generation in real-time, the RTO operator or a third-party agent, using grid level, real-time meter data, will buy and sell to balance load and generation in real-time. Those who cause real-time imbalances will be billed for the balancing costs.

The RTO operator and market participants will have a stack of short-notice energy bids and offers from both loads and generators. They will include ancillary service and voluntary bids and offers. The RTO operator will use these real-time bids to buy or sell to bring the system into balance. Generators and loads will respond because they will have offered a price that is profitable. This incentive to respond promotes the reliability of the system.

Edward G. Cazalet, Ph.D., is co-founder and chief executive officer of Automated Power Exchange (APX). Ralph D. Samuelson, Ph.D., is director of market implementation at APX. APX ( www.apx.com) is a privately owned company that designs, builds and operates Internet exchanges and other services for electric power commerce.

The Ideal RTO Has No Trading Exchange

Stand back and let e-markets develop for the energy commodity.

In the new world order, a regional transmission organization (RTO) ought to confine its job to operating the control area and assuring reliability. Leave energy markets to the independent exchanges and electronic bilateral trading over the Internet. E-commerce trading can proceed independently and competitively, just as electronic stock trading now competes with the major public exchanges.

Decentralized Decisions. With e-commerce markets, decision-making becomes decentralized. Market participants gain forward price information. They can use that information to make better