Markets for Differentiated Electric Power Products in a Smart Grid Environment

Many electricity markets around the world treat electricity as a commodity - without qualitative distinctions. This view does not recognize the many different attributes and services that different generation technologies can provide. The Smart Grid platform will provide the technological conditions for even more service differentiation. In this paper, we discuss elements of an alternative view for organizing the markets in a Smart Grid scenario. The key element is the consideration of electricity as a multi-attribute product. The specification of these attributes will first require a clear understanding of the Social Planner's Problem (SPP), as defined in standard economics. Such understanding will facilitate the valuation of the resource attributes with respect to the fulfillment of societal objectives. The emphasis of the paper is investigating the SPP for resource allocation, getting resources appropriately sized in advance. The solution of this problem offers insight, and provides sensible guidelines for how many resources, and of which type, are required. Our viewpoints are illustrated via a detailed investigation of the system-wide value of operational flexibility, along with the market implications. A general discussion about the role of contracts to support multi-attribute products is also included.