Power Market Design

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Competitive wholesale electricity markets are at a turning point. Current market rules and practices were established to manage a system built around large central plant stations generating electricity to meet inflexible demand. Prices and market revenues are tied to generators’ production costs, which have historically been largely dependent on the prices of fuels burned in those plants.

Today’s resource mix is changing. Carbon free resources with near-zero production costs such as wind, solar, and energy storage are replacing fuel-burning power plants due to falling prices and government policy. This trend is certain to continue.

These resources differ in several important ways from the fuel-burning power plants around which wholesale electricity markets were originally designed. First, they have near-zero production costs as they don’t require any fuel. Second, these new resources are smaller, and can therefore be deployed more rapidly and in smaller increments. Third, they have very different production characteristics than thermal resources, with output tied to the availability of their energy resource, i.e. wind or sunshine. These differences have significant implications for how markets run and how prices and revenue can support a least-cost electricity mix.

The evolving mix of energy resources on the grid and decarbonization trend leads to the following question: “What wholesale market design would provide the best framework for reliably integrating the new, clean resources needed to decarbonize the power system at least cost?”

 

Resources

Why The Clean Energy Industry Should Be Interested In Resource Adequacy

This brief explores the role of resource adequacy in the clean energy transformation: How the clean power transformation challenges grid resource adequacy planning and management paradigms, how fossil fuel incumbents exploit resource adequacy challenges to electric grid reliability, and why changing perception about resource adequacy must be a top priority for climate mitigation.

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Rewiring The U.S. For Economic Recovery

This report outlines policy recommendations for Congress, federal departments and agencies, national laboratories, governors and state legislators, public utility commissions, and wholesale electricity markets to reach 90 percent clean electricity by 2035 in the United States.

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Making The Most Of The Power Plant Market: Best Practices For All-Source Procurement Of Electric Generation

When utilities procure generation through non-ideal processes biased against clean energy, they result in portfolios with higher consumer costs and carbon emissions. This report outlines how “all-source” procurement allows technologies to fairly compete to meet utility needs, reducing costs and emissions, with detailed case studies from recent utility procurement processes.

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Wholesale Electricity Market Design for Rapid Decarbonization

Competitive wholesale electricity markets are at a turning point. These papers outline questions emerging about wholesale market reform and introduce two pathways for markets to evolve.

A Roadmap For Finding Flexibility In Wholesale Markets

America’s electricity market operators are increasingly looking for ways to make their systems more flexible as more renewables, flexible demand resources, and energy storage come online. This report outlines which types of flexibility are needed for grid reliability, offers advice on how markets can ensure sufficient flexibility, and will help identify ways to manage the grid with a rapidly evolving mix of resources.

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On Market Designs for a Future with a High Penetration of Variable Renewable Generation

Restructured wholesale electricity markets serve stakeholders by providing three principal services: economically efficient real-time dispatch, incentives for resource adequacy and long-term cost recovery. Because at least two of these functions happened dynamically through market forces, future scenarios for clean, affordable…

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Grid Flexibility: Methods for Modernizing the Power Grid

An abundance of new technologies are now available to produce cleaner, cheaper electricity. But in order to take advantage of them, system operators must build a flexible electricity grid. This paper reviews the types of resources that can deliver grid flexibility and provides case studies and recommendations for how to incorporate flexibility into grid systems.

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Power Markets: Aligning Power Markets to Deliver Value

This whitepaper, written as part of America’s Power Plan, discusses the need to redesign power markets to account for the increased role of renewables and demand-side resources in the electricity sector. The main themes for future power markets are to increase energy efficiency, upgrade system operations to enable short-term flexibility, and upgrade investment incentives to enable long-term flexibility. This transition requires fewer and larger balancing areas, enhanced weather forecasting, encouragement for customer-side technologies and demand-side resources to improve flexibility, and increased frequency of dispatch decisions.

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Finance Policy: Removing Investment Barriers and Managing Risk

This whitepaper, written as part of America’s Power Plan, discusses investment opportunities to support upgrades to America’s aging grid system. Financing upgrades to the grid system requires policy, regulation, and market structures that 1) eliminate barriers to cost-effective financing by enabling long-term debt and equity financing, and 2) enable investors to realize the full value of the new assets they deploy, such as reduced emissions or increased reliability.

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A New Approach to Capabilities Markets: Seeding Solutions for the Future

This paper discusses the potential role for Staircase Capabilities Markets as a pricing mechanism to tackle some of the major issues associated with load balancing as more variable sources are added to the grid. This involves long-term planning for investment certainty, as well as flexible, small volume requests for proposals to encourage capabilities experimentation. The paper includes a California case study, provides a list of systems that could effectively participate in the market mechanism, and discusses the conditions of transitioning toward a new energy paradigm.

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Articles

U.S. Electricity Markets Aren’t Designed To Handle 100% Clean Energy. Here’s How To Fix That.

