Energy Storage in Energy Markets: Uncertainties, Modelling, Analysis and Optimization

Energy Storage in Energy Markets

Uncertainties, Modelling, Analysis and Optimization

Editors

Behnam Mohammadi-Ivatloo

Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, Iran

Amin Mohammadpour Shotorbani

Faculty of Applied Science, University of British Columbia, Vancouver, BC, Canada

Amjad Anvari-Moghaddam

Department of Energy Technology, Aalborg University, Aalborg, Denmark

Table of Contents

Cover image

Title page

Copyright

Contributors

Introduction

Chapter 1. Energy market fundamentals and overview

1. History of electricity markets

2. Challenges of energy markets

3. Different energy market services

4. Fundamental features of the energy market

5. Conclusions

Chapter 2. Energy storage fundamentals and components

1. Introduction

2. Types of EES technologies

3. The operation of EES in power markets

4. The current stage of energy storage systems in the world

5. Conclusions

Chapter 3. Overview of energy storage systems for wind power integration

1. Introduction

2. Electrical energy storage systems

3. Energy storage system application

4. Different types of energy storage systems

5. Energy storage systems in wind turbines

6. Chapter summary

Chapter 4. Optimization of energy storage systems in energy markets

1. Introduction

2. Problem formulation

3. Modeling uncertainties

4. Systems understudy

5. Simulation and numerical results

6. Conclusion

Chapter 5. IGDT-based optimal low-carbon generation dispatch of power system integrated with compressed air energy storage systems

1. Introduction

2. Problem formulation

3. Input data and results

4. Conclusion

Chapter 6. Energy vehicles as means of energy storage: impacts on energy markets and infrastructure

1. Introduction

2. Overall picture of study

3. Problem formulation

4. Case study and simulation results

5. Conclusions

Chapter 7. Application of electric vehicles as mobile energy storage systems in the deregulated active distribution networks

1. Introduction

2. A modern distribution system: structure and mathematical modeling

3. The operation framework

4. EVAGs' activity in an HLRC

5. The link between MATLAB and GAMS

6. Simulation results

Chapter 8. Economic analysis of energy storage systems in multicarrier microgrids

1. Introduction

2. System description

3. Scenario-based problem formulation

4. Results and discussion

5. Conclusion

Chapter 9. Optimal resilient scheduling of multicarrier energy distribution system considering energy storages and plug-in electric hybrid vehicles contribution scenarios

Nomenclature

1. Introduction

2. Problem modeling and formulation

3. Solution algorithm

4. Numerical results

5. Conclusions

Chapter 10. Optimal participation of electric vehicles aggregator in energy and flexible ramping markets

1. Introduction

2. Problem formulation

3. Method of scenario generation

4. Simulation results

5. Conclusions

Chapter 11. Electric vehicles as means of energy storage: participation in ancillary services markets

1. Introduction

2. EVs as energy storage systems

3. Review on power regulation methods

4. Case study

5. Conclusion

Chapter 12. Evaluating the advantages of electric vehicle parking lots in day-ahead scheduling of wind-based power systems

1. Introduction

2. Problem formulation

3. Simulation and numerical results

4. Conclusion

Chapter 13. Large-scale energy storages in joint energy and ancillary multimarkets

1. Introduction

2. Large-scale storage systems

3. Economic justifications

4. Conclusion

Chapter 14. Electric energy storage systems integration in energy markets and balancing services

1. Introduction

2. Potential markets and services

3. Integration of electric storage in energy and ancillary services markets: model and formulation

4. Nomenclature

5. Case studies

6. Concluding remarks on status quo, challenges, and outlook

Chapter 15. Reliability modeling of renewable energy sources with energy storage devices

1. Energy storage device and its modeling

2. Renewable energy sources

3. Multistate modeling of RES and ESD

4. Discrete Markov chains

5. Reliability analysis

6. Load flow analysis

7. Results and discussions

8. Conclusions

Chapter 16. Reliability and resiliency assessment in integrated gas and electricity systems in the presence of energy storage systems

1. Introduction

2. Literature review

3. Model description and formulation

4. Solution methodology

5. Case study

6. Simulation results

7. Summary

Chapter 17. Reliability analysis and role of energy storage in resiliency of energy systems

