Abstract
The electric power industry has undergone a sweep restructuring resulting in the emergence of electricity markets (EMs) worldwide. The trend towards EMs has led to extensive efforts by the research community to develop optimization and equilibrium models adapted to the new competitive industry. The complexity of EMs calls, however, for richer and more flexible modeling techniques. Agent-based simulation is a relatively new approach relying on advanced social science methods as well as established engineering modeling techniques. The agent-based approach presents itself as a promising approach to accurately model and analyze in detail the behavior of EMs over time. Agent-based simulation of EMs is, at the time of writing, an active area of research and a number of prominent models and systems have been proposed in energy-related journals. These high-quality scientific contributions exhibit fairly different features and make use of a diverse range of concepts. Currently, there seems to be no agreed framework to compare the usage of specific concepts in one contribution with usage in other contributions, nor to compare disparate research efforts. This chapter and its companion (Chap. 3) claim that the development of such a framework can be an important step to provide a coherent set of concepts related to the area, to assess progress in the area, and to facilitate the development of future models and systems. Accordingly, this chapter (Part I) and Chap. 3 (Part II) introduce a generic framework for agent-based simulation of EMs. The complete framework includes three groups (or categories) of dimensions: market architecture, market structure and software agents. This chapter describes, in considerable detail, the components of the first two groups of dimensions, notably the architecture and core structure of power markets. The third and last group of dimensions is the subject of Chap. 3.
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Notes
- 1.
The agent-based analysis of economic systems, including power systems and electricity markets, is often referred to as agent-based computational economics (ACE). However, throughout the book, we will use the broader term “agent-based simulation”.
- 2.
We will draw from several different research traditions, but our focus will always be on promoting a deeper understanding of existing and emerging market designs to reliably and efficiently manage the potential challenges of variable generation (VG).
- 3.
- 4.
- 5.
For simplicity and clarity of presentation, and since submarkets are themselves markets, they will often be referred to simply as markets.
- 6.
The distinction between bilateral and mediated markets is not absolute and the reader may find some overlap between them. Section 2.2.2 examines in detail several types of markets to make the distinctions between them clearer.
- 7.
Chapter 1 presents an introduction to energy markets, and also ancillary service markets, financial transmission rights markets, and capacity markets. The reader is therefore referred to it for details.
- 8.
These markets are often referred to as intra-day markets.
- 9.
The dispatch represents essentially a set of instructions from the SO regarding the operation and control of a power system, especially with respect to defining the generators that provide power at any point in time and their output levels [1].
- 10.
Generating companies can also submit more complex bids for each of their units, reflecting the cost characteristics of each unit (including marginal, start-up and no-load costs) as well as some technical parameters (e.g., minimum and maximum output). Rather than simply stacking the bids, the market performs complex calculations (e.g., unit commitment calculations) to determine the production schedule and the prices for an entire day.
- 11.
The maturity date is the end of the life of a contract [22].
- 12.
Note that customized (or tailored) long-term contracts are typically negotiated in bilateral marketplaces outside organized markets. For the sake of clarity, and also simplicity in exposition, the category “market architecture of the conceptual framework considers organized submarkets (or markets) only (see Table 2.1). Future work aims at extending the framework by considering marketplaces for negotiating the terms and condition of different types of customized (or tailored) long-term bilateral contracts.
- 13.
The terms American and European do not refer to location. This means that some options traded on North America can be European.
- 14.
Swaps are also known as contracts for difference (CFDs) [27].
- 15.
The predetermined regular intervals over the period of a contract are often referred to as settlement dates or reset dates.
- 16.
In some markets, caps are sometimes known, together with floors, as one-way CFDs.
- 17.
Collars are also referred to as two-way CFDs [27].
- 18.
A (derivatives) exchange denotes a market for financial instruments, such as forwards and futures. In contrast, a (power) exchange denotes a centralized market in which supply bids and demand offers are aggregated to find a clearing price at which supply and demand are equal [1].
- 19.
The agreement often includes an annex, referred to as the credit support annex, requiring each of the parties, or both, to provide collateral. Practically speaking, the collateral is similar to the margin required by exchange clearing houses [22].
- 20.
Although it is useful to distinguish among these three key terms, we note that they are not used consistently in the extensive literature on derivatives markets.
- 21.
Throughout this book, bid quotes and offer quotes are expression of prices at which agents are willing to sell or buy, respectively.
- 22.
Electronic bulletin boards are systems whereby dealers or all market participants can post bids and offers, but they are not matched or executed [16].
- 23.
Strictly speaking, wholesaling also means sales to large customers, since they are often allowed to purchase electrical energy directly on wholesale markets.
- 24.
A wholesale market is a market where competing generators offer their electricity output to resellers and possibly other market participants.
- 25.
The level of competition may be viewed as forming a spectrum in itself (i.e., it is not necessarily binary in nature).
- 26.
A retail market exists when end-use customers have the possibility to choose their suppliers from competing electricity retailers and possibly other market participants.
- 27.
A detailed comparative analysis of the central sectors of existing electricity markets is well beyond the scope of this chapter (but see, e.g., [29] for more details).
- 28.
Generally speaking, generation, transmission and distribution account for about 35–50%, 5–15%, and 30–50% of the final cost of electricity, respectively [18]. These percentages are given here as a general indication only, since the cost of the main functions of the electric industry in different countries varies widely.
- 29.
A cautionary and explanatory note is in order here. Demand-side management and distributed generation may result in a bi-directional flow of power, which in turn calls for a bi-directional flow of information. Thus, both the flow of power and the flow of information may be bi-directional (see, e.g., [30]).
- 30.
Non-dispatchable generating companies are producers with non-dispatchable sources, such as wind or solar-thermal power plants. Also, independent power producers are generating companies that coexist with vertically integrated utilities [19].
- 31.
Sometimes, TransCos are subsidiaries of companies that own generating plants. Also, independent transmission companies are transmission companies that do not own generating plants and also act as ISOs [19].
- 32.
A retailer may be a subsidiary of a local distribution company that owns and operates a distribution network.
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Acknowledgements
This work was performed under the project MAN-REM: Multi-agent Negotiation and Risk Management in Electricity Markets (FCOMP-01-0124-FEDER-020397), supported by FEDER funds, through the program COMPETE (“Programa Operacional Temático Factores de Competividade”), and also National funds, through FCT (“Fundação para a Ciência e a Tecnologia”). The author wishes to acknowledge the valuable comments and suggestions made by Hannele Holttinen, from the VTT Technical Research Centre of Finland, João Santana and Rui Castro, from INESC-ID and also the Technical University of Lisbon (IST), and João Martins and Anabela Pronto, from the NOVA University of Lisbon.
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Lopes, F. (2018). Electricity Markets and Intelligent Agents Part I: Market Architecture and Structure. In: Lopes, F., Coelho, H. (eds) Electricity Markets with Increasing Levels of Renewable Generation: Structure, Operation, Agent-based Simulation, and Emerging Designs. Studies in Systems, Decision and Control, vol 144. Springer, Cham. https://doi.org/10.1007/978-3-319-74263-2_2
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