It's as significant for what it does not do as for what it does.
Order 888 marks a significant, yet limited, step in deregulating the U.S. electricity supply industry. Most...
decisions regarding investment, maintenance, generation commitment and plant operations.
Portfolio Friendly. Moreover, if the intent of deregulation includes reducing the social cost of electricity, then forward price information should spur environmental improvements in generation, transmission and energy-use technology. E-commerce also can aid development of specialized exchange markets for green or renewable energy. Forward markets may help generators site plants to reduce dependence on long-haul transmission.
The Bilateral Exchange. An e-commerce electricity exchange is simply an automated way to form bilateral contracts. The exchange accepts buy orders at bid prices or sell orders at offer prices. All exchange participants see these orders instantly and anonymously, and can quickly accept or improve on the orders. Internet markets can function quickly enough that only a few electricity products need be traded: energy, transmission and ancillary service capacity. As a fundamental commodity, transmission can be purchased over an interval of time. Ancillary services include reserve capacity, which will have a declining value as a distinct commodity as automated markets gain maturity and function in real time.
Trading in e-commerce markets takes place in a series of forward markets, as illustrated in the figure below. Annual electric energy and transmission products are traded years ahead of delivery. Such annual contracts provide for delivery across all peak or off-peak hours for an entire year.
Annual products are broken into monthly contracts and further divided into daily and hourly contracts. The length of the interval traded is increasingly short as the time to delivery draws closer. That allows market participants to shape supply based on changing and uncertain demand. Energy, transmission and ancillary service capacity all are traded in this manner.
Just before delivery, five- or 10-minute interval markets open for automated trading to provide real-time balancing and load following. Until confidence in this new approach is developed, an e-commerce system also can use existing control area real-time dispatch systems within each five- or 10-minute interval. - E.G.C., R.D.S.
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