1. Introduction

2. Requirements and challenges of the future electricity network

3. The concept of resiliency in power systems

4. Comparison between reliability and resiliency

5. The role of energy storage devices in improving resiliency

6. Problem modeling

7. Problem formulation

8. Case study and numerical results

9. Conclusion

Chapter 18. Electric vehicles and electric storage systems participation in provision of flexible ramp service

1. Introduction

2. Ramping issue in the system

3. Flexible ramp effects on operation of power systems

4. Flexible ramp service

5. Conclusion

Author Index

Subject Index

Copyright

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Contributors

Ali Abbaspour,     Sharif University of Technology, Tehran, Iran

Masoud Agabalaye-Rahvar,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Masoumeh Ahrabi,     Department of Electrical Engineering, Amirkabir University of Technology, Tehran, Iran

Alireza Akbari-Dibavar,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Ameena Saad Al-Sumaiti,     Advanced Power and Energy Center, Department of Electrical Engineering and Computer Science, Khalifa University, Abu Dhabi, United Arab Emirates

Mohammad Taghi Ameli,     Department of Electrical Engineering, Shahid Beheshti University, Tehran, Iran

Ali Ameli,     Entrepreneurship Incubator, Shahid Beheshti University, Tehran, Iran

Hossein Ameli,     Department of Electrical and Electronic Engineering, Imperial College London, London, United Kingdom

Mohammad Amin Mirzaei,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Mohammad Mehdi Amiri,     Department of Electrical Engineering, Shahid Beheshti University, Tehran, Iran

Meisam Ansari,     Electrical and Computer Engineering, Southern Illinois University, Carbondale, IL, United States

Jaber Fallah Ardashir,     Department of Electrical Engineering, Tabriz Branch, Islamic Azad University, Tabriz, East Azarbaijan, Iran

Somayeh Asadi,     Department of Architectural Engineering, Pennsylvania State University, State College, PA, United States

Mohammad Hosein Asgharinejad Keisami,     Department of Electrical Engineering, Shahid Beheshti University, Tehran, Iran

Sasan Azad,     Department of Electrical Engineering, Shahid Beheshti University, Tehran, Iran

Hamid Reza Baghee,     Department of Electrical Engineering, Amirkabir University of Technology, Tehran, Iran

Mahsa Bagheri Tookanlou,     Faculty of Engineering and Environment, Department of Maths, Physics and Electrical Engineering, Northumbria University Newcastle, Newcastle upon Tyne, United Kingdom

Sajjad Fattaheian-Dehkordi

Aalto University, Espoo, Finland

Sharif University of Technology, Tehran, Iran

Hadi Vatankhah Ghadim,     Department of Electrical Engineering, Tabriz Branch, Islamic Azad University, Tabriz, East Azarbaijan, Iran

Gevork B. Gharehpetian,     Department of Electrical Engineering, Amirkabir University of Technology, Tehran, Iran

Mahdi Habibi,     Faculty of Electrical Engineering, Shahid Beheshti University, Tehran, Iran

Alireza Heidari,     School of Electrical Engineering and Telecommunications (EE&T), The University of New South Wales (UNSW), Sydney, NSW, Australia

Mohammad Hemmati,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Vahid Hosseinnezhad,     School of Engineering, University College Cork (UCC), Cork, Ireland

Faezeh Jalilian,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Kamran Jalilpoor,     Department of Electrical Engineering, Shahid Beheshti University, Tehran, Iran

Hossein Khounjahan,     Azarbijan Regional Electric Company, Tabriz, East Azarbaijan, Iran

Matti Lehtonen,     Aalto University, Espoo, Finland

Vasundhara Mahajan,     Department of Electrical Engineering, Sardar Vallabhbhai National Institute of Technology, Surat, Gujarat, India

Amin Mansour-Saatloo,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Mousa Marzband

Faculty of Engineering and Environment, Department of Maths, Physics and Electrical Engineering, Northumbria University Newcastle, Newcastle upon Tyne, United Kingdom

Center of Research Excellence in Renewable Energy and Power Systems, King Abdulaziz University, Jeddah, Saudi Arabia

