Wholesale Electricity Markets: Opportunities and Challenges Howard HaasUSAEE October 27, 2015
Wholesale Electricity Markets: Background Not a deregulated market Restructured market using competition as a means of improving efficiency/reducing costs Federal Power Act: Competitive markets provide just and reasonable rates. Where markets are not competitive, mitigation of market power is required so that markets provide results consistent with competition. ©2015
Wholesale Electricity Markets: Background Replace cost of service regulation Risk largely moved from consumers to suppliers Market requires reserves (S>D) to function Transmission still cost of service Order 1000: effort to open transmission project development to competition ©2015
Good Market Design Minimize barriers to entry and exit; Promote flexibility and resilience, Facilitate consumer participation; Provide efficient price signals, facilitate informed decision-making by disseminating price data and information; and Facilitate the efficient operation of the electricity system. Does not favor specific solutions/technology ©2015
Good Market Design Does not require the exercise of market power to sustain the market. Works well under both normal and extreme system operational conditions. Provides reliable, transparent marginal price signals consistent with least cost security constrained dispatch under all system conditions. ©2015
Good Market Design Recognize/value services provided Energy Regulation service Real time reserves Reliability: Sustain excess capability ©2015
Challenges in Design: Reserves © Reflecting the value of reliability Public good/externality Energy Shortage Pricing Differentiating market power vs. shortage Measuring reserves Prices consistent with dispatch Setting the price level Capacity Market Setting the price level/product definition
Challenge: Policy Distortions Subsidized intermittent resources/technologies Increased loop flows. Suppressed energy prices. Ancillary service market impact. Market design coopted for policy goals? Demand response (demand as supply) New Technologies Intermittent resources ©2015
Market Design Test: Markets in transition Fuel Price Changes: Gas prices Baseload gas Traditional base load less profitable (nuclear/coal) Regulatory Paradigm Shifts/Risk: Environmental restrictions Coal plant retirement Nuclear plant retirement Demand response Technology adoption policy/subsidies ©2015
Changes capacity composition ©2015
The future? Stuck in transition from regulated to competitive markets? Market Design Changes? Accommodate renewables or evolution of renewables? Return to cost of service? Integrated resource planning? Risk shift back to customers? Decentralized versus centralized? ©2015
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