電力市場設計 ELECTRICITY MARKET DESIGN

ELECTRICITYMARKETDESIGN

WilliamW.Hogan

Mossavar-RahmaniCenterforBusinessandGovernment

JohnF.KennedySchoolofGovernment

HarvardUniversity

Cambridge,Massachusetts02138

ACCC/AERRegulatoryConference2021

ElectricityMarketDesignPanel

Australia

July30,2021

1

ElectricityMarketFundamentals

ELECTRICITYMARKETEnergyReformChallenges

2

Acorechallengeforallelectricitysystemsisbetweenmonopolyprovisionandmarketoperations.Electricitymarketdesigndependsoncriticalchoices.Thereisnoescapefromthefundamentals.

IntegratedMonopoly

.Mandated

.ClosedAccess

.Discrimination

.CentralPlanning

.FewChoices

.SpendingOtherPeople’sMoney

.AverageCostPricing

CompetitiveMarkets

.Voluntary

.OpenAccess

.Non-discrimination

.IndependentInvestment

.ManyChoices

.SpendingYourOwnMoney

.MarginalCostPricing

AKeyMarketDesignObjective

SupportingtheSolution:Giventhepricesandsettlementpayments,individualoptimalbehaviorisconsistentwiththeaggregateoptimalsolution.

ELECTRICITYMARKETRealityTests

3

Apassingreflectiononhistoryreinforcestheviewthatthereisgreatuncertaintyaboutenergytechnologychoicesforthefuture.Therearemanyexamplesofbothbadandgoodsurprises.

TVA'snuclearplantauctionsetforNovember

“TheTennesseeValleyAuthority,inapparentlyafirstintheUSpowerindustry,planstoauctionitsunfinishedBellefontenuclearplantinAlabamaonNovember14inwhatamountstoa"firesale"ofepicproportions.

Overmorethanfourdecades,anestimated$6billionwaspumpedintotheprojectimaginedatatimeoffardifferenteconomicandelectricityprojectionsandexpectations.

Bellefonte'sminimumaskingprice—$36.4million.”

(MegawattDaily,October18,2016,p.3)

U.S.ShaleMiracle:

Oncethetechnologycrossedthemarket

threshold,deploymentwasbothlargeandrapid.

Goodwholesaleelectricitymarketdesignisnecessarytoprovideopenaccesswithnon-discriminationprinciplesthatencourageentryandinnovation.

ELECTRICITYMARKETElectricityRestructuring

4

Thecaseofelectricityrestructuringpresentsexamplesoffundamentalproblemsthatchallengeregulationofmarkets.

.MarriageofEngineeringandEconomics.

oLoopFlow.

oReliabilityRequirements.

oIncentivesandEquilibrium.

.DevilishDetails.

oRetailandWholesaleElectricitySystems.

oMarketPowerMitigation.

oCoordinationforCompetition.

.JurisdictionalDisputes.

oUSStatevs.FederalRegulators.

oEuropeanSubsidiarityPrinciple.

ELECTRICITYMARKETElectricityRestructuring

5

Electricityrestructuringpresentstwinchallengeswithabroadtheme.

.Createaneffectiveelectricitymarketdesignwithassociatedtransmissionaccessrules.

oAnelectricitymarketmustbedesigned.

oThemarketcannotsolvetheproblemofmarketdesign.

oIncentivesshoulddrivedecisionsandinnovation.

.Providecompatiblemarketinterventionstocompensateformarketimperfections.

oMarketimperfectionsexistunderthebestdesigns.

oNetworkinteractionsmaketheobviousanswerswrongorevendangerous.

oPoormarketdesignmakesinterventionsmorenecessary,morecommon,andmoredifficult.

Thereisacloseconnectionbetweenthetwinchallenges,andtheslipperyslopeofinterventioncanleadtoanelectricitymarketthatmaybeworsethanthesystemitwastoreplace.

Ifthecentralplanners(orregulators)knowwhattodo,thendoit.

Butiftrue,whatistheneedforelectricityrestructuringandmarkets?

