In competitive electricity markets, the vertically integrated utilities that were responsible for ensuring system reliability in their own service territories, or groups of territories, often cease to exist. Typically, the burden falls to an independent system operator (ISO) to insure that enough ancillary services (AS) are available for safe, stable, and reliable operation of the grid, typically defined, in part, as compliance with officially approved engineering specifications for minimum levels of AS. In order to characterize the behavior of market participants (generators, retailers, and an ISO) in a competitive electricty market with reliability requirements, we model a spot market for electricity and futures markets for both electricity and AS. By assuming that each participant seeks to maximize its expected utility of wealth and that all markets clear, we solve for the optional quantities of electricity and AS traded in each market by all participants, as well as the corresponding market-clearing prices. We show that future prices for both electricity and AS depend on expectations of the spot price, statiistical aspects of system demand, and production cost parameters. More important, our model captures the fact that electricity and AS are substitute products for the generators, implying that anticipated changes in the spot market will affect the equilibrium futures positions of both electricty and AS. We apply our model to the California electricity and AS markets to test its viability.

The degree to which any deregulated market functions efficiently often depends on the ability of market agents to respond quickly to fluctuating conditions. Many restructured electricity markets, however, experience high prices caused by supply shortages and little demand-side response. We examine the implications for market operations when a risk-averse retailer's end-use consumers are allowed to perceive real-time variations in the electricity spot price. Using a market-equilibrium model, we find that price elasticity both increases the retailers revenue risk exposure and decreases the spot price. Since the latter induces the retailer to reduce forward electricity purchases, while the former has the opposite effect, the overall impact of price responsive demand on the relative magnitudes of its risk exposure and end-user price elasticity. Nevertheless, price elasticity decreases cumulative electricity consumption. By extending the anaylsis to allow for early settlement of demand, we find that forward stage end-user price responsiveness decreases the electricity forward price relative to the case with price-elastic demand only in real time. Moreover, we find that only if forward stage end-user demand is price elastic will the equilibrium electricity forward price be reduced.

We model the operating decisions of a commercial enterprise thatneeds to satisfy its periodic electricity demand with either on-site distributed generation (DG) or purchases from the wholesale market. While the former option involves electricity generation at relatively high and possibly stochastic costs from a set of capacity-constrained DG technologies, the latter implies unlimited open-market transactions at stochastic prices. A stochastic dynamic programme (SDP) is used to solve the resulting optimisation problem. By solving the SDP with and without the availability of DG units, the implied option values of the DG units are obtained.

Typically, in competitive electricity markets, the vertically integrated utilities that were responsible for ensuring system reliability in their own service territories, or groups of territories, cease to exist. The burden falls to an independent system operator (ISO) to ensure that enough ancillary services (AS) are available for safe, stable, and reliable operation of the grid, typically defined, in part, as compliance with officially approved engineering specifications for minimum levels of AS. In order to characterize the behavior of market participants (generators, retailers, and an ISO) in a competitive electricity market with reliabililty requirements, spot markets for both electricity and AS are modeled. By assuming that each participant seeks to maximize its wealth and that all markets cledar, we solve for the optimal quantities of electricity and AS traded in the spot market by all participants, as well as the market clearing prices for each.

Distributed generation (DG) technologies, such as gas-fired reciprocating engines and microturbines, have been found to be economically beneficial in meeting commercial-sector electrical, heating, and cooling loads. Even though the electric-only efficiency of DG is lower than that offered by traditional central stations, combined heat and power (CHP) applications using recovered heat can make the overall system energy efficiency of distributed energy resources (DER) greater. From a policy perspective, however, it would be useful to have good estimates of penetration rates of DER under various economic and regulatory scenarios. In order to examine the extent to which DER systems may be adopted at a national level, we model the diffusion of DER in the US commercial building sector under different technical research and technology outreach scenarios. In this context, technology market diffusion is assumed to depend on the system's economic attractiveness and the developer's knowledge about the technology. The latter can be spread both by word-of-mouth and by public outreach programmes. To account for regional differences in energy markets and climates, as well as the economic potential for different building types, optimal DER systems are found for several building types and regions. Technology diffusion is then predicted via two scenarios: a baseline scenario and a programme scenario, in which more research improves DER performance and stronger technology outreach programmes increase DER knowledge. The results depict a large and diverse market where both optimal installed capacity and profitability vary significantly across regions and building types. According to the technology diffusion model, the West region will take the lead in DER installations mainly due to high electricity prices, followed by a later adoption in the Northeast and Midwest regions. Since the DER market is in an early stage, both technology research and outreach programs have the potential to increase DER adoption, and thus, shift building energy consumption to a more efficient alternative.

