Electricity Markets and Renewables: A Survey of Potential Design Changes and Their Consequences

Date Published: November 2017

Authors: Erik Ela, Congcong Wang, Sai Moorty, Kenneth Ragsdale, Jon O’Sullivan, Mark Rothleder, Benjamin Hobbs

The evolution of market design in the United States is described in three waves: (1) the introduction of competition into the electric power sector, (2) incremental improvements for economic efficiency and (3) demand-side, renewables and distributed resources integration. The first is explored in depth, with academic, political and economic context leading to market restructuring through the 1990s. The California Electricity Crisis of 2000-2001 is marked as the transition to the second wave, when regulators moved to address imbalance in market power, the failure to promote forward contracting, and better reflection of the physical needs of the grid in power markets. The third wave of market and industry reform is presented as an emerging challenge, with the market-distorting effects of net-metering rates and renewable energy subsidies addressed in detail. Flexibility and resource adequacy issues are also considered. The question of whether to make the market ISO-centric or distribution-level centric is posed as a dichotomy for integrating distributed energy resources. The paper concludes that market designs have not kept pace with technological innovation, and that there are untapped economic and environmental benefits ready for market designers to unlock.

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