6

ELECTRICITYMARKET

ElectricityRestructuringTheoriginalargumentsforgreaterrelianceonmarketsemphasizedtheeffectsofnon-utilitygeneratorsandthereductionoreliminationoftheconditionsfornaturalmonopolyingeneration.

CompetitiveWholesaleElectricityMarketStructure

DistributionTransmissionGeneration

Cust.

Cust.

Cust.

...

Disco

Disco

Disco

Disco

Disco

Cust.

...

...

Cust.

...Cust.

RegionalTransmissionOrganization

GencoGencoGenco...GencoGencoGenco

......

Poolco

Gridco

Gridco

...

SystemOperator

Disco

...

RegulatedRegulated

ELECTRICITYMARKETEnergyMarketDesign

7

TheU.S.experienceillustratessuccessfulmarketdesignandremainingchallengesforboththeoryandimplementation.

DistributionTransmissionGeneration

RegulatedRegulated

andSystemOperations

Providegoodshort-runoperatingincentives.

Supportforwardmarketsandlong-runinvestments.

.DesignFramework:Bid-Based,SecurityConstrainedEconomicDispatch

LocationalMarginalPrices(LMP)with

granularitytomatchsystemoperations.

FinancialTransmissionRights(FTRs).

.DesignImplementation:PricingEvolution

Betterscarcitypricingtosupportresourceadequacy.

Gridco

Gridco

Disco

Disco

Disco

...

.DesignPrinciple:IntegrateMarketDesign

CompetitiveWholesaleElectricityMarketStructure

Genco

Genco

GencoGencoGenco...

...

...

Disco

Disco

...

...

Cust.

Cust.

Cust.

Cust.

Cust....

...

Genco

RegionalTransmissionOrganization

Poolco

...

SystemOperator

Disco

Cust.

Unitcommitmentandlumpydecisionswithcoordination,bidguaranteesandupliftpayments.

.DesignChallenge:InfrastructureInvestment

Hybridmodelstoaccommodatebothmarket-basedandregulatedtransmissioninvestments.

Beneficiary-paysprincipletosupportintegrationwithrestofthemarketdesign.

ELECTRICITYMARKETFocusonBalancingMarketsFirst

8

Thesolutiontoopenaccessandnon-discriminationinherentlyinvolvesmarketdesign.Gooddesignbeginswiththereal-timemarketandworksbackward.Acommonfailuremodestartswiththeforwardmarket,withoutspecifyingtherulesandpricesthatwouldapplyinrealtime.

FalseStartsfortheElectricityMarket

Investment

Scheduling&

Commitment

Balancing

Operations

gXin

Day,Week,Month,...

Ahead

Rules&

Pricing

Real-Time

Dispatch&Balancing

Begin

Design

Here

Marketexpectationsdetermineincentives.Startattheend.

Workbackward,notforward,insettingmarketdesign.

9

ELECTRICITYMARKETPool

DispatchAnefficientshort-runelectricitymarketdeterminesamarketclearingpricebasedonconditionsofsupplyanddemandbalancedinaneconomicdispatch.Everyonepaysorispaidthesameprice.

EnergyPrice

(￠/kWh)

Priceat7-7:30p.m.

Priceat9-9:30a.m.

Priceat2-2:30a.m.

SHORT-RUNELECTRICITYMARKET

Short-Run

Marginal

Cost

Demand

7-7:30p.m.

Demand

9-9:30a.m.

Demand

2-2:30a.m.

Q1Q2Qmax

MW

ELECTRICITYMARKETCoordination

10

Theindependentsystemoperatorprovidesadispatchfunction.Threequestionsremain.Justsayyes,andthemarketcandecideonthesplitbetweenbilateralandcoordinatedexchange.

?Shouldthesystemoperatorbeallowedtoofferaneconomicdispatchserviceforsomeplants?

