Power System Economics

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This work presents a comprehensive overview of electricity market design, from foundational concepts to advanced topics. It clarifies long-standing misconceptions, particularly regarding the inherent instability of current markets. The book highlights how uncoordinated regulatory and engineering policies contribute to boom-bust cycles in investment and offers strategies for market improvement. It critically examines the functioning of pools and power exchanges. The content is structured into five parts: 1. Key economic, engineering, and market design concepts. 2. The relationship between short-run reliability policies and long-run investment challenges. 3. Classic designs for day-ahead and real-time markets. 4. Market power dynamics. 5. Locational pricing, transmission rights, and pricing losses. Each chapter begins with a non-technical introduction to facilitate understanding of complex topics. The author navigates a balanced perspective, providing valuable insights for engineers, economists, regulators, and lawyers. With nearly 250 figures, tables, and concise explanations, the 44 chapters address critical subjects such as auctions, cost recovery, pricing misconceptions, power flows, competition, and market indices. The author, Steven Stoft, holds a Ph.D. in economics and has extensive experience in the field, including consulting for various organizations.