Introducing: Gridlocked
The market for electricity for much of the twentieth century was dominated by geographic monopolies, with consumers having no choice over which utility supplied their demand for power. In the 1980’s, some economists argued that this structure removed the incentive to operate efficiently and encouraged unnecessary investments, suggesting instead that the overall economy would be better off if the supply of electricity was subjected to market discipline. Fast-forward thirty years, and North America is now home to nine centrally-managed competitive wholesale power markets, responsible for the sale of nearly two-thirds of all electricity sold within the continent.
Perhaps you’ve heard the five letter acronym ERCOT in the news this year and wondered what actually happened to the Texas grid on those cold February days. Or maybe you’re an industry veteran with full understanding of ORDCs, LMPs, and SPPs. Either way, you may be asking yourself — do we really need another series on the transition to a clean green energy machine?
Our contention is yes, for the following reason. While there are several great blogs and podcasts covering the hottest trends in electricity markets, we have always found them lacking in one thing: math. If you’re anything like us and find a strange pleasure in dissecting the mathematics of power markets — how they operate, how prices are set, how you should operate in them — you’ve come to the right place.
Nearly a decade ago, I stumbled into power trading as a freshly minted environmental engineering graduate in Halifax, Nova Scotia with absolutely zero knowledge of wholesale power markets. And while I can’t say I’m much better off today, my varied experience in the sector has left me with a strong conviction that these markets will play a central role in addressing the effects of climate change over the next several decades, and that understanding them deeply seems like time well-spent.
This brings me to Gridlocked, a collection of articles from Enertel AI. Flipping the switch on fossil fuels is going to take a long, long, long time — despite a great deal of fanfare to the contrary. And unfortunately while there’s a good chance I’ll see two to three degrees of warming within my lifetime, I am optimistic in our collective ability to come up with innovative solutions to complex problems when we focus on the right set of questions.
Gridlocked is our attempt to shine a light on wholesale power markets through the lens of mathematics, guided by the principle of making it as simple as possible but no simpler. Our goal is to elucidate the complexities of these markets using as bare bone math as possible, giving the reader a solid foundation for further exploration. If nothing else, we hope it serves as a place to organize our thoughts on the topic and encourages others to explore a career in the field — as we sure could use an extra set of hands.
Stay tuned in the coming weeks for our first mini series, On Pricing Electrons, covering the second edition of the foundational text, Fundamentals of Power System Economics by Daniel Kirschen and Goran Strbac.