Thealternativewouldbetodefineasetofadministrativeproceduresandrulesforsystembalancingthatpurposelyignoretheinformationaboutthecostsofrunningparticularplants.Itseemsmorenaturalthatthesystemoperatorconsiderscustomerbidsandprovideseconomicdispatchforsomeplants.

?Shouldthesystemoperatorapplymarginalcostpricesforpowerprovidedthroughthedispatch?

Underaneconomicdispatchfortheflexibleplantsandloads,itisastraightforwardmattertodeterminethelocationalmarginalcostsofadditionalpower.Thesemarginalcostsarealsothepricesthatwouldapplyinthecaseofaperfectcompetitivemarketatequilibrium.Inaddition,theselocationalmarginalcostpricesprovidetheconsistentfoundationforthedesignofacomparabletransmissiontariff.

?Shouldgeneratorsandcustomersbeallowedtoparticipateintheeconomicdispatchofferedbythesystemoperator?

Thenaturalextensionofopenaccessandtheprinciplesofchoicewouldsuggestthatparticipationshouldbevoluntary.Marketparticipantscanevaluatetheirowneconomicsituationandmaketheirownchoiceaboutparticipatingintheoperator'seconomicdispatchorfindingsimilarserviceselsewhere.

NETWORKINTERACTIONSLocationalSpotPrices

11

Thenaturalextensionofasinglepriceelectricitymarketistooperateamarketwithlocationalspotprices.(Schweppe,Caramanis,Tabors,&Bohn,1988)

.Itisastraightforwardmattertocompute"Schweppe"spotpricesbasedonmarginalcostsateachlocation.

.Transmissionspotpricesariseasthedifferenceinthelocationalprices.

LOCATIONALSPOTPRICEOF"TRANSMISSION"

C

EnergyPrice

(￠/kWh)

Short-RunMarginalCost

'r

Demand

MW

EnergyPrice

(￠/kWh)

Short-RunMarginal Cost

Demand

MW

A

Pa=51

Constraint

Pb=66

Pc=55

Pricedifferential=

Marginallosses

+Constraintprices

B

EnergyPrice

(￠/kWh)

Short-Run

Marginal

Cost

Demand

MW

Priceof"Transmission"fromAtoB=Pb-Pa=15

Priceof"Transmission"fromCtoA=Pa-Pc=-4

12

RTOsoperatespotmarketswithlocationalprices.Forexample,PJMupdatespricesanddispatcheveryfiveminutesforover12,000locations.Locationalspotpricesforelectricityexhibitsubstantialdynamicvariabilityandpersistentlong-termaveragedifferences.

MinnesotaHub:$131.21/MWh.FirstEnergyHub:$-1.57/MWh.March3,2008,9:55am

MissouriMPS-$71.25,DominionHub$281.53.May22,2013,

12:40pm.

FromMISO-PJMJointandCommonMarket,++

ELECTRICITYMARKETAConsistentFramework

13

POOLCO

Poolco…OPCO…ISO…IMO…Transco…RTO…ITP…WMP…:"Arosebyanyothername…"

“Locationalmarginalpricing(LMP)istheelectricityspotpricingmodelthatservesasthebenchmarkformarketdesign–thetextbookidealthatshouldbethetargetforpolicymakers.AtradingarrangementbasedonLMPtakesallrelevantgenerationandtransmissioncostsappropriatelyintoaccountandhencesupportsoptimalinvestments.”(InternationalEnergyAgency,2007)

Theexampleofsuccessfulcentralcoordination,CRT,RegionalTransmissionOrganization(RTO)MillenniumOrder(Order2000)StandardMarketDesign(SMD)NoticeofProposedRulemaking(NOPR),“SuccessfulMarketDesign”providesaworkablemarketframeworkthatisworkinginplaceslikeNewYork,PJMintheMid-AtlanticRegion,NewEngland,theMidwest,California,SPP,andTexas.Thisefficientmarketdesignisunder(constant)attack.

