With the transition to liberalized electricity markets in many countries, the shift to more environmentally sustainable forms of power generation and increasing penetration of electric vehicles and smart appliances, a fundamental understanding of the economic principles underpinning the electricity industry is vital. Using clarity and precision, the authors successfully explain economic theory of all liberalized electricity market types from a cross–disciplinary engineering and policy perspective. No prior engineering knowledge or economics expertise is assumed in introducing key ideas such as nodal pricing, optimal dispatch and efficient pricing or in extending those models to areas including investment, risk management and the handling of contingencies. Key features: Comprehensively covers the principles of all liberalized electricity market types, including the US, Europe, New Zealand and Australia. Provides up to date coverage of research and policy issues, including design of financial transmission rights, modeling of market power, problems of regional pricing, and design of distribution pricing to facilitate Smart Grid. Spans introductory material to cutting–edge thinking on risk–management and short–run dispatch. Supports independent learning and teaching with worked examples and problems, enabling the reader to test and further deepen their understanding, whilst also promoting their insight and intuition. Solutions to problems and figures are hosted on a companion website. This ground–breaking text is an indispensable resource for the next generation of engineers, economists and policy–makers in or preparing to enter the electricity sector. Graduate students in electrical engineering and economics will benefit from the breadth of material and detailed, economically precise presentation.

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