IEEE Power & Energy Magazine - November/December 2019 - 65

interconnection and transferred across ac links and has a degree of substitutability with FFR and PFR. By contrast, system
strength and voltage control are highly locational issues, with
specific contributors and little competition. As shown in Table 1, other characteristics of the system service may influence
whether the market framework for that given service may be
implemented, including complexity, overabundance in supply,
or a situation in which economic benefits cannot justify the
cost of administering the market. These characteristics should
continue to be evaluated in the future, as some may not hold
true for future scenarios with massive amounts of VRE.

Changing Structures and Shifting
Market Paradigms
Will existing energy and reliability services markets be
enough to provide the signals to get the resource fleet, dominated by VRE, to provide energy to where it is needed, when
it is needed, and in a reliable manner? Today, some markets
across the United States, Canada, and Europe have, or are
introducing, plans for centralized capacity markets as a potential means to provide additional revenue to accommodate the
missing money discussed previously and ensure that planning
targets are achieved. Other financial markets are also part of
the overall market design of many regions around the world for
various reasons, including products like financial transmission
rights and virtual trading. Will any of these designs be beneficial for a system that has hours during which nearly all energy
is provided by renewables? Will additional products, auctions,
or structural changes not yet tested be beneficial?
An important system need is energy at peak times. Modeling and experience suggest, even for those scenarios in
which several hours are fully supplied by renewables, that
there will be time periods when energy demand will greatly
exceed the supply of renewable energy. A range of structures and designs that address how to pay for the resources
needed to fill this gap are being debated. The market-design
solutions are different depending on whose responsibility it
is to procure those resources. In a decentralized procurement
structure, where a system operator is limited to short-term
operations, this responsibility falls on load-serving entities.
In a central procurement structure, a central authority (e.g.,
a system operator or government entity) is assigned longterm energy responsibilities. A third model is "regulated
generation," in which a vertically integrated utility is compelled to make all resource-planning decisions.
In a decentralized procurement model, load-serving entities procure needed resources. If they fail, they pay a high scarcity-based price or may not have load served. Regulators may
choose to oversee physical supply by some or all load-serving
entities. Regulators may choose to oversee whether loadserving entities are financially capable of procuring the supply
needed to serve their load. A variety of hedge contracts can
be used on a bilateral basis to help finance needed resources.
Other potential designs include reliability outage insurance and priority frameworks. Current scarcity-pricing
november/december 2019

frameworks allow for demand-side participation in wholesale markets, but many consumers have been hesitant to
engage with it. With the growth of renewables and options
for self-supply, there are new market-design models aimed
to establish an operational demand curve for consumers.
Through the concept of outage insurance, consumers pay a
premium for the level of reliability coverage and compensation they seek. This would establish a priority scheme for
reliability outages.
With Internet of Things-enabled devices becoming less
expensive and more reliable, load-serving entities can sell
energy at differing levels of reliability. Under scarcity conditions, the system operator, instead of curtailing load feeder
by feeder, can curtail load on a customer or even on certain
devices at a customer location, based on the service-reliability level of that load.
In Europe, there is much discussion on how to further reduce
carbon emissions. Electrification is an important part of the solution but may be expensive if it is the only solution. Thus, any
market design should take into account the interplay with other
energy carriers (heat, hydrogen, natural gas, industrial, and so
on). The emergence of both static and mobile storage will also
be a challenge and an opportunity for the electricity market.
Increased electric vehicle deployment offers the opportunity
for co-optimization of transport and electricity services, such as
vehicle-to-grid services. Innovative business models are already
being observed, such as vehicles providing grid services in
CAISO through its network of electric vehicle charging stations.
There is also a growing need need for much closer cooperation with distribution utilities and distribution system
operators. Typically, transmission system operation has been
linked to wholesale markets, whereas distribution systems
have been linked to retail markets. With more suppliers
coming from distribution systems and the ability to improve
efficiency with consumer response to wholesale prices, the
market structures may require changes and lines blurred.
There have been proposals for all consumers to see the

table 1. The potential characteristics that may limit
the market framework (illustrative only).
Reasons Why a Market Product May Not
Be Implemented

Example

Product is too complex to design
(e.g., software complexity).

Volt/var
support

Product is too specific to certain local areas
(little to no competition).

Volt/var
support

System inherently has more than sufficient
amounts of the service.

Synchronous
inertia

Costs for the service may be small, so
the expense of administrating the market
product may outweigh the benefits.

Black-start
(restoration)
service

There is a specific resource requirement
rather than a system-wide need.

Low-voltage
ride-through

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IEEE Power & Energy Magazine - November/December 2019

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