Over the past decade, several IEA member countries embarked on a policy path of market liberalization of the electricity supply industry. Pioneers in electricity market reform have now been operating with considerable success for a number of years, delivering substantial benefits to economies. Finding the most effective way to develop competitive electricity markets that fulfill the goals of real economic benefits has not been clear, however. Scepticism and concerns are voiced in many countries, and debate continues on several key issues. Only a few years ago the new market was launched under much publicity and the subsequent and spectacular bankruptcy of the large energy companies. 



While the public has focused on the remarkable failures of the past decade, several electricity markets have been operating successfully and have developed into robust markets during the same period. In all IEA member countries, the liberalization process has progressed at varying speeds. Despite the fact that no straightforward path to success has emerged, there is a general lesson to be learned: Electricity market liberalization is not an event. It is a long process that requires strong and sustained political commitment, extensive and detailed preparation, and continuous development to allow for necessary improvements while sustaining on-going investment. It is, in fact, a process that has not yet been completed anywhere in the world – nor will it be in the foreseeable future.



This course focuses on the experiences and lessons learned in several pioneering markets that have now operated with considerable success for a decade or more. While discussing prescriptions for successful electricity market

This program is approaching the participants to the concepts of the most important objectives and addressing the following topics:



1 - The rules of competition in the market of the production of electricity

2 - Offer and demand in the market

3 - sale and purchase (contracts) agreements 

4 - Support services contracts 

5 - The contracts of available energy and the produced energy 

6 - sanctions and penalties 

7 - Performance Indicators 

8 - phases of energy market liberalization 

9 - experiences of selling energy markets 

10 - the future of energy trading and investment opportunities 

11 - sources of energy and competition

Part 1

Electricity market liberalization has delivered long-term benefits 

Indicators of Success

• Electricity prices paid by end-consumers 

• Flow over interconnectors between western Denmark and Norway, and western Denmark and Sweden

• Employment in electricity, gas and water 

Market Liberalization is a Process rather than an Event

Distributing the Benefits of Liberalization



Part 2

Competition is the fuel for effective markets 

Competitive Markets Replace Vertically Integrated Utilities 

• A new model for the electricity sector

• Models for unbundling of transmission system operation

• Timeline for planning and operation

Legislative and Regulatory Framework for Effective Competition

Regulating Competition 



Part 3

Price signals are the glue

Prices to Reflect the Inherently Volatile Nature of Electricity 

• Supply and demand in liberalized electricity markets

Locational Pricing

Markets for Ancillary Services

Cross-border Trade Creates Benefits 

• Electricity trade between two areas 

• Reservoir levels in Norway and Sweden, trade between Norway and Sweden, and Nord Pool spot price, 2002-2004- 

Market Models 



Part 4

Risk Management and

Consumer Protection

Power Utilities Use Contracts to Manage Risks

Contracts Offer Protection for Consumers 

• Liquidity in various electricity markets: turnover in different market segments as share of total consumption, 2004

Retail Competition

• Year in which all consumers are allowed to switch retailer 

• Switching rates amongst contestable customers: number of customers no longer supplied by incumbent retailer as share of total number of residential and non-residential customers



Part 5

Investment in Generation and

Transmission 

Market-driven Investment in Generation

• Price caps in PJM, Australian, British and Nordic markets 

• Average monthly prices in national electricity market, Australia

• Installed capacity principal power stations in National Electricity

• Market, Australia

• Price duration curves for the highest percent in South Australia 

Demand Participation as an Alternative

• Demand participation improves market and system performance

• Demand participation: committed by system operators with minimum additional assessed and observed demand participation 

• Price duration curves: national electricity market, Australia

• Nord Pool forward prices, yearly contract, three years ahead 



Planned Investment and Capacity Measures

Investment in Transmission Networks 

• Annual average increase in length of - 220-400 kV transmission lines in 16 European countries 

Co-ordination of Transmission Investment



Part 6

When do liberalized electricity markets fail? 

Reliability of Supply in Liberalized Electricity Markets

• The value chain for reliable electricity supply: Energy security, adequacy and system security 

Addressing Environmental Issues and Climate Change 

• Wind power production and Nord Pool day-ahead prices in western Denmark, December 2003

• Wind power production in western Denmark and trade with Nordic neighbors 



Applications



Example

• British Electricity Trading and Transmission Arrangements 

Example

• The Nordic electricity market

Example

• Australian National Electricity Market 

Example

• Pennsylvania - New Jersey - Maryland Interconnection (PJM)