Power Markets and Electricity Derivatives :: essays research papers

Since the early 90s, the electrical expertness sphere has undergone profound and dramatic changes. More and more countries moved towards the deregulating of their energy sectors, from a regulated and monopolistic industry to one were the market forces of supply and demand determine the unit price of electricity.The first eggshell of energy sector deregulation in Europe was recorded when the unify Kingdom with the Electricity Act of 1990 created the Electricity Pool for England and Wales. Nor guidance soon followed courtship (Norwegian Energy Act of 1991) and set up the Norwegian Pool in 1993, which eventu on the wholey became the Nord Pool in 1996. At the same year, the European alliance issued its Electricity Directive (Directive 96/92/EC) according to which the electricity markets of all EU countries should be open for competition by 2003, with the exceptions of Greece and Ireland which were granted a one year extension 13.Deregulating a countrys energy sector is a complic ated and difficult task. The typical condition utility operation is divided into three main functions electricity generation, its contagious disease over the agent grid and finally the distribution to the end users. deregulating stipulates that all three functions should be open to competition. In particular, new and be power generation utilities/companies (GenComs) should be able to compete with each opposite at a wholesale level. For this to be possible though, the access to the power grid should be offered with the same terms to all players. The only way to avoid any bias or conflict of interest is then to ensure that the generation, transmission and distribution of electricity are either surpass by diverse companies or under different management (unbundling). Furthermore, the electricity distribution sector may also be segmented for different geographical areas, (DisComs). The actual trading of electricity, either the physical asset itself or financial products on it, i s organized and takes place in a black-tie power exchange, or Pool 13. The passage from a regulated to a deregulated power industry is seen in Figures 1 and 2.Deregulation of the energy sector is all the more challenging due to the particular characteristics of electricity that scar it from other traded commodities namely limited storability and transportability. Electrical energy cannot be stored afterwards it has been produced, except in the case of hydroplants where electricity is notionally stored indirectly in the mold of the water kept in the reservoirs. Even in this case though, in high spirits demand can be satisfied for a limited meter only, while the use of larger in size and/or follow reservoirs is either unfeasible or uneconomical.