EI’s Silvio Marcacci says states targeting 100% clean energy face wholesale electricity markets built around fossil fuels that aren’t designed to handle the influx of clean resources.

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How Market Rules Are Holding Back Energy Storage

EI’s Eric Gimon says outdated U.S. wholesale power market rules are preventing energy storage from reaching its full market potential.

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Two Ways Energy Storage Will Be A True Market Disruptor In The U.S. Power Sector

EI’s Eric Gimon says energy storage will be a true market disruptor that reshapes U.S. power markets as fast-falling costs push more projects online.

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Three Ways Energy Storage Can Generate Revenue In America’s Organized Power Markets

EI’s Eric Gimon says even though energy storage is surging in the U.S., it hasn’t yet been able to plug into America’s organized power markets, but fortunately, energy storage can tap these new markets and earn revenue through three tactics.

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ERCOT’s Summer Peak Demand Forecast: New Investment, Generator Profits, No Blackouts

EI’s Eric Gimon discusses how the ERCOT summer peak demand forecast will weather tight supply margins and attract new investment without suffering blackouts.

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It’s Time To Refine How We Talk About Wholesale Markets

EI’s Mike O’Boyle and Robbie Orvis say it’s time to change how we talk about wholesale markets: Using opaque electricity market jargon can favor fossil fuel generation at the expense of cleaner technologies.

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Flexibility, Not Resilience, Is The Key To Wholesale Electricity Market Reform

EI’s Eric Gimon argues grid flexibility technology, not resilience, is the key to resolving wholesale electricity market concerns in the U.S.

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Mind the Storage Gap: How Much Flexibility Do We Need for a High-Renewables Grid?

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Secretary Perry, We Have Some Questions for You Too

In April, Department Of Energy Secretary Rick Perry issued a memorandum to his staff asking pointed questions about the future of the electric grid as coal is retired off the system. DOE’s publication of this memorandum presents an opportunity to uncover many outdated assumptions about grid reliability and understand what’s driving the unstoppable transition from coal to other technologies.

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How a Cold Day in Texas Exposed the Value of Grid Flexibility

As the renewables transition continues apace, flexibility will become increasingly important. Policymakers and investors will need to watch carefully how flexibility is paid for.

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A Guide to the Debate Over Closing Nuclear Plants

Wholesale electricity prices are at historic lows, threatening the underlying economics and fate of America’s existing nuclear fleet, just as many facilities are up for re-licensing. This leaves policymakers with tough choices on if — or how — they should intervene to save these plants. What’s a reasonable policymaker to do when considering nuclear power against the overall need for cheap, clean and reliable power?

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Was 2016 the Year for Wholesale Power Market Reform?

Back in January, I suggested 2016 was the year for wholesale power market reform. So, was it? While shifts in these kinds of institutions take longer than one year, we’ve seen real progress on the four factors that made 2016 a turning point, and we believe progress will continue in 2017.

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Texas Regulators Saved Customers Billions by Avoiding a Traditional Capacity Market

Texas’ decision for an energy-only market design with an operational reserve demand curve has likely saved Texas consumers billions, as well as improving reliability, providing evidence of an energy transition driven by load reductions, significant increases in renewable generation, and…

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2016 Is the Year for Wholesale Power Market Reform

Electricity from wholesale power markets keeps the lights on for two-thirds of all Americans. But pressure is mounting to reform these markets to match the changes underway in the energy system. 2016 will be a turning point for policymakers, clean energy providers, and wholesale market operators to work together and modernize U.S. wholesale power markets.

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Is the Transmission Grid Ready for Aggregated Distributed Energy Resources?

Independent system operators have empowered aggregators of distributed energy resources (DERs) to sell services into the transmission grid, but simply opening the door for DERs to join the party only goes so far. We still must identify and overcome challenges impeding progress at the interface between meters and transmission towers.

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The Future of Demand Response Without FERC Order 745

Two experts consider what the demand-response market will look like if the Supreme Court kills FERC’s landmark rule. While this ruling potentially affects DR in capacity and ancillary service markets, their exchange focuses on the future of DR in wholesale energy markets.

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A Tale of Two Regions: Why Wind Is Booming in Texas and Stalling in the West

Comparing two regions with similar total installed wind capacity, WECC and Texas, demonstrates the importance of good transmission planning. The lesson for transmission planning is clear: if you build it, wind will come.

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Do Pay-for-Performance Capacity Markets Deliver the Grid Resiliency Outcomes We Need?

Several market operators have instituted capacity markets to bridge the gap between revenue available from energy markets and the all-in cost of desired capacity. But will they deliver the outcomes needed for the energy system transition?

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Renewables Curtailment: What we can Learn from Grid Operations in California and the Midwest

Comparing how electricity contracts, markets, and grid operations are evolving in California and the Midwest sheds light on changes that will be necessary as renewable sources like wind and solar begin to form the core of our electricity mix.

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