GOALI: Collaborative Research - A Systems Approach to Modeling Real-Time Market Prices of Electricity

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The purpose of this research project is to determine suitable approaches for finding the statistical distributions of real-time electricity prices in a deregulated market. It will use a bottoms-up systems based approach in which the market is represented via a production-costing model. The components of this model will be the capacity, reliability, and cost characteristics of the generators that comprise the market, fuel prices, demand, and the meteorological influences that affect it. As a first approximation, the price at every hour will be equated to the marginal cost of the last generating unit used to supply each hour's demand. The initial effort will concentrate on finding the statistical distribution of the marginal unit at each hour via the production-costing model from the available information on the supply and demand sides of the market. Empirical data suggest, however, that when the supply approaches demand and under an oligopoly market, the spot price exceeds the marginal cost of production. This phenomenon will be investigated using different economic models under a stochastic framework based on a production-costing representation of the market. Attempts at modeling the entire statistical distributions require that the stochastic processes associated with the generator outages and chronological load are accounted for. The project will develop approximate analytical procedures that are applicable to large systems and will evaluate the accuracy of these approximations using Monte Carlo simulation. The computations will be validated by comparing the results predicted by these models with historical data.