Achieving Efficient Use of Generation and Load Resources using a Market Mechanism in an Industry with no Network Constraints

Chapter 5 asks whether the optimal dispatch outcomes characterised in Chapter 4 can be achieved through a competitive market process. The chapter begins with a description of a smart market process for the electricity industry. It is demonstrated that in the absence of market power a generator will submit an offer curve which matches its marginal cost curve and therefore the resulting dispatch outcome will be efficient. This is followed with a discussion of variations in wholesale market design, such as compulsory gross pool or net pool, single-price or pay-as-bid, and day-ahead versus real-time markets. The impact of price controls and rationing is discussed. The chapter concludes by focusing on the case of inelastic demand, introducing the concept of the price-duration curve and the load-duration curve.