Behnam Mohammadi-Ivatloo

Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Department of Energy Technology, Aalborg University, Aalborg, Denmark

Fazel Mohammadi,     Electrical and Computer Engineering (ECE) Department, University of Windsor, Windsor, ON, Canada

Arash Moradzadeh,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Fariba Mousavi,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Soumya Mudgal,     Department of Electrical Engineering, Sardar Vallabhbhai National Institute of Technology, Surat, Gujarat, India

Mehrdad Setayesh Nazar,     Faculty of Electrical Engineering, Shahid Beheshti University, Tehran, Iran

Morteza Nazari-Heris

Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Department of Architectural Engineering, Pennsylvania State University, State College, PA, United States

Ali Parizad,     Electrical and Computer Engineering, Southern Illinois University, Carbondale, IL, United States

Roghayyeh Pourebrahim,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azarbaijan, Iran

Vijay Prajapati,     Department of Electrical Engineering, Sardar Vallabhbhai National Institute of Technology, Surat, Gujarat, India

Vahid Shahbazbegian,     Department of Electrical Engineering, Shahid Beheshti University, Tehran, Iran

Goran Strbac,     Department of Electrical and Electronic Engineering, Imperial College London, London, United Kingdom

Sajjad Tohidi,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azarbaijan, Iran

Vahid Vahidinasab,     School of Engineering, Newcastle University, Newcastle upon Tyne, United Kingdom

Atul Kumar Yadav,     Department of Electrical Engineering, Sardar Vallabhbhai National Institute of Technology, Surat, Gujarat, India

Kazem Zare,     Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran

Introduction

The increasing penetration of intermittent renewable energy resources faces the energy systems with diverse challenges. Energy storage systems (ESSs) play a vital role in today's energy system to compensate for the intermittency and uncertainty in renewable energy generation. On the other hand, in a deregulated energy market, energy storage is utilized as a critical energy entity in response to market interactions and price variations.

Regarding the importance of ESSs in energy markets, this book aims to explore the modeling, optimization, and analyzing the impact of ESSs in the energy market, for an audience of energy, power, mechanical, chemical, process, and environmental engineers as well as the researchers. It is targeted at improving operational efficiency through new approaches involving utility systems and process integration.

New concepts of the energy market and innovative technologies of ESSs in power and energy systems have been developing significantly during the last decade. Different analyses and practices are investigated and improved by researchers and engineers. Lack of a comprehensive resource in integrating the various features of both energy markets and storages, including the technical and operational aspects, inspires a new resource in this area. This book recognizes and discusses the technology and operation of ESSs and the market issues for researchers and engineers.

Topics covered include energy storage technologies; different applications of ESSs; environmental impacts of energy storage; reliability and availability; design, integration, and operation of ESSs; optimal energy management systems; optimization of energy storage utilization; storage and market components; economic analysis of energy systems; scheduling methods; market analysis and response.

The ongoing penetration of renewable energy sources and the emergence of electric vehicles and ESSs have been growing worldwide and will propagate further since many researchers, power utility companies, and organizations in different countries are applying and administering new actions to control climate change by reducing greenhouse gas emissions. Nonetheless, this turnaround results in ever more challenges for the energy system operators to handle the system's energy needs due to the increasing difficulty in predicting demand.

Modern ESSs are extensively implemented as a new flexible solution to the abovementioned challenge by researchers and engineers. Storage systems provide flexibility to both utility and the customers, and thus are interesting to demand and supply sides. Although the technical aspect of energy storage is an active field of research and engineering, the assessment of storage applications requires more investigations from economic and investment points of view to fill the gaps.

Inspired by this background, the integration and technoeconomic evaluation of ESSs in the energy and ancillary multimarkets have become the daily challenges of the researchers, investors, utilities, and engineers.

In this context, this book addresses the challenges and defines the technoeconomic cases on the subject, describes the methodologies, and explains the solutions. Consequently, an evaluation framework is developed for energy markets with storage. The remarks, including the motivations and obstacles of deployment of ESSs in energy markets, are discussed. Besides, impacts of ESS on the energy market, as well as demand and price, are analyzed. In detail, the chapters are organized as the following.

