ABSTRACT
As noted in Chapter 1, market mechanisms are expected to produce more social benefits. However, developing an efficient market is not as easy as it seems. In the United States, the airline and telecommunication industries achieved remarkable success after marketization around 1980 and 1995, respectively. We see continued decreases of air fares and communication charges while electricity has shown no signs of decreased prices since marketization in 1996. Certain special features of power systems are critical factors for electricity market design:
◾ High storage costs ◾ Transmission restriction and loss ◾ Lack of one-to-one correspondence between contracts and load flows ◾ Centralized coordination
Based on these factors, open bidding appears a natural step. The basic principle for a pool-based electricity market is to build one organization in charge of all the bidding and tendering affairs. The operation method of a pool-based electricity market is similar to that of a traditional power system. Thus, a pool-based electricity market is considered the best transitional market model.