TheRTONOPROrderSMDNOPR"SuccessfulMarketDesign"

ContainsaConsistentFramework

es

icensePlateAccessCharg

Market-DrivenInvestment

L

BilateralSchedules

atDifferenceinNodalPrices

CoordinatedSpotMarket

Bid-Based,

Security-Constrained,EconomicDispatchwithNodalPrices

FinancialTransmissionRights

(TCCs,FTRs,FCRs,CRRs,...)

07/0507/0212/995/99

Thisistheonlymodelthatcanmeetthetestsofopenaccessandnon-discrimination.

SupportingtheSolution:Giventhepricesandsettlementpayments,individualoptimalbehaviorisconsistentwiththeaggregateoptimalsolution.Anythingthatupsetsthisdesignwillunravelthewholesaleelectricitymarket.Thebasiceconomicdispatchmodelaccommodatesthegreenenergyagenda,asintheexpandingWesternEnergyImbalanceMarket(EIM).

ELECTRICITYMARKETPathDependence

14

Thepathtosuccessfulmarketdesigncanbecircuitousandcostly.TheFERC“reforms”inOrder890illustrate“pathdependence,”wherethepathchosenconstrainsthechoicesahead.Earlyattemptswithcontractpath,flowgateandzonalmodelsledtodesignfailuresinPJM(`97),NewEngland(`98),California(`99),andTexas(`03).Regionalaggregationcreatesconflictswithsystemoperations.Successfulmarketdesignintegratesthemarketwithsystemoperations.

PathstoSuccessfulMarketDesign

OrganizedMarket

Balancing

Transmission

Rights

ATC

LicensePlateAccessCharges

Market-DrivenInvestment

毒jm

1997

SMD

CAISO

BilateralSchedules

atDifferenceinNodalPrices

1999

"Last

Resort"

1998

CoordinatedSpotMarket

Bid-Based,

Security-Constrained,

EconomicDispatch

withNodalPrices

RulesExplode

2003

FinancialTransmissionRights

(TCCs,FTRs,FCRs,CRRs,...)

890Reform

888

ISO

PX

StandardizationTransparency

Zonal

"Simple,Quick"

ContractPath

TLR

Flowgate

ELECTRICITYMARKETAConsistentFramework

15

ThebasicmodelcoverstheexistingRegionalTransmissionOrganizationsintheUnitedStatesandisexpandingthroughtheWesternEnergyImbalanceMarket.(

)

(IRCCouncilandCAISOmaps)

16

ClimateandEnergyPolicy

CLIMATEANDENERGYCleanEnergyandClimatePolicy

17

Thechallengesofclimatechangepresenta‘wickedproblem’thatisdifficulttosolvebecauseofincomplete,contradictory,andchangingrequirements.Thescaleisglobal,thedurationcoversmanygenerationsintothefuture,andtheuncertaintiescanseemoverwhelming.

.TheSciencehelpsidentifythechallengesandopportunities.

.TheSciencedoesnotandcannottelluswhattodo.

.Therearetradeoffsandthispointstotheneedforcost-benefitanalysis.

.OneguidepostistheSocialCostofCarbonthatprovidesastandardforwhattodoandhowmuchisenough.

.Therearemanycriticaluncertainties.

.Acentralproblemisthecontinuingdebateaboutdiscountrates.

Overview

Benefits,Costs,WelfareMaximizationandtheSocialCostofCarbon

$EconomicBenefits

SocialBenefitofCarbon

MaximumNetBenefits

Damages

SocialCostofCarbon

0Emissions

.Theclimatepolicychoiceswillinteractwitheverythingelse,includingthedesignandoperationofenergymarkets.

