Wholesale Electricity Market Design for Rapid Decarbonization: a Decentralized Markets Approach

Date Published: June 2019

Authors: Rob Gramlich and Michael Hogan

Centralized spot markets and decentralized forward procurement are proposed to maintain long- and short-term reliability while leading to a lower-emission electricity system. While this concept relies on exogenous policy such as carbon pricing or clean energy targets to incentivize investment in clean generation, the market design would ensure procurement of all necessary energy and ancillary products while hastening the retirement of polluting resources. The market structure allows grid operators to focus on efficient and reliable grid operation, while giving clear investment signals to developers and technology firms. The proposal is evaluated against its ability to facilitate decarbonization, promote short-run efficiency and reliability, provide long-run reliability, minimize market manipulation and the exercise of market power, enable affordable financing, meet customer expectations, drive innovation, avoid political controversy, be implemented quickly and be responsive to changes in technology or culture. The most significant challenge for this market design is in ensuring that buyers are creditworthy. The proposed solution is state regulatory oversight of wholesale buyers of power.

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