Welcome to the course

Welcome to this course on the electrical industry, production, and the economics. I am Fulvio Fontini, professor of economics at the University of Padua in Italy. And I’ll be your guide through the wonderful world of economics of electricity. I’ve been teaching and making research on this topic for more than 20 years now. And I’ve also been consulting several enterprises and regulatory bodies. Regulatory bodies? Why is electricity regulated? This is one of a kind of a question that we will answer throughout this course. Electricity is produced and delivered to all of us like any other good.

But unlike other goods, it has some specificities, some peculiarities due to its physical nature that we have to take into account when we analyse the way it is produced, transmitted, and delivered to all of us. Let me first introduce you the structure of the course. The course is made of four weeks. In each week, we shall tackle a fundamental key question. The first week is introductive. We shall see together the key features of electricity as a commodity that will constrain the way electricity is produced and transmitted to all of us. Now, don’t worry. It will not be technical. We shall keep the discussion at the easiest introductory level as easy as possible.

In the second week, we shall see how electricity is produced and exchanged in the markets. That week is composed of two activities. In the first activity, we shall discuss the electricity supply chain. What is the electricity supply chain? Now, the way goods are produced and changed and the set of all relationship that occur among all the agents that interact for the production and delivery of a good is called the supply chain. The electricity supply chain is specific to the electrical industry. And we will see how that can be differently organised. There is a second element that we need to take into account. As a matter of fact, now, yourself, by watching this video, you are consuming some electricity.

This are electricity that you are consuming is being delivered to you at the same time at which you are consuming it. But things have to occur in order for that electricity to be able to be delivered to you at that time. So something has to occur before. And something has to occur afterwards. That has to do with the timeline of the production and consumption of electricity. And that is what we shall see in the second activity of the second week. In week two we shall have focused on the way the electricity supply chain is effectively organised worldwide. In week 3, we shall make one step forward. And we will focalize on how should the electricity be produced and exchanged?

In order for electricity to be used by all of us, that has to be delivered in a specific way. This process is called dispatching. What we shall focus in the first activity of week three is how should dispatching occur in an optimal way– I mean in a way in which the cost of producing electricity is minimised and welfare or well-being of those who take advantage of electricity, it is maximised. The analysis will be kept at the simple level. In particular, we shall not take into account some of the constraints posed by the electricity supply chain.

The electricity we are all consuming– the one we are using right now watching this video– it is not produced at the same place where you are consuming it, actually. This is one of the greatest advantage of using the electricity system. But this poses some constraint to the electricity supply chain. That is what we will consider in the second activity of the third week. We will make one step towards describing realistic systems of electricity production and delivery. Moreover, we shall also discuss the investments that are needed for the electricity to be produced and delivered to all of us. Finally, in week four we shall discuss the actual and future challenges to the electricity system.

For instance, electricity can be produced in different possible ways. And the production of electricity from renewable energy sources is getting more and more important. What does this imply for the system itself? And what does this mean for us as consumers and for the world altogether? We will discuss this in the first activity of week four. Finally, we shall focus on ourselves as consumers of electricity. As a matter of fact, we all pay a bill for our electricity consumption. How it is made, this bill, and what does it contains? What is it effectively we are paying when we pay electricity? How can we understand what we are paying, and maybe, why not can we pay less for it?

We shall see it in the second activity of week four. Let’s move forward. Let us start this course. It’s going to be interesting and fun.