Analysis of Optimal Dispatch of Energy Systems, Market Rules, and Market Power in Wholesale Electricity Markets

Abstract

The focus of this dissertation is on the operation of electric power systems, specifically on wholesale electricity markets and the potential for exercising market power in wholesale markets for electricity. Restructuring of the electric utility industry has encouraged Independent Power Producers (IPPs) to enter the industry and sell power in the wholesale electricity markets. However, as the United States continues the transition to restructured electricity markets, there are concerns about the market power that producers may exert. This dissertation is composed of three essays exploring these topics using dynamic optimization methods and empirical analysis. The first essay uses a framework to measure production costs and the component of price that is above marginal cost. I incorporate the start-up costs of generators. Using data from January 2016 to December 2018, I find evidence that market power was exercised, particularly in months having unseasonably cold temperatures and fuel price spikes as well as during the winter peak season. The results also suggest that the degree of market power increases during the peak hours of the day. The second essay utilizes a dynamic optimization model to illustrate how a low-temperature geothermal power plant can be flexibly dispatched to offer multiple different services in addition to base-load power to a utility customer. The utility industry still thinks of geothermal as a base-load resource, but I show that low temperature resource geothermal power plants offer more flexibility than other renewable energy technologies and thus can be operated as a variable energy resource to accommodate intermittent resources and alleviate transmission congestion. The third essay examines the interaction of policies, markets, and technologies that creates the modern electrical system. Integrating large amounts of electricity generated by variable renewable resources, such as from wind and solar, into electricity systems may require energy storage technologies to synchronize electricity production with electricity demand. Electricity markets compensate the performance of these energy storage technologies for the services they provide, and these markets are often operated by regional Independent System Operators (ISOs) that specify the market rules for this compensation. To examine how different ISO rules can affect the operation and profitability an energy storage technology, I develop a dynamic programming model of pumped hydroelectric storage (PHES) facility operation under the market rules from the Midcontinent ISO and ISO-New England. I show how differences in rules between these ISOs produce different operational strategies and profits and may not incentivize energy storage projects where they are most needed.