CLEANERENERGYPolicyBarriers

18

TheNationalAcademyofSciencesidentifiedtwomainbarriersandemphasizedtwo“overarchingrecommendations.”(NationalAcademyofSciences,ThePowerofChange:InnovationforDevelopmentandDeploymentofIncreasinglyCleanElectricPowerTechnologies,WashingtonD.C.,2016,pp.3-4.)(NationalAcademyofSciences,2016)

Barriers

“Thecommitteeconcludedthattherearetwosignificantbarrierstoacceleratinggreaterpenetrationofincreasinglycleanelectricitytechnologies.First,asnotedabove,themarketpricesforelectricitydonotinclude“hidden”costsfrompollution,stemmingmainlyfromnegativeimpactsonhumanhealth,agriculture,andtheenvironment.Levelsofcriteriapollutantsdeclinedoverthepastthreedecades,butstillcauseharms.HarmsfromGHGsaredifficulttoestimate,butifaccountedforinthemarket,couldbeconsideredbyconsumers.…

Thesecondbarrieristhatthescaleoftheclimatechangechallengeissolargethatitnecessitatesasignificantswitchtoincreasinglycleanpowersources.InmostoftheUnitedStates,however,evenwithapriceonpollution,mostincreasinglycleantechnologieswouldlackcostandperformanceprofilesthatwouldresultinthelevelsofadoptionrequired.Inmostcases,theirlevelizedcostsarehigherthanthoseofdirtiertechnologies,andtherearesignificantchallengesandcostsentailedinintegratingthemintothegridathighlevels.Thismeansthatreducingtheharmfuleffectsofemissionsduetoelectricitygenerationwillrequireabroaderrangeoflow-cost,low-andzero-emissionenergyoptionsthaniscurrentlyavailable,aswellassignificantchangestothetechnologiesandfunctionalityoftheelectricitygridandtherolesofutilities,regulators,andthirdparties.…

…evenifthetechnologicalandinstitutionalbarrierstogreateradoptionofincreasinglycleanpowertechnologieswereovercomebuttheirpriceswerenotcompetitive,anadequatescaleofdeploymentwouldrequiretremendouspublicoutlays,andinmanypartsoftheworldwouldbeunlikelytooccur.Whilelearningbydoingcanlowersomecosts,deploymentincentivesarelikelytobeinsufficientastheprimarypolicy

mechanismforachievingtimelycostandperformanceimprovements.”

CLIMATEANDENERGYGoingGreen

19

TheSocialCostofCarbonwoulddefinethe“appropriatepriceonpollution.”Toohighortoolowwouldreducenetwelfare.Failuretopricecarbonleadstoinefficientpoliciesthatimposecostsbutmayhavefewbenefits.

“Subsidiesposeamoregeneralprobleminthiscontext.Theyattempttodiscouragecarbon-intensiveactivitiesbymakingotheractivitiesmoreattractive.Onedifficultywithsubsidiesisidentifyingtheeligiblelow-carbonactivities.Whysubsidizehybridcars(whichwedo)andnotbiking(whichwedonot)?Istheanswertosubsidizealllowcarbonactivities?Ofcourse,thatisimpossiblebecausetherearejusttoomanylow-carbonactivities,anditwouldproveastronomicallyexpensive.Anotherproblemisthatsubsidiesaresounevenintheirimpact.ArecentstudybytheNationalAcademyofScienceslookedattheimpactofseveralsubsidiesonGHGemissions.ItfoundavastdifferenceintheireffectivenessintermsofCO2removedperdollarofsubsidy.Noneofthesubsidieswereefficient;somewerehorriblyinefficient;andotherssuchastheethanolsubsidywereperverseandactuallyincreasedGHGemissions.Theneteffectofallthesubsidiestakentogetherwaseffectivelyzero!”

Sointheend,itismuchmoreeffectivetopenalizecarbonemissionsthantosubsidizeeverythingelse.”(Nordhaus,2013,p.266)

“Mufson:ExxonMobilhasbeenfacingarevoltbyshareholdersunhappywiththecompany’sfinancialperformanceanditsapproachtoclimatechange.Isthispartofawaveofeffortstopushnewandmaybedifficultresponsibilitiesontocorporations?