Chapter 1 provides a comprehensive and updated review of the basics and operation models of the energy markets from the initial appearance to the current status. Dealings with the main challenges of the electrical energy markets and various types of electrical energy markets are discussed, and the fundamentals of their operation are introduced. Chapter 2 gives an overview of various types of ESSs. Moreover, the operation of the ESSs from different aspects of the electricity markets is studied, and the current status and the role of ESSs considering their impacts in electricity markets are reviewed. Chapter 3 discusses the use of various types of ESSs in wind farm applications. Chapter 4 focuses on the optimal planning of ESSs with renewable sources such as wind and solar, and dispatchable distributed generation to participate in the energy market. In this chapter, the impact of energy price uncertainty on the profitability of ESSs and related resources is also investigated. Chapter 5 addresses the effects of carbon capture power plants and compressed air ESSs on the power system performance in a carbon-constrained environment and in the presence of wind generation uncertainty using a power flow optimization framework. Chapter 6 highlights the various aspects of the economics of lead–acid, nickel–metal hydride, and Lithium-ion batteries and the market dynamics, which affect the battery industry. The performance costs of the lead–acid, nickel–metal hydride, and lithium-ion batteries over the years and their impacts on the electric vehicles (EVs) industry are evaluated. This chapter indicates the market landscape and its growth prospects over the upcoming years. Chapter 7 develops a holistic day-ahead scheduling framework to guarantee economic and energy-efficient routing of EVs, where each EV and charging station (CS) finds optimal CSs and ESs, respectively, for charging and discharging based on a cloud scheduling system. Chapter 8 studies the presence of massive functional entities like distributed energy resources (DERs) and EVs and their unpredictable actions that increase the risk of congestion in the system. It investigates the roles of new intermediary entities, like aggregators and microgrid operators on the fluency of the interactions using an adaptive framework in a deregulated active distribution network. Chapter 9 proposes a scheduling model, including a hydrogen storage system, power-to-hydrogen, and hydrogen-to-power technologies using a hydrogen fuel cell. The developed model can handle different uncertainties using stochastic programming. Chapter 10 presents a multilevel optimization framework for a resilient multienergy carrier distribution system in a day-ahead scheduling problem, in which the nonutility parking lots of plug-in hybrid EV aggregators' and electrical ESS aggregators' contribution strategies can change operational paradigms and sell their electricity to the distribution system. Chapter 11 focuses on solving the bidding strategy problem of EVs aggregators to optimally participate in the energy and flexible ramping market under the uncertainties of the system. Chapter 12 investigates the potential of applying EVs as ESSs in ancillary services markets, based on the vehicle-to-grid (V2G) concept and the characteristic of the EVs batteries, by offering various grid services, including load management, demand response, and grid regulation services like frequency control. Chapter 13 presents an optimal scheduling problem for integrated EV parking lots (EVPLs) in the day-ahead scheduling of wind-based power systems, which is formulated as a network-constrained unit commitment model considering the AC power flow model. Chapter 14 discusses the role of large-scale ESSs in joint energy and ancillary multimarkets. Moreover, the suitable technologies for large-scale storage facilities, their role in energy grids, and their services are explained. Chapter 15 analyzes the current progress in the integration of electric ESSs (EESSs) into the existing energy and balancing mechanisms by providing a detailed formulation of the problem. Chapter 16 proposes a multistate model using discrete Markov chains for reliability modeling of renewable energy sources and storage units to overcome the drawbacks of conventional methods such as Weibull and Beta Probability Density Functions. Chapter 17 presents the algorithms for enhancing the reliability and resiliency in the coordinated operation of gas and electricity networks by introducing a comprehensive framework, including a mathematical model for the operation of these networks in the presence of flexibility options, such as gas and electricity storage systems. Chapter 18 presents a comprehensive model for viewing the role of ESS in energy systems to improve network resiliency and reliability. The resiliency criterion for reducing the impact of severe accidents on the network is considered as a module of the objective function. Chapter 19 reviews the important concepts in flexible ramping products and state-of-the-art techniques that enable participation of EVs/ESSs in providing flexible ramping services in different operational management levels of restructured power systems.

