Reliability & Markets
PowerWeb Experimental Economics Platform
The institutional structure that has resulted from deregulation of the U.S. electricity industry is highly decentralized. The result is that, in effect, a number of market experiments are now being conducted throughout the country. Unfortunately, the consequences of deficiencies in these new markets are expensive for many participants (e.g., California). By contrast, experimental economics is an inexpensive framework for testing the performance of deregulated markets in controlled settings without the severe economic costs to the public of real-world market failures.
Participants in experimental markets are paid real money in proportion to how well they do at making profits. This framework is extremely effective in getting participants to search for and exploit weaknesses in the market. These experiments make it relatively easy to identify why markets do not perform well, opening up the potential for designing (and testing) new market structures that will work better.
The experimental economics platform developed by CERTS to test markets, PowerWeb simulates a full alternating current (AC) network and is able to capture many of the complex issues unique to electric power. CERTS has been using POWERWEB to test market designs during the past three years and is working closely with NYISO staff to conduct experiments that can provide insight on specific market design issues currently being addressed by NYISO. The focus of these efforts has been to test:
- The performance of day-ahead/balancing markets in terms of economic efficiency and reliability (i.e., the ability to respond to unexpected load fluctuations);
- Alternative market structures for ancillary services (reserves and voltage support);
- The effects of demand response on market performance; and
- Mechanisms for mitigating the price-spike behavior that has been seen in all functioning markets to date.
Robert J. Thomas