Nordhaus:It’sjustanotherexampleofeffortswe’reexpendingthatareextremelycostlyandextremelydivisive.Ittakesawayvaluableanalysttimefromothermorefruitfulactivitiessuchaspricingfossilfuelsatthepropersocialcosts.Themovementtohavecompaniesmeasureanddisclosetheiremissionsisjustanenormouswasteoftime.Ifyouhadaproperpriceoncarbon,wewouldn’thavetodothatanymorethanweneedcompaniestodoaninventoryoftheirwheatuseorsiliconuse.It’sanotherexampleofhowwe’regoingtownarabbitholeofmeasures.Eventhecentralbanksaregettinginvolved.”

(StevenMufsonNordhausInterview,Nobelwinner’sevolutionfrom‘darkrealist’tojustplainrealistonclimatechange,WashingtonPost,June14,2021.)

CLEANENERGYSubsidiesandMarketInterventions

20

Subsidiesaregrowing:RPS,RECs,PTCs,ITCs,DR,ZECsandzeroemissiontargets.

“Subsidiesarecontagious.Competitioninthemarketscouldbereplacedbycompetitiontoreceivesubsidies.”(MonitoringAnalytics,2017,p.2)

CLEANENERGYUncertaintyandtheSocialCostofCarbon

21

TheDICEmodelisdeterministic.NordhausexaminessomeoftheeffectsofuncertaintyintermsoftheimpliedSCCtodaybyapproximatingtheimpactofuncertaintyintheDICEmodel.

“Whenuncertaintiesareaccountedfor,theexpectedvaluesofmostofthemajorgeophysicalvariables,suchastemperature,arelargelyunchanged.However,thesocialcostofcarbonishigher(byabout10percent)underuncertaintythaninthebest-guesscasebecauseoftheasymmetryintheimpactsofuncertaintyonthedamagesfromclimatechange.…therelativeuncertaintyismuchhigherforeconomicvariablesthanforgeophysicalvariables.”(Nordhaus,2018,p.335)

“Therangesofuncertaintyforfutureemissions,concentrations,temperature,anddamagesareextremelylarge.However,thisdoesnotreducetheurgencyoftakingstrongclimatechangepoliciestoday.Whentakinguncertaintiesintoaccount,thedesirablestrengthofpolicy(asmeasuredbythesocialcostofcarbonortheoptimalcarbontax)wouldincrease,notdecrease.”(Nordhaus,2018,p.335)

“Theact-then-learnapproachtodecisionscannotbefullyincorporatedintothecurrentDICEuncertaintystructure.…Ihaveundertakenasmalltestcasewhichexaminestheimpactoflearningthatisdelayeduntil

2050.….Theresultsofthissimplifiedexampleindicatethatpoliciesarerelativelyinsensitivetolatelearning,althoughthereissubstantialvalueoflearning.Theoptimalcarbonpriceintheact-then-learnapproachisabout6percenthigherthanforthatoflearn-then-act($36.1/tCO2ratherthan$34.2/tCO2in2015.”(Nordhaus,2018,p.358)

CLEANENERGYSocialCostofCarbon

22

TheestimatesfortheSocialCostofCarbonfromtheDICEoptimization,theCLCpolicyproposal,andtheNet-ZeroAmericacosteffectivetrajectoriesdivergesubstantially.

TheDICEmodelcomputesanoptimaltrajectory.TheClmateLeadershipCouncilproposalincludesa“GraduallyRisingCarbonFee…CarbonDividendsforAllAmericans…SignificantRegulatorySimplification…BorderCarbonAdjustment.”1ThePrincetonNet-ZeroAmericareportsetsa2050emissionstargetandestimatestheimpliedmarginalcostofemissionreductionforarangeoftrajectories.(Larsonetal.,2020,p.204)Theneartermestimatesaresimilar,butby2050theimpliedSCCsdivergefromsubstantiallyfromtheDICEoptimum.(Gollier,2020)

1

/our-plan/

23

ElectricityMarketDesign

And

TheGreenAgenda

ELECTRICITYMARKETEnergyMarketDesign

24

Theexpansionofintermittentsourcesandtheriseinspecialsubsidiesisseenasathreattoefficientelectricitymarketdesign.