Behnam Mohammadi-Ivatloo

Amin Mohammadpour Shotorbani

Amjad Anvari-Moghaddam

Chapter 1: Energy market fundamentals and overview

Fariba Mousavi ¹ , Morteza Nazari-Heris ¹ , ³ , Behnam Mohammadi-Ivatloo ¹ , ² , and Somayeh Asadi ³       ¹ Faculty of Electrical and Computer Engineering, University of Tabriz, Tabriz, East Azerbaijan, Iran      ² Department of Energy Technology, Aalborg University, Aalborg, Denmark      ³ Department of Architectural Engineering, Pennsylvania State University, State College, PA, United States

Abstract

The energy market is basically a market handling process specifically with the trade and provision of energy, which may refer to the electrical energy market or other energy resources. Energy markets are known as a fast-growing and complicated sector considering their significant role in the global economies, the necessity of this sector in power and gas supply, and financial concerns of energy. This chapter aims to provide a comprehensive and updated review of the basics and operation models of the energy markets from the initial appearance to the status. This study concentrates on electrical energy markets since the primary reasons for the appearance of the energy markets are generation and transmission of electrical energy. The main challenges and dealings of the electrical energy markets, as well as various types of electrical energy markets, will be discussed in this chapter, and the fundamentals of their operation will be introduced. Various models will be proposed for the operation of energy markets and a deep comparison will be performed in terms of performance level and the advantages/disadvantages of the models will be determined.

Keywords

Deregulation in the energy market; Electricity market design; Electricity price; Energy market; Market fundamentals

1. History of electricity markets

The first modern power market and the first steps in line with the privatization and restructuring of power systems are related to Chile in the late 1970s. The model used in Chile in its entirety was successful in the entry of rationality and transparency to the power pricing system, but at the same time, it was accompanied by a number of big companies that threaten efficiency and competitiveness in the marketplace. Following that, Argentina renewed its restructuring with a view to Chile's experience by imposing restrictions on the market's focus and raising the reliability of its power system. One of the main objectives of the power market launch, which the Argentinean government pursued, was the privatization of power generating systems due to the state monopoly of undesirable technical conditions, which accordingly encountered continuous disturbances [1]. In fact, one of the main reasons for the restructuring of the electricity industry is the failure of the vertical monopoly of the government on the industry, which separates the integrated vertical and interconnected supply chain. It also separates the industry into competitive and noncompetitive sectors. The issue of vertical integration, which is interpreted as joint ownership of manufacturing and retail businesses in the supply chain (Fig. 1.1), is an obstacle to competition in the electricity market. At the same time, the government was seeking to attract the funds needed to restructure the assets and expand the existing system. During the 1990s, several restructuring projects in other Latin American countries, including Peru, Brazil, and Colombia, were implemented by the World Bank, but they were not successful [1].

Figure 1.1 Monopoly model of the power market.

The most successful move in the power industry occurred in 1990 when Margaret Thatcher was the prime minister in the United Kingdom with the privatization of the British and Wales Electric Industry. The model employed in the United Kingdom has been used as a standard for liberalization and deregulation in other commonwealth of independent states (CIS) countries, notably Australia and New Zealand, and regional markets such as Alberta and Canada. Of course, it should be noted that in many of these cases, market liberalization was carried out without large-scale privatizations, such as the United Kingdom. Experiences of the energy market foundation in different countries in terms of newly created entities and market designs are different, but their underlying principles are the same. In 1998, the local market was established in California, Pennsylvania, New Jersey, and Maryland and served as a global market model. However, the crisis of 2000 and 2001 in California slowed down the pace of deregulation to some extent. Later, the New England region and the state of New York followed a similar market. In 2001, Britain finished the second market reform on contract-based free trade [2]. Thus, the process of market reform around the world has been followed and is currently underway in parts of Asia and Africa. The electricity industry in Southeast Asian countries such as Japan, South Korea, India, Singapore is in different stages of restructuring, and in many other countries, including Iran, this process is implemented with indigenous features and characteristics.

