Course syllabus - Physical and Financial Electricity Markets

Objectives

The purpose of the course is to learn different methods and models related to how the price of electricity is set on both physical electricity market and on the power exchange (Nordpool) and how these are related to the transmission constraints. The students will also learn how externalities are priced to limit emissions.

Learning outcomes

After completing the course students will be able to:

• Explain, demonstrate and compare electricity prices formation under perfect and imperfect competition in the electricity market;
• Explain and demonstrate why the electricity market often is regulated and which impacts various regulations entail;
• Explain bid strategies for producers and consumers to "day-ahead", "intraday" and "balancing market";
• Explain and demonstrate how capacity constraints affect electricity prices and how power distribution losses are procured;
• Explain and demonstrate how the power reserve is priced;
• Analyze pricing environmental externalities such as emission rights, certificates, disclosure of origin concerning green and normal power;
• Show how various financial derivatives, such as futures and options work and are priced in the power exchange and how to use these to manage risk, such as the electricity price changes.

Course content

The course based on financial theory, gives a review of how the price is set on the power exchange, intraday and balancing market. Furthermore, based on economic theory, the course includes the short and long term marginal cost pricing, peak-load price, price discrimination, price bundling, price regulation and oligopolistic (Cournot, Bertrand and price leadership models), monopoly markets (Ramsey pricing) and pricing in connection with externalities.

Specific requirements

120 credits completed courses in business, economics, science and/or engineering, including 15 credits at advanced level. Of these, 65 credits must be in business/economics or energy engineering including the courses Perspectives on energy markets 15 credits, Business on Global Markets 7.5 credits and Microeconomics 7.5 credits, or equivalent. In addition, Swedish course B/Swedish course 2 and English course A/English course 2 are required. In cases where the course is given in english, exemption from the Swedish B/Swedish 2 is given.

Examination

Assignment (INL1), 3 credits, marks 3, 4 or 5
Assignment (INL2), 3 credits, marks 3, 4 or 5
Assignment (INL3), 4 credits, marks 3, 4 or 5

A student who has a certificate from MDU regarding a disability has the opportunity to submit a request for supportive measures during written examinations or other forms of examination, in accordance with the Rules and Regulations for Examinations at First-cycle and Second-cycle Level at Mälardalen University (2020/1655). It is the examiner who takes decisions on any supportive measures, based on what kind of certificate is issued, and in that case which measures are to be applied.

Suspicions of attempting to deceive in examinations (cheating) are reported to the Vice-Chancellor, in accordance with the Higher Education Ordinance, and are examined by the University’s Disciplinary Board. If the Disciplinary Board considers the student to be guilty of a disciplinary offence, the Board will take a decision on disciplinary action, which will be a warning or suspension.

Grade

Grading scale: 5, 4, 3

Interim Regulations and Other Regulations

Seminars and project work is compulsory parts of the course.