Economics of Grid Systems in Reconfiguration: Competition in the Electricity Supply Industry

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Abstract
This chapter discusses the traditional organization of electricity supply and emphasize the key function performed by interconnected networks in the traditional organization of electricity supply; this allows me to introduce useful concepts of power system operation and management. It examine how concepts developed from the experiences within these systems, specifically the "unbundling of services" and cost-based pricing, apply to the electricity sector. From an economic theoretical point of view, grid use pricing is difficult because it involves spatial economics and because optimal pricing is much more complex in a competitive environment with many actors. For decades, the electricity supply industry was made up of large, vertically integrated utilities or interconnected, closely coordinated pools. Such monopolies generated, transmitted and distributed electric energy over wide areas to customers with no supply alternative. However, most arguments in the on-going regulatory debate are economic.

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