Smart Grid and Its Implications for Electricity Market Design

Recently, smart grid has been considered a very important new energy delivery technology, and one that can help ensure a cleaner environment by making use of information and communication technology (ICT) in countries around the world. The many technological benefits smart grid offers is expected to bring about a huge change in the electric energy supply chain. In particular, smart grid with advanced ICT is likely to allow market agents to participate in the decision-making process in the restructured electricity industry, easily facilitating Homeostatic Utility Control. In this paper, we examine smart grid as a market externality, and then illustrate issues from the commercial market perspective as it relates to electricity market design. Finally, our paper identifies some of the impacts of smart grid on electricity market design, which may possibly be incorporated into the evolution of the electricity market, thus ensuring market efficiency.