Institute for Research in Technology — Instituto de Investigación Tecnológica

Geoffrey Rothwell and Tomás Gómez. January 2003.

We have written this book for the thousands of professionals working in the electric utility industries around the world who need to understand the economics underlying changes in electricity regulation and emerging electricity markets. Electric utilities are undergoing profound transformations: nationally-owned systems are becoming privatized, privately-owned systems that were previously regulated are becoming deregulated, and national systems are becoming international.

The underlying theme of these changes is one of replacing monopoly with competition. Changes in electricity generation technology have prompted the realization that generation need not be a regulated monopoly to be socially efficient. Unlike transmission and distribution, which are best served by monopolies under current technology, the regulation of generation can be done through market discipline.

Professionals in the power sector who were trained to work for electricity monopolies must now work in a new world, one where economic efficiency is replacing technical efficiency as the cornerstone of decision making. This book is a unique attempt to provide them with the tools to face this new world.

We assume that readers have a technical background and are not familiar with economics beyond an introductory level. So, the body of the text is presented with a minimum of mathematics. On the other hand, there are exercises in the chapters of the first half of the book that rely on the reader's understanding of mathematics, particularly calculus. While we suggest that the reader work through these exercises (the solutions are on this web site), the remainder of the text does not rely on the reader's understanding of the exercises. We suggest that you try the exercises. We believe that after studying this book serious readers will understand the economic forces that are changing the international electricity industry.

Although some readers could fully understand the material through independent study, education is sometimes best accomplished in a social setting. Therefore, we have organized this book within a continuing-education context. The material can be the basis of a week long intensive workshop in which Chapters 1-5 are covered during the first four days and one or two of the case studies (Chapters 6-9) are covered on the last day. (For this type of workshop we suggest that students read the first five chapters before the workshop.) The material could be presented in a 10-week quarter with one week on each chapter or in a 15-week semester with:

• two weeks on each of the early chapters (2-5),
  
• a week on each case study, and
  
• the assignment of a paper applying our case study outline to a particular electricity system, and
  
• presentation of these papers in the last weeks of the semester.

Whether the material is studied independently or in a more formal context, we wish you luck and encourage you to email us with your comments.

Solutions to exercises

• Chapter 2
• Chapter 3
• Chapter 4
• Chapter 5

Buy the book.