1.1. Foundation of the electricity markets

From the beginning, government or quasi-government agencies were responsible for the management and control of the power industry. In this type of production structure, transmission and distribution of electric energy are carried out exclusively by an entity, which is the result of the so-called monopoly in the industry. In the traditional structure of the electricity market, the electricity supply is a public service with an exclusive feature, in which only the government and government agencies monitor the market and regulate the rate of return and the cost structure. In exclusive markets, local electricity companies have a monopoly on macro/microsales of electrical energy in certain geographical areas. The basis of this monopoly is granting of all privileges as well as all restrictions on public services to electricity companies. Under these conditions, the power company is obliged to supply electricity at a certain level of reliability with a fully controlled price. The unfavorable technical condition caused by state monopoly in the electricity industry production sector led some countries to privatization by transitioning from a monopoly to the competitive industry. However, the transmission sector has still remained a monopoly all over the world [3,4].

The power system operation between supply and demand must be constantly balanced. Inadequate supply will lead to the allocation of new production capacity and will lead to high prices. The automatic production control (AGC) is widely used to maintain the safety and reliability of the system, in particular for regulation and control of the frequency deviation and support of commercial transactions. In deregulated power markets, one imprortant design issue is a suitable and desirable mechanism for supplying and pricing AGC services. In a competitive power market, the AGC services are made through either negotiations between the market operator and the concerned production companies or a special form of auction. It is evident that the need for AGC capacity has a considerable effect on the result of the AGC market. If there is a mismatch between the planned production output and the system load, the generation units in the AGC mode automatically either increase or decrease production output to lead to an equilibrium [5].

1.2. Deregulation of the electricity market

The liberation of the energy market began around 1996 in the European Union by Norway and Britain. At the same time, talks were held to issue an order to release electricity from the European Union. The result of these talks was signing an agreement on the liberalization of the energy market by the Council of Ministers. The goal of liberalizing the energy market was to achieve greater efficiency and lower prices for consumers by increasing market competition. This has been partially but sometimes not on an expected scale explored in some countries [5].

Based on economic theory, the price of a commodity should be equal to its production cost to maximize the social welfare and public satisfaction. Of course, the practical implementation of this proven economic principle is not so simple to achieve this result, and one can choose two trends:

• Establishing organized structure and forming controlled producers who sell goods at a price equal/near to the border cost.

• Relying on a default that the producers will select the same price. In other words, the trend is the creation of a natural process for selecting the same price by the manufacturer.

The conventional structure of the power industry is based on the first assumption. For this reason, only one producer is considered in the traditional structure for this product. Of course, if this exclusive producer considers the prices equal to the cost of its production, it cannot attain maximum benefit. After avoiding the dominance of this proprietary manufacturer in the market, it is possible to have a regulator that can handle this situation and is able to price it within specific bounds. But this structure is not efficient to guarantee the profit. The concept of free selection, which is important in many countries, is not included in such structure. Besides, the bargaining power of interest groups is detrimental to the regulation of market regulations to achieve greater profits in many countries. This trend has led to the formation of an exclusive structure that only benefits a particular group.

The ultimate goal of liberating electricity markets was to have an economic incentive to have a natural way to achieve a price at the limit of border expenses and, of course, an increase in efficiency (i.e., maximum social welfare). The efficiency in our discussion is only a specific meaning of a condition with significant diversity. In general, economic view and in terms of efficiency, especially in the field of liberalization of electricity markets, efficiency is not only meant for the maximization of the social welfare in a static situation, but it also involves the dynamic process of fixing production costs. In other words, competition is expected not only to reduce the unit prices of the border costs but also to attain efficient exploitation of resources. In short, the economic incentives of competition can be sought to achieve two main goals, including pricing on border costs and minimization of production costs. By adopting this economic idea, there is no choice but to remove the monopoly structure of the electricity industry, as otherwise it will be charged from social assets to compensate the costs of a monopoly system under regulation [6].

From the beginning, electricity was sold as a product at the market price, which became a basic product after a time with the development of the electricity industry with strict regulation. From the post–World War II period until the late 1970s, the European governments supported the formation of a vertical monopoly to exploit transmission networks or distribution networks. Deregulation began in the early 1960s, and since then, many developed countries have supplied electricity with market strategy [2,7].

