IEEE Power & Energy Magazine - November/December 2017 - 72

Design changes can stem either from regulatory bodies (e.g., FERC or the
European Commission) or through an independent system operator-
including its internal or external market monitor-and its stakeholders.

3) provide transparency so that market participants
understand how prices reflect the actual marginal
cost of serving load and the operational constraints of
reliably operating the system
4) ensure that all suppliers have an opportunity to recover their costs.
For designs to change, there must be either an existing
(or anticipated) flaw or the potential to enhance some desired
outcome (e.g., reliability or economic efficiency). Design
changes can stem either from regulatory bodies (e.g., FERC
or the European Commission) or through an independent
system operator (ISO)-including its internal or external market
monitor-and its stakeholders. ISOs and their stakeholders often start from a larger set of market design enhancements that
eventually become prioritized based on budgets and stakeholder interests. As an example, new designs that enabled
unique features of renewables (e.g., renewable forecasting)
have been shown to improve efficiency but have not always
been seen as a high priority on the list of possible design
changes because of current low renewable penetrations.
Justifying a new market design requires conceptual thinking, analytics, and sometimes complex simulation. Any
new design should improve at least one of the following without adversely affecting the others: reliability, economic efficiency, and/or incentive compatibility. With this ongoing
prioritization, need for detailed analysis, and complexity, it
is easy to see how electricity market evolution goes hand
in hand with power system evolution.

Renewables in the Markets: Does
the Design Have to Change,
or Is It Just Market Response?
There is considerable discussion regarding how increased
renewables can impact electricity markets. Sometimes, these
impacts may warrant design changes, particularly when reliability or economic efficiency is in jeopardy. At other times,
they are simply the outcome of an evolving mix of resources,
with changing market signals incentivizing changing behavior in the rest of the resource mix. Here, we list a few market impacts due to VER; some may require market design
changes, while others are simply market outcomes, depending
on the system and perspective.
✔ Low variable cost of VER can reduce average energy prices.
✔ Variability of VER can increase volatility in energy
prices.
72

ieee power & energy magazine

✔ Uncertainty of VER can increase the disparity be-

tween forward and real-time markets.
✔ Variability/uncertainty can cause a greater need to in-

centivize operational flexibility.
✔ VER may increase balancing reserve needs (e.g., reg-

ulation), thereby increasing demand/prices for those
services.
✔ Since VER is nonsynchronous and may require explicit recognition of the need to provide essential reliability services.
✔ Variability/uncertainty can cause volatile and uncertain power flows, affecting financial transmission
rights and locational energy price volatility.
Note that some changes in outcomes may result in the resolution of other impacts originally seen as requiring design
changes. For example, increased volatility in energy prices
may actually provide the incentives for increased flexibility
in the resource fleet. Furthermore, differences in initial market designs can also lead to different solutions for different
regions. With increasing penetrations of VER (and increasing penetrations of other new technologies), we may uncover
new impacts: some may require design changes, others may
not. This is all part of the market design process.

Recent Market Design Changes
In the two years since the last update on the evolution of
electricity markets in the November/December 2015 issue of
IEEE Power & Energy Magazine (see "For Further Reading"), numerous changes have occurred to worldwide electricity markets. Here, we will discuss some noteworthy changes
and implementations (both completed or under consideration),
primarily driven by increases in VER.

Balancing Areas That Are Expanding
and Coordinating Through Markets
Figure 1 shows the current electricity market regions in
North America. Noteworthy changes in the past few years
include the addition of Midcontinent ISO (MISO) South to
the MISO region, the addition of the northern plains to the
Southwest Power Pool (SPP), and the expansion of the Western Energy Imbalance Market (EIM). While the EIM is not
necessarily an ISO itself, it is a coordinated set of balancing
areas (BAs) that trade energy through a real-time imbalance
market across a wider area.
With 38 BAs in the Western Interconnection (WI), the
California Independent System Operator (CAISO) is one
november/december 2017



Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - November/December 2017

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IEEE Power & Energy Magazine - November/December 2017 - Cover3
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