> ... it is a well-known type of problem, called a multiple integer program (MIP)
Is this meant to be "mixed integer program"?
Nice read. I find this especially interesting as I'm familiar with everything you've talked about here except only in Australia (AEMO). What you've written is like a parallel universe to what I know - very similar, but distinctly different.
I know close to nothing about economics and was a bit confused by this statement:
"The line sloping downwards represents demand. As quantity increases (bottom axis), the price people are willing to pay also decreases."
This makes it sound like there is an "available demand quantity" that is the independent variable and a "price" that is the dependent variable. But it seems a lot more intuitive to say "demand increases (I want to buy more and more people are willing to buy) if a good is offered at a lower price", where price is the independent variable.
>Another distinction is that most people will trade the average price of power over a given area called a "zone." But there are thousands of physical busses that people connect to, each of which has its own power price, and you can trade those via nodal trading (with instruments like FTRs and ARRs, again not worth going into).
This is really an interesting concept. It looks like nodal trading is available in the northeast - is it dependent on the RTO and how it is run? I'm passively familiar with some utility policies in Iowa but hadn't heard that brought up on the consumption side.
To the extent you can discuss, I'm curious what your saw during the Texas energy crisis about a year ago?
I spent a couple years on the buying and forecasting side for a very large manufacturing facility mostly on natural gas but heard some of the electricity discussions. Force Majeure conditions could lead to very large penalties if we exceeded our forecasted demand. I also sat in on some meetings discussing the massive electricity consumption and strategies to minimize total cost.
The biggest thing most consumers don't realize is how variable the production costs are. On the hottest days when everyone is using their air conditioners, special power plants come online to cover the added load. These peaker power plants may only run a handful of days per year, are cheap to build, but are very expensive to operate. Residential consumers often pay the same electricity cost per kWh despite the utility paying a highly variable cost.
Good intro to the problem. I did a fair bit of work on more complex versions of this problem in distribution systems at a past job. Because a distribution system is unbalanced, each phase has to be solved for but the phases interact with each other so the optimization problem becomes ~9x more complex.
// Albert Einstein said: "If you can't explain it to a six year old, you don't understand it yourself." I like to think this is true about explaining things to my parents
- Isn't this a quote by Richard Feynman?
So this is the business Enron was in? I can see why it can be so lucrative now.
In About the Author section at the bottom, it should at least mention his name.
Very interesting read. 6 year old me (optimistically) followed for about the first half and 40 year old me made it to about 85% through with full understanding.
Super interesting read. I ended up getting curious as to who he worked for, checked out his LinkedIn and it turns out he works for Citadel.. I swear I've heard of that company somewhere? ;)
Awesome work Neel - this is an inspiration to start blogging again!
Insightful thanks
nice read neel
I'm an anti-intellectual ball buster, so I'm triggered by the "ELI5" conceit preceding a verbose summarization of the linear programming problem. A better follow-up to the ELI5 condescension would be, "I exploit discrepancies between what energy prices are and what they ought to be for the benefit of my employer, and thus myself."
Pricing at marginal cost is the biggest steal in economics.
Just because one folk who contributes 0.1% to the energy mix has double the average cost, everyone gets to sneak in and get free money.
Specially true in the last winter in Texas where we paid billions to the big power generators only to freeze to death.
The best trick that I have seen happening in the industry is suffocating supply so that the new marginal player just comes in, and then you collect all the extra free money, for essentially selling the same volume.
Good times.