1 Introduction ................................................. 1
2 Electric Power Systems, Their Properties, and Specific
Features ..................................................... 7
2.1 General Definitions and Classification of EPSs .......... 7
2.2 Benefits of Creating and Interconnecting EPSs ........... 9
2.3 Properties of EPSs ..................................... 15
2.4 Electric Power Industry in Planned and Market
Economies .............................................. 23
3 Electric Power Industry in the Context of Microeconomics .... 31
3.1 Basic Notions of Microeconomics ........................ 31
3.1.1 Production Cost ................................. 34
3.1.2 The Firm's Costs in the Short Run ............... 35
3.1.3 Marginal Costs and the Supply Curve of the
Firm ............................................ 36
3.1.4 The Firm's Costs in the Long Run ................ 39
3.2 Types of Markets for Commodities, Resources, and
Services ............................................... 41
3.2.1 Markets with Perfect Competition ................ 43
3.2.2 Monopoly Market ................................. 45
3.2.3 Oligopoly ....................................... 47
4 Models of Electricity Market Organization ................... 51
4.1 Basic Models of Electricity Market Organization ........ 51
4.1.1 Model l-Regulated Natural Monopoly .............. 51
4.1.2 Model 2-Single Buyer ............................ 54
4.1.3 Model 3-Competition in the Wholesale Market ..... 56
4.1.4 Model 4-Competition in the Wholesale and
Retail Markets .................................. 59
4.2 Comparison of Models: Criteria, Factors, Competition,
and Regulation ......................................... 61
4.2.1 Possibilities for Creation of Stimuli to
Increase Efficiency of Electricity Production
Under Tariff Regulation ......................... 65
4.2.2 Qualitative Analysis and Comparison of Models ... 67
4.3 Flaws of the Competitive Electricity Market ............ 72
5 Short-Run Production Costs and Electricity Markets .......... 77
5.1 Relationship Between Short-Run (Yearly) and Hourly
(Instantaneous) Costs of Power Plants and EPS
Generation Sphere ...................................... 77
5.1.1 Mathematical Expression of Links Between
Short-Run and Hourly Costs ...................... 78
5.2 Spot Electricity Markets: Pitfalls in Their
Organization ........................................... 83
5.3 Short-Run Costs of Power Plants ........................ 88
5.3.1 General Conditions, Dependences, and
Assumptions ..................................... 89
5.3.2 Short-Run Costs of HPPs ......................... 94
5.3.3 Short-Run Costs of NPPs ......................... 95
5.3.4 Short-Run Costs ofCPPs on Fossil Fuel ........... 96
5.3.5 Short-Run Costs of CGPPs ....................... 101
5.3.6 Comparison of Short-Run Costs of Power Plants
with Costs of "Typical" Firms .................. 105
5.4 Short-Run Costs of Generation Companies and Price
Formation in the Wholesale Electricity Market ......... 107
5.4.1 Short-Run Costs of VICs ........................ 108
5.4.2 VIC Costs as Applied to the European Section
of Russia's UPS ................................ 111
5.4.3 Costs of PGCs and Wholesale Prices in
the Competitive Market ......................... 115
5.4.4 About Market of Long-Term Contracts ............ 122
6 EPS Expansion Under Different Market Models ................ 127
6.1 Financing Mechanisms for Construction of Power
Plants ................................................ 127
6.2 Models of Price Formation and Their Analysis .......... 137
6.3 Generation Costs in the Long Run ...................... 149
6.3.1 Long-Run Costs of Power Plants ................. 150
6.3.2 Long-Run Costs of VIC's Generation Sphere ...... 151
6.3.3 Long-Run Costs of PGCs ......................... 153
6.4 Price Barrier for New Power Plants in the
Competitive Market .................................... 155
6.4.1 Initial Principles, Conditions, and
Assumptions .................................... 156
6.4.2 Comparison of Costs of Operating and New
Power Plants ................................... 156
6.4.3 Price Barrier in the Long Run .................. 158
6.5 Substantiation of the Efficiency of Intersystem
and Interstate Electric Ties Under Different Models
of Market Organization ................................ 163
6.5.1 The Situation Under Regulated and Competitive
Electricity Markets ............................ 164
6.5.2 Benefits or Losses Due to Electricity Export ... 167
6.5.3 Possibilities for Realization of Capacity
Effect of Interconnecting Power Systems ........ 168
6.5.4 Difficulties in Substantiating Financial
Efficiency of Interstate Ties Under
Competitive Market ............................. 173
7 Worldwide Experience in Electric Power Industry
Restructuring .............................................. 177
7.1 Power Industry Restructuring in the USA and Canada .... 178
7.1.1 The Start of the Reform in the USA ............. 178
7.1.2 Energy Crisis in California .................... 179
7.1.3 Reform Outcome ................................. 180
7.1.4 Expansion of Generation Capacities ............. 183
7.1.5 Canada ......................................... 184
7.2 Positive Examples of Markets with Regulated Prices .... 185
7.2.1 China .......................................... 186
7.2.2 India .......................................... 187
7.2.3 South Korea .................................... 188
7.2.4 France ......................................... 189
7.2.5 Japan .......................................... 190
7.3 Experience of Implementing the Competitive
Electricity Markets ................................... 191
7.3.1 Brazil ......................................... 192
7.3.2 Argentina ...................................... 193
7.3.3 Chile .......................................... 194
7.3.4 Great Britain .................................. 194
7.3.5 Scandinavian Countries ......................... 197
7.3.6 Other Western European Countries ............... 198
7.3.7 Australia ...................................... 198
8 Power Industry Reforms in Russia ........................... 203
8.1 The Reform of the 1990s ............................... 203
8.2 Further Restructuring with Transition to the
Competitive Market .................................... 208
8.3 Forecast for the Years 2010-2020 ...................... 215
9 Conclusion: Main Results and Directions for Further
Research ................................................... 223
9.1 Relatively New Results Obtained in the Book ........... 223
9.2 Practical Experience of Power Industry
Restructuring ......................................... 227
9.3 Analysis of Initial Principles (Arguments,
Postulates) of the Competitive Electricity Market
Conceptions ........................................... 232
9.4 General Conclusions ................................... 234
9.5 Directions for Further Studies ........................ 235
Appendix A Derivation of Expressions for the Investment
Component of Electricity Price (Tariff) .................... 237
A.l Competitive Market (Mechanism 3 of Financing) ......... 237
A.2 Regulated Monopoly with Self-Financing (Mechanism 1
of Financing)
A.3 Regulated Monopoly Borrowing Credits and Single-
Buyer Market (Financing Mechanism 2) .................. 243
References ................................................. 249
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