Missing Incentives for Flexibility in Wholesale Electricity Markets

Date Published: June 2020

Authors: Jacob Mays

This report provides a quantitative analysis of energy market flexibility signals including the flaws of current systems and the shortcomings of flexibility products. Current market clearing processes can oversimplify and depress energy price volatility, smoothing out pricing signals needed to attract flexibility to the system. As variable resources, such as wind and solar, grow in the market, the demand for flexible resources increases. Price signals that incentivize flexibility are essential to ensuring efficient outcomes, but can be suppressed by five current mechanisms: the use of capacity payments, ramping products, uplift and enhancing pricing, a lack of temporal granularity, and the inability of current offer formats to fully incorporate all resource types. The report goes through each flaw in detail and specifically analyzes ramping products vs. price volatility as solutions.

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