The liberalization of the energy market aimed at improving efficiency and reducing the cost of consumers by increasing trade competition. Based on economic theory for social welfare maximization and public satisfaction, the price of a commodity should be equal to its production cost. The implementation of this principle requires a set of structures and the formation of controlled manufacturers who sell goods at a price equal to the cost of the border [8]. In fact, the conventional structure of the power industry is based on this assumption, which leads to the consideration of only one producer for this product in the traditional structure. It is obvious that if the sole producer price of goods is equal to the frontier cost, it cannot achieve maximum profit. So, to avoid this monopoly producer dominating the market, there is usually a regulatory body that controls this monopoly situation and ensures that prices do not exceed by a socially acceptable standard. However, this structure is not efficient for guaranteed profit. The concept of free selection, which is considered as an important factor in many countries, is not included in it, and the bargaining power of interest groups is detrimental to the market regulations in order to achieve greater profits in many countries. In fact, the monopoly structure has operated based on rules set up for profit by a particular group. This is where the importance of deregulation and liberalization of electricity markets is clear. The ultimate goal of the liberalization of electricity markets is to reach a price at the limit of border expenses and to maximize the social well-being and efficiency. In the general economic view of efficiency, especially in the field of liberalization of electricity markets, efficiency is not only meant to maximize the social welfare in a static state, but also the dynamic process of fixed modification of production costs. In other words, competition is expected not only to reduce the unit prices of the border costs but also to attain efficient exploitation of resources. In summary, economic incentives to create competition can be sought to achieve two major objectives: price-based cost definition and minimization of production cost. By adopting this economic idea, there is no choice but to remove the monopoly structure of the electricity industry, as otherwise, it would be used to compensate for the cost of a monopoly system under regulation. With the process of decentralization of the electricity industry in the world, the importance of optimal energy purchasing and formulation of a regular decision process cannot be achieved. Electricity supply industries have been restructured in steps leading to the creation of competitive energy markets in the industry. Generally, these arrangements require a kind of central bid to provide electricity in short periods of time. Given that electricity delivered directly, it is obvious that the day-ahead market will require a balanced service with a real-time market. The institution that is able to meet these conditions is the system's sovereign operator. The independent system operator (ISO) is responsible for controlling the network, setting transfer tariffs, maintaining system security, scheduling periodic maintenance, and contributing to long-term decisions. The real-time exploitation of the market is a fundamental responsibility of the ISO so that the energy supply bid and the procedures for submitting it are determined by the operator. It is also necessary to ensure that there is enough quantity of automatic production control and rapid production capacity meeting the standards of mandatory reliability. One way to satisfy these needs is to create a competitive market for ancillary services by the ISO. Providing operating reserves and automatic generation control (AGC) services is one of the other important tasks of this operator. These conditions are the result of deregulation and liberalization of the power industry, the creation of a competitive, safe, and transparent energy market, the abolition of tariffs, and the end of state monopoly by reducing and simplifying regulations [9,10].

1.3. Electric energy restructuring and integration

By the early 1980s, the politic, environment, and technology had significant pressure to reform the electric energy sector in Europe. It is while the energy market in the world has turned to privatization, deregulation, and liberalization with the aim of the withdrawal of the electricity industry from the monopoly of government bodies and government. However, there are two main reasons for the power of these entities and delay in the liberalization of the electrical energy sector, which are the security of supply and complexity of goods. These issues are two fundamental challenges in the restructuring of the electric grid [7].

The diversity of different sectors of the power industry makes unified analysis difficult and complicated. However, it can be shown that even if the reasons for initiating the restructuring process differ between the two countries (i.e., supply crisis, the inefficiency of management, and lack of resources for investment), most of them have successfully achieved the goals proposed at the beginning of the reform. The reform processes are indeed based on a fundamental shift in the paradigm for e-commerce. The paradigm of a business sense has evolved vertically integrated by the government, in which the economic characteristics are substantially recognized at the stages of production, transmission, distribution, and supply. The main objectives of the reform process are to maximize social welfare and create effective economic conditions in the industry, enabling competitive markets in all possible sectors and efficient regulation. The restructuring has led to the development of low-cost energy supply, with levels of economic reliability and service quality, increasing the use of energy and reducing losses. On the other hand, governments have greatly encouraged private investment, and the role of traditional entrepreneurship has changed the government to the role of regulator. Indeed, through the introduction of competition, privatization of state industries, and the deregulation of key industrial sectors, a strong alternative was proposed instead of what was generally considered as a centralized and inefficient electrical industry. Going toward the privatization of the electricity market has resulted in a substantial change in the performance and organization of power systems, which are large and complex integrated engineering systems that require a certain level of makeup. The important achievements mentioned are the proceeds of these reforms, although this differs from one country to another. Inadequate investment in the new production, transmission capacity, and distribution are given to private investors vying for the development of new infrastructure. The inefficient management of the government in the field of electric installations, with low labor productivity, provides a way for efficient private companies that increase energy production, looking for new opportunities to cut costs and increase income [11].

