© 2020 by Evolved Energy Research

  • Ben Haley

Future of Electricity Markets

Updated: Aug 15, 2019



Electricity systems sit at the hub of decarbonization pathways and two broadly recognized strategies, electrification and increases in renewable generation, have far reaching consequences for electricity markets.

A new article "Electrification and the Future of Electricity Markets" published in IEEE Power & Energy Magazine written by the Evolved Energy Research team first details some of the physical changes to the system and then raises what we see as the resulting fundamental questions to be explored. An author's copy of the article can be downloaded here.

The physical changes to the system that we note are:

  • Newly electrified loads will be large but potentially flexible;

  • New loads can have very high and unpredictable instantaneous demand;

  • New loads will change the seasonal profiles of many utilities;

  • Energy imbalance has a long timescale in high renewable systems;

  • Seasonal energy imbalance extends across a large geography area;

  • Renewable curtailment occurs across many hours;

  • Wind and solar alone do not provide resource adequacy.

Following these, the following five existential questions for the future of low-carbon electricity markets are raised:

  • How will conventional power plants get paid?

  • How will fixed costs be allocated among electricity consumers?

  • How can flexible load be induced to participate?

  • How can developers be induced to make long-term investments on uncertain revenues?

  • How will future electricity-system planning be conducted?

In the discussion after, we give several concepts that we feel will be important for future market design, including:

  • Energy market compensates balancing services, with full symmetry between supply- and demand-side balancing;

  • Capacity markets must have multiple products that represent capacity of different time durations;

  • A new mechanism for allocating socialized fixed costs (renewable PPAs, grid electrolysis plants, and energy storage systems) among energy consumers must be devised;

  • Risk must be pooled to attract long-term investment with reasonable financing;

  • An elevated role for planning is needed to ensure prudency and guide sequencing toward deep decarbonization goals.