Electricity produced by distributed energy resources (DER) located close to end-use loads has the potential to meet consumer requirements more efficiently than the existing centralized grid. Installation of DER allows consumers to circumvent the costs associated with transmission congestion and other non-energy costs of electricity delivery and potentially to take advantage of market opportunities to purchase energy when attractive. On-site, single-cycle thermal power generation is typically less efficient than central station generation, but by avoiding non-fuel costs of grid power and by utilizing combined heat and power (CHP) applications, i.e., recovering heat from small-scale on-site thermal generation to displace fuel purchases, DER can become attractive to a strictly cost-minimizing consumer. In previous efforts, the decisions facing typical commercial consumers have been addressed using a mixed-integer linear program, the DER Customer Adoption Model (DER-CAM). Given the site s energy loads, utility tariff structure, and information (both technical and financial) on candidate DER technologies, DER-CAM minimizes the overall energy cost for a test year by selecting the units to install and determining their hourly operating schedules. In this paper, the capabilities of DER-CAM are enhanced by the inclusion of the option to store recovered low-grade heat. By being able to keep an inventory of heat for use in subsequent periods, sites are able to lower costs even further by reducing lucrative peak-shaving generation while relying on storage to meet heat loads. This and other effects of storage are demonstrated by analysis of five typical commercial buildings in San Francisco, California, USA, and an estimate of the cost per unit capacity of heat storage is calculated.

While demand for electricity continues to grow, expansion of the traditional electricity supply system, or macrogrid, is constrained and is unlikely to keep pace with the growing thirst western economies have for electricity. Furthermore, no compelling case has been made that perpetual improvement in the overall power quality and reliability (PQR) delivered is technically possible or economically desirable. An alternative path to providing high PQR for sensitive loads would generate close to them in microgrids, such as the Consortium for Electricity Reliability Technology Solutions (CERTS) Microgrid. Distributed generation would alleviate the pressure for endless improvement in macrogrid PQR and might allow the establishment of a sounder economically based level of universal grid service. Energy conversion from available fuels to electricity close to loads can also provide combined heat and power (CHP) opportunities that can significantly improve the economics of small-scale on-site power generation, especially in hot climates when the waste heat serves absorption cycle cooling equipment that displaces expensive on-peak electricity. An optimisa-tion model, the Distributed Energy Resources Customer Adoption Model (DER-CAM), developed at Berke-ley Lab identifies the energy bill minimising combination of on-site generation and heat recovery equipment for sites, given their electricity and heat requirements, the tariffs they face, and a menu of available equip-ment. DER-CAM is used to conduct a systemic energy analysis of a southern California naval base building and demonstrates a typical current economic on-site power opportunity. Results achieve cost reductions of about 15 percent with DER, depending on the tariff. Furthermore, almost all of the energy is provided on-site, indicating that modest cost savings can be achieved when the microgrid is free to select distributed genera-tion and heat recovery equipment in order to minimise its over all costs.

California's restructured electricity markets opened on 1 April 1998. The former investor-owned utilities were functionally divided into generation, transmission, and distribution activities, all of their gas-fired generating capacity was divested, and the retail market was opened to competition. To ensure that small customers shared in the expected benefit of lower prices, the enabling legislation mandated a 10 percent rate cut for all customers, which was implemented in a simplistic way that fossilised 1996 tariff structures. Rising fuel and environmental compliance costs, together with a reduced ability to import electricity, numerous plant outages, and exercise of market power by generators drove up wholesale electricity prices steeply in 2000, while retail tariffs remained unchanged. One of the distribution/supply companies entered bankruptcy in April 2001, and another was insolvent. During this period, two sets of interruptible load programmes were in place, longstanding ones organised as special tariffs by the distribution/supply companies and hastily established ones run directly by the California Independent System Operator (CAISO). The distribution/supply company programmes were effective at reducing load during the summer of 2000, but because of the high frequency of outages required by a system on the brink of failure, customer response declined and many left the tariff. The CAISO programmes failed to attract enough participation to make a significant difference to the California supply demand imbalance. The poor performance of direct load participation in California's markets reinforces the argument for accurate pricing of electricity as a stimulus to energy efficiency investment and as a constraint on market volatility.