Chiara Lo Prete

Cross-Product Manipulation in Electricity Markets

The use of uneconomic virtual transactions in day-ahead electricity markets to benefit related financial positions has emerged as a policy concern in recent years. Cross-product manipulation has been studied extensively in securities and commodities markets, but its theoretical foundations and empirical implications in electricity markets are not well understood. In a series of papers, Dr. Lo Prete and collaborators have used equilibrium models to examine how market participants may affect electricity prices over a sustained period using only financial positions from the day-ahead market. Ongoing work focuses on the application of machine learning methods to detect this type of price manipulation in the data.

Market Reforms for the Evolving Grid

Electric power systems are undergoing a major transition that is progressively shifting the resource mix for power generation towards natural gas and renewable energy sources. This evolution poses challenging market design and policy problems that were unknown, or less material, in the early designs of organized electricity markets. For example, during extended cold weather periods, natural gas-fired generation may be severely limited due to fuel delivery infrastructure constraints. Uncertainty and variability in solar- and wind-based generation may cause inefficient scheduling and dispatch of the conventional generation fleet, increasing the need for out-of-market uplift payments to generation resources that are committed and dispatched by the system operators, but are unable to recover their total production costs through market clearing prices. These challenges may be addressed through market mechanisms. Ongoing research funded by the Sloan Foundation examines whether efficiency in power systems operations may be improved by introducing intraday energy markets that incent participants to adjust their schedules based on private wind production forecasts. In another project sponsored by the National Science Foundation, Dr. Lo Prete is investigating market mechanisms to promote efficient investments for grid resilience against natural gas disruptions.

Power Market Responses to Energy and Environmental Policies

One theme of Dr. Lo Prete’s research program studies how power markets respond to energy and environmental policies that affect grid operations and investment. Recent work has focused on state-level policy actions that affect the functioning of wholesale electricity markets in ways that undermine the fundamental principles on which these markets were designed. For example, regional cap-and-trade programs to regulate CO2 emissions from the electricity sector often create concerns of leakage, defined as the shift in production and associated emissions from the region where climate regulations apply to surrounding unregulated jurisdictions. Ongoing research uses statistical analysis of historical data to test the hypothesis of leakage from California’s greenhouse gas cap-and-trade program in the Western Interconnection.