IEEE Power & Energy Magazine - November/December 2017 - 70

Electricity
Markets and
Renewables
A Survey of Potential Design Changes
and Their Consequences
By Erik Ela, Congcong Wang, Sai Moorty,
Kenneth Ragsdale, Jon O'Sullivan,
Mark Rothleder, and Ben Hobbs

T

T H E DE SIGN OF W HOL E SA L E E L E C T R IC I T Y
markets is complex. Unlike other commodities, electricity
cannot be stored in a warehouse. Electricity generation must
occur simultaneously with consumption, whereby electricity delivery is based on laws of physics. Under the structure
of regulated electricity rates, consumers are generally not
directly exposed to the instantaneous cost of the delivered
electricity. Countries around the world have successfully
managed these complexities by restructuring the electricity sector with markets that allow wholesale electricity
suppliers to compete in providing energy, reliability services, financial services, and sometimes capacity. Still,
wholesale electricity market restructuring has certainly been
a moving target.
Since their inception, electricity markets have gone
through significant evolution. New rules, algorithms, software, and market participant types and technologies are added
regularly. The recent emergence of variable energy resources
(VER), characterized by renewables in both large-scale and
Digital Object Identifier 10.1109/MPE.2017.2730827
Date of publication: 18 October 2017

70

ieee power & energy magazine

distributed forms, has been testing these markets to the fullest possible extent. Market operators, suppliers, load-serving
entities, regulators, and other stakeholders have all responded
with changes to ensure continued power system reliability,
economic efficiency, incentive compatibility, and fairness.
In this article, we discuss a few examples of design changes
implemented, or under consideration for implementation, in
several regions.

Electricity Market Design Evolution
The design of electricity markets may include the rules for
participation, determination of auction quantities and prices,
and the settlement requirements for buyers and sellers of
different electricity-based products. Design also involves
adding, deleting, or redefining products depending on the
changing needs of the power system.
However, unlike other intrinsic characteristics of the
power system (volts, amps, and the like), physics itself does
not tell us about market design. We cannot plug in a metering device to determine the price of the energy or reliability service. Instead, we must consider a number of desired

1540-7977/17©2017IEEE

november/december 2017



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