“ThesupplyofintermittentwindandsolargenerationwithzeromarginaloperatingcostisincreasinglyrapidlyintheU.S.Thesechangesarecreatingchallengesfor

wholesalemarketsintwodimensions.Shorttermenergyandancillaryservicesmarkets,builtuponmid-20thcenturymodelsofoptimalpricingandinvestment,whichnowworkreasonablywell,mustaccommodatethesupplyvariabilityandenergymarketpriceimpactsassociatedwithintermittentgenerationatscale.Thesedevelopmentsraisemoreprofoundquestionsaboutwhetherthecurrentmarketdesignscanbeadaptedtoprovidegoodlong-termpricesignalstosupportinvestmentinanefficientportfolioofgeneratingcapacityandstorageconsistentwithpublicpolicygoals.…Reformsincapacitymarketsandscarcitypricingmechanismsareneededifpolicymakersseektoadaptthetraditionalwholesalemarketdesignstoaccommodateintermittentgenerationatscale.However,iftherapidgrowthofintegratedresourceplanning,subsidiesforsometechnologiesbutnotothers,mandatedlongtermcontracts,andotherexpansionsofstateregulationcontinues,morefundamentalchangesarelikelytoberequiredintheinstitutionsthatdeterminegeneratorandstorageentryandexitdecisions.”(Joskow,2019)

(emphasisadded)

Thereareseveralissuessuchassystemstrength(AustralianEnergyMarketCommission,2020)andmulti-periodpricing(Hua,Schiro,Zheng,Baldick,&Litvinov,2019)(Biggar&RezaHesamzadeh,2022).However,scarcitypricingisacontinuingchallengeformarketdesign(Hogan,2013).

ELECTRICITYMARKETPoolDispatch

25

Short-Run

Marginal

Cost

}

ScarcityPrice

9-9:30a.m.

Demand2-2:30a.m.

SHORT-RUNELECTRICITYMARKET

Withzeromarginalcostrenewables

Energy

Price

(￠/kWh)

Priceat

7-7:30p.m.

Demand

7-7:30p.m.

Demand

Priceat

9-9:30a.m.

Priceat

2-2:30a.m.

Q1Q2Qmax

MW

Anefficientshort-runelectricitymarketdeterminesamarketclearingpricebasedonconditionsofsupplyanddemandbalancedinaneconomicdispatch.Everyonepaysorispaidthesameprice.Thethoughtexperimentofano-carbon/zero-variable-cost,greenenergysupplyrevealsthatthebasicefficiencyprinciplesstillapply.Thesameprinciplesapplyinanelectricnetwork.(Schweppeetal.,1988)Storagewillbeimportant,butdoesnotchangethebasicdesignanalysis.(Korp?s&Botterud,2020)

EnergyPrice

(￠/kWh)

Priceat7-7:30p.m.

Priceat9-9:30a.m.

Priceat2-2:30a.m.

SHORT-RUNELECTRICITYMARKET

Short-Run

Marginal

Cost

Demand

7-7:30p.m.

Demand

9-9:30a.m.

Demand

2-2:30a.m.

Q1Q2Qmax

MW

Akeyfeaturewouldbetoincreasetheimportanceofscarcitypricing.ERCOTadoptedanOperatingReserveDemandCurvein2014.(Hogan,2013)PJMhasproposedaseriesofreformsforenergypriceformation,motivatedinpartbytheimpactofincreasedpenetrationofintermittentrenewableresources.(PJMInterconnection,2017)(PJMInterconnection,2019)(FederalEnergyRegulatoryCommission,2020)

ELECTRICITYMARKET

ERCOT

ScarcityPricing

ERCOTlaunchedimplementationoftheORDCinin2014Thesummerpeakisthemostimportant

periodThefirstfiveyarfresultsshowrecentscarcityofesereandhigheresereprcev.

$10,000

$9,000

$8,000

$7,000

$6,000

$5,000

$4,000

$3,000

$2,000

$1,000

$0

5minSCEDORDCOn-LinePriceAdder($/MWh)

01,0002,000