Market Evolution: Wholesale Electricity Market Design for 21st Century Power Systems

Authors are: National Renewable Energy Laboratory: Jaquelin Cochran, Mackay Miller, Michael Milligan, Erik Ela, Douglas Arent, and Aaron Bloom; IBM: Matthew Futch; VTT Technical Research Centre of Finland: Juha Kiviluoma and Hannele Holtinnen; Energinet.dk: Antje Orths; Universidad de Castilla La Mancha: Emilio Gomez-Lazaro and Sergio Martin-Martinez; International Copper Association: Steven Kukoda and Glycon Garcia; Global Green Growth Institute: Kim Moeller Mikkelsen; China National Renewable Energy Center: Zhao Yongqiang and Kaare Sandholt

Demand for affordable, reliable, domestically sourced, and low-carbon electricity is on the rise. This growing demand is driven in part by evolving public policy priorities, especially reducing the health and environmental impacts of electricity service and expanding energy access to underserved customers. Consequently, variable renewable energy resources comprise an increasing share of electricity generation globally. At the same time, new opportunities for addressing the variability of renewables are being strengthened through advances in smart grids, communications, and technologies that enable dispatchable demand response and distributed generation to extend to the mass market. A key challenge of merging these opportunities is market design - determining how to create incentives and compensate providers justly for attributes and performance that ensure a reliable and secure grid - in a context that fully realizes the potential of a broad array of sources of flexibility in both the wholesale power and retail markets.
This report reviews the suite of wholesale power market designs in use and under consideration to ensure adequacy, security, and flexibility in a landscape of significant variable renewable energy. It also examines considerations needed to ensure that wholesale market designs are inclusive of emerging technologies, such as demand response, distributed generation, and distributed storage. The report concludes with a review of potential areas for future research on wholesale power markets.
Well-designed markets encourage economically efficient solutions, promote innovation, and minimize unintended consequences. Yet, many uncertainties remain about how to achieve these aims in power markets, given the need to accommodate contextual constraints and effectively invite and sustain capital investments. There is an acute need for international collaboration on wholesale market design questions. The 21st Century Power Partnership aims to provide a platform for collaborative analysis, and the authors of this report sincerely hope that it lays the groundwork for future collaboration.


Author:

National Renewable Energy Laboratory (NREL)

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