Wind power and electricity markets - Wind Power Integration: Connection and System Operational Aspects - page 257

exists when a single market player can set the price. This can easily occur in an
electricity market and is a common problem in generation. In particular, if the old
monopolies are not properly dealt with by forcing them to divest generation assets
prior to setting up a market, it is inevitable that they will have some level of market
power, at least initially. Market power can be used to drive up the price and make
abnormal profits, or to drop the price below cost to deter market entry. Market
power in electricity markets can also occur without dominance - this type of
market power occurs when individuals engage in gaming in the electricity market.
As wind penetration levels rise, operational and network constraints may
require the curtailment of wind power (Section 5.3). At low load levels and at times
of high wind production it may be necessary for system security reasons to curtail
the amount of wind generation. The market needs to be able to accommodate this.
A simple example of this is in a low load situation where for frequency control and/
or voltage control reasons there is a need to keep a minimum number of flexible
units online. Such units will have minimum running levels, and in order to maintain
supply/demand balance it may be necessary to curtail the wind generation. Under
certain network, load and generation patterns there will be congestion on the net-
work and there will be a need to decrease generation in one location and increase it
in another to relieve congestion. Such curtailment occurs for other generation
technologies and is a potential source of risk if no financial compensation is
received for lost revenue. Compensation will be paid in circumstances where a
generator has firm access. Firm access means that the generator has the right to
export its energy onto the grid in all reasonable circumstances. For example, if a
generator with firm access is constrained down to relieve a transmission constraint,
then it will be compensated for the lost opportunity cost, typically the difference
between its generation cost and the price times the volume of curtailment. Non-firm
access means that no such compensation is paid and is a risk that generators must
manage. To encourage renewable generation, legislation is sometimes enacted to
give it priority access, which is a concept similar to firm access.

7.8 Market development

The characteristics of the electricity industry detailed above have made the creation
of truly competitive electricity markets problematic. Some would argue that the
real-time nature, limited transmission capacity and scale of investment make the
industry virtually impossible to run in a competitive framework. The debate con-
tinues and the competitive market structures being introduced are continually
undergoing changes and are in many ways experimental. It is interesting to note
that in Ireland there is a transition from a market of the bilateral type to a market
of the pool type, while in the United Kingdom the transition from The Pool to
NETA/BETTA was in the opposite direction. Only time will tell if the restructuring
experiments were successful.
The success of an electricity market can be assessed by a number of quantifi-
able criteria. The market must ensure adequate capital investment to maintain the