While the basic model for structural and regulatory reform in electricity is relatively simple, the needed details of institutional reform to improve the performance of the current system are complex. Structural and regulatory reform of electricity sectors in developing countries and other countries is looking for a model that has already been applied to network industries such as telephone and natural gas. Potential competitive sectors (i.e., power generation) are structurally or functionally disconnected from the natural monopolies (i.e., physical transmission and power distribution). The prices were set for entry and exit from the deregulated competitive segments, and it gave consumers the opportunity to choose from competitors. However, there is interesting public attention to structural and regulatory reforms, which lead to increased competition, if appropriate use of institutional arrangements could result in real cost savings. Due to the crucial role of these reforms in the economy, there are deep public interests to ensure that such reforms are improved instead of reducing the performance of the electricity sector in the long run. In fact, it can be stated that the restructuring of the electricity industry is done in order to reinforce competition in the manufacturing sector and to reform the regulation of the transfer and distribution functions [12].

2. Challenges of energy markets

One of the main challenges of liberalization of the energy market is that there is no precise analysis to examine the broader social and environmental consequences of liberalization. There are problems such as environmental consequences, supply security, sustainable long-term planning, resource exhaustion, improving renewable energy systems, and effective investment in sustainable energy systems. To solve these problems, long-term social-term planning is needed to contradict the short-term time horizon for the benefit of a deregulated business market. It is often said that the industry transition requires a free market for new investments that include new transaction costs ending with customers. Therefore, the transition to a free power market requires establishing large updated databases in order to control the transit of customers between suppliers [6]. Controlling air pollution, reduction of greenhouse gas emissions, integration of renewable energy, and supply of modern energy services are some of the energy challenges that have always been discussed. Because the supply of electricity must continuously meet demand, and storage is not cheap, energy suppliers in the market will be able to exercise market power and other issues in the market. Governments and quasi-government organizations pose other challenges to policymakers and electricity legislators to reduce greenhouse gas emissions and increase the use of renewable energy. In the following, we will explain more about these challenges.

To change resources from fossil fuels to renewables, electricity markets are changing. Wind and sun can be considered as the main renewable energies that bring challenges. The main challenge for renewable sources is the availability of alternating access and the variability of these resources, which have zero final cost and no inertia. These challenges can be improved by the application of battery storage responding to better demand, which is currently being explored in several studies. On the other hand, following the reduction of air pollutants and the issue of decarbonization, as the most important environmental challenges, the advancement of electrical systems, electrical modifications, and facilitating the transfer of the current system to clean energy systems have been considered by various countries. However, there are obstacles that make market reform difficult. For example, one of the most important barriers to China's current clean energy system is the market reform of coal-fired power generation, which currently accounts for most of China's electricity generation. China ranks first in the world in coal production, accounting for more than 80% of its heat production through coal. The challenges that China faces in transferring the system are two separate issues that may have a common solution. The first is the issue of transfer: China has the capacity to produce coal compared to the expectation supported by the market price in the short term. The second issue of the transfer is that coal producers in China who are unable to pay their fixed costs will be forced to retire. These issues overshadow China economically. Therefore, it is important for Chinese policymakers to anticipate and address the impact of reforms in the electricity market on existing coal producers and to provide sustainable political solutions. Electricity markets can play an important role in China's transition to a low-carbon energy system. However, if markets are placed on transfer issues, their potential may not be realized. Therefore, in many countries, there may be obstacles and problems for decarbonization, which will challenge the transition of the current transmission system to clean energy systems. Policies aimed at decarbonization of the electricity sector through the expansion and invasion of wind energy penetration and solar energy production have significant implications for the performance of electricity wholesale markets