Economics for Smart Energy Systems

This course will enable to understand economic processes of electricity markets and challenges faced by energy sector to form economic thinking among students, in-depth knowledge and practical skills in solving economic problems under the conditions of transition to a market economy.

This course reviews the world experience of regulation in the energy sector, current concepts and tools for studying regulation and competition in the energy sector, existing regulatory constraints for energy markets participants. It bridges the knowledge gap between engineering and economics in a complex and evolving deregulated electricity industry, enabling students to understand, operate, plan and design a modern power system.

The objectives of the course “Economics for SES” is to give students a fundamental understanding of the main economic concepts, pricing and rules for markets operation in the conditions of SES.

The course is designed to provide students with critical thinking about economic foundations of smart energy system operation, which are necessary to understand the role of economic instruments in strategies developing for smart energy systems implementation at national and international levels.

  • to be able to review the basic modeling of electricity markets and electricity industry reforms, the electricity market structures, the behavior of electricity market agents
  • to be able to justify the peculiarities of pricing in the balancing market and wholesale market, propose technological regimes taking into account real time pricing, unit generation costs, unit capacity constraints
  • to be able to plan technological regimes in relation to the economic dispatch of SES
  • to be able to assess investment dynamics in electricity markets and appraise the net present value of a project
  • to be able to identify own role within a multidisciplinary team and explain the roles of the other team members; and be able to act both independently with a little supervision and cooperate with other team members; negotiate and manage conflicts.


  • Problem based learning
  • Inquiry-based learning
  • Case method
  • Gamification

Chapter 1. Introduction to micro-economics

1.1 Economic Objectives
1.2 Demand and consumers’ surplus. Elasticity of supply and demand. Supply and producers’ surplus
1.3 The cost of production and the concept of marginal costs
1.4 Long run and short run
1.5 Electricity market structures, monopoly, oligopoly
1.6 Bertrand model, Cournot model
1.7 Market power

Chapter 2. General issues of deregulation of the energy systems market
2.1 Historical evolution of market deregulation
2.2 Actors in a market-orientated electric power system
2.3 European and world electricity market, liberalization and globalization of electricity market
2.4 Fundamentals of markets
Chapter 3. Specific characteristics of electricity as a commodity and electricity sector operation based on smart energy systems

3.1 Trading electricity
3.2 Еlectric power balances in the system
3.3 Risks related to electricity trading
3.4 The main types of contractual relations in the electricity market. Forms of contracting in the electricity market

Chapter 4. Composition and interconnections of electricity markets
4.1 Variation in wholesale market design. Achieving optimal dispatch through competitive bidding
4.2 Day-ahead market, futures/forwards, intraday market, balancing market, reserves market
4.3 Peculiarities of pricing in the electricity market. Main pricing principles in the wholesale and balancing market and regulatory legislation of the electricity market
4.4 Retail market. Difference between wholesale and retail. Main pricing principles in the retail market.
4.5 Ancillary services markets. reactive power, frequency regulation, reserves and black start
Chapter 5. Capacity markets and mechanisms
5.1 Capacity Payments
5.2 Capacity Market
5.3 Generation Capacity from Renewable Sources

Chapter 5. Capacity markets and mechanisms
5.1 Capacity Payments
5.2 Capacity Market
5.3 Generation Capacity from Renewable Sources

Chapter 6. Optimal dispatch in Smart Power Grids
6.1 Classic economic dispatch
6.1.1 Input-Output characteristic of generator units
6.2 Economic dispatch neglecting network losses
6.2.1. Equal incremental rate method
6.2.2. Lagrange multiplier method
6.2.3. Gradient method
6.3 Modern trends: the smart electric grid
6.4 Economic dispatch and electricity markets

Chapter 7. Investing in generation
7.1 Motivation
7.2 Investing in generation from an investor’s perspective
7.3 Market-based investment in electricity generation. Evaluating the effectiveness of the investment project
7.4 State policies to support renewable energy. Generation capacity from renewable sources

1. Office equipment: Interactive SMART Classroom, screen and projector
2. Computers with Mathcad/Excel software

The request form for teaching materials (TM)