Market Deregulation

34326513-18104156Electricity Market Deregulation

Since the late 1990s, many vertically integrated electric power companies in the U.S. and abroad have undergone “deregulation”. As part of this process, utilities generally agree to legally  separate certain aspects of their formerly integrated companies (e.g., generation, transmission and retail distribution)  and compete in wholesale electricity markets, which are operated by third party groups like independent system operators (ISO) and regional transmission organizations (RTO).

For hydropower producers, an important aspect of deregulation is the presence of wholesale markets for electricity and ancillary services (regulation service, spinning and non-spinning reserves, etc.). These markets are all associated with hourly prices, and in some markets prices can be volatile. From the perspective of a profit-maximizing utility, optimizing the operation of hydroelectric dam in a deregulated market boils down to selling the correct amounts of electricity and ancillary services at the right time (i.e., when the price is high).

In a paper published in the Journal of Water Resources Planning and Management, my co-authors and I assess the impact of market deregulation on operations at a hydroelectric dam and characterized the resultant changes in downstream flows in terms of several indicators of hydrologic alteration (IHAs) and environmental flow components (EFCs).

Figure 5 from JWRPM paper. Compares hourly release schedule in regulated market (left) with one in deregulated market (right).

Comparison of hourly release schedule in regulated market (left) with one in deregulated market (right).

We found that most of the operational changes that occur at the dam under deregulation occur on a sub-daily time scale (see left).  The general storage-release patterns of the dam remain roughly the same on a daily, weekly and seasonal basis, so environmental flow metrics don’t change much either. We also found that ancillary services markets (real-time electricity and regulation service) represent tremendous sources of potential revenue for a hydroelectric dam.

Kern, J.D., Characklis, G.W., Doyle, M.D., Blumsack, S. and R.B. Whisnant (2012). “Influence of Deregulated Electricity Markets on Hydropower Generation and Downstream Flow Regime,” Journal of Water Resources Planning and Management, Vol. 138, No. 4: pp. 342-355