IEEE Power & Energy Magazine - January/February 2021 - 16

guest editorial

Luiz Barroso and Hugh Rudnick

the growth of renewables
zero-marginal-cost electricity markets

D

DECARBONIZATION GOALS HAVE
created a technological revolution that
has enabled renewables-in particular,
solar and wind generation-to be in the
center of most electricity markets all
over the world. Renewables are inherently characterized by high production
variability combined with limited predictability and controllability, which
have created significant flexibility challenges for power systems planning and
operations all around the world.
Renewables also produce electricity
at an almost zero marginal cost. In the
presence of high shares of renewables,
restructured electricity markets based
on setting locational marginal prices
will also be challenged, as electricity
prices can fall to zero or even negative values if abundant renewable generation is observed. Conversely, prices
can rise quickly and may reach high
figures if renewables are not producing
and scarcity takes place. These effects
can be exacerbated in the presence of
transmission bottlenecks and high levels of distributed generation.
In the abundant presence of (almost)
zero-marginal-cost resources, important questions have recently been posed
on the power system economics side
about the future of current electricity
market designs and companies:
✔✔ How will remuneration of generation assets take place?
✔✔ How will financing arrangements be structured?
Digital Object Identifier 10.1109/MPE.2020.3033369
Date of current version: 6 January 2021

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ieee power & energy magazine	

✔✔ Will revenue uncertainty com-

promise generation adequacy in
the face of new capacity needs
due to the decommissioning of
existing fossil resources combined with load growth?
✔✔ Can scarcity pricing, revealed
through variability in short-term
price signals for generation services, create adequate incentives
for long-term investments?
✔✔ Are long-term reliability and energy contract markets the way to
go, or do capacity markets suffice to create efficient incentives
for investments?
✔✔ How can demand-side services
and demand response be brought
into the market as resources
while balancing political considerations and consumers' aversion to risk in electricity pricing?
With increasing decarbonization goals
in power systems all over the globe,
these are examples of relevant questions to be discussed by policy makers
and stakeholders.
The objective of this issue of IEEE
Power & Energy Magazine is to debate these zero-marginal-cost futures
and discuss relevant topics related to
generation adequacy and wholesale
markets, focusing on conceptual and
practical discussions. The issue features authors with wide experience
from both academia and industry who
focus on the regulatory and market
challenges ahead.
Carlos Batlle, Pablo Rodilla, and
Paolo Mastropietro open this issue

with the conceptual problem statement.
They discuss how, more than three decades since the first power markets
were implemented in the 1980s, key
aspects of the market structure need
to be revisited: the interplay between
regulation and market forces as well as
the relations between transaction characteristics and contractual and other
governance structures.
However, this is not the only matter that needs to be properly addressed.
The authors argue that short-term pricing mechanisms will continue to be
instrumental in guiding optimal operation and investment decisions but
also need to be properly coordinated
with regulatory-driven, long-term markets. They discuss which mechanisms
should be designed, how this should
happen, and what market rule modifications are needed to allow for efficient interaction between short-term
market prices and long-term complementary signals.
The second article, by Frank Wolak,
also discusses conceptual issues, presenting a proposal for a market design
in a zero-marginal-cost intermittent
renewable future. Wolak suggests key
improvements to the design of an efficient short-term wholesale market and
posits a long-term resource adequacy
mechanism for a system with a large
share of zero-marginal-cost intermittent renewables. He argues that his
conceptual proposal ensures long-term
resource adequacy at a reasonable
cost for final consumers while also
allowing for the short-term wholesale
january/february 2021
IEEE Power & Energy Magazine - January/February 2021

Table of Contents for the Digital Edition of IEEE Power & Energy Magazine - January/February 2021
