IEEE Power & Energy Magazine - January/February 2021 - 44

markets? Finally, will wholesale and retail designs enable
consumers to react to prices in meaningful ways? These are
some of the many questions that market designers must
consider when evaluating how markets may evolve to allow
for an economic, reliable, and environmentally responsible
electric power system.

✔✔ the cost-effectiveness and ability of enabling techno-

logies that mitigate temporal supply and demand
concentrations.
Other questions have piqued the interest of market designers. If electricity markets do not incentivize resources for
supplying emission-free energy, how would the resource mix
transition to the scenarios being discussed? If the transition is
supported outside of electricity markets, how will this impact
optimal solutions? If the variability of VRE increases the need
for flexibility, will the markets incentivize those attributes?
How important will future ancillary service markets be? Will
VRE variability increase price volatility, or will enabling
resources take advantage and reduce the variability? Will
VRE forecast errors cause greater uncertainty of prices
and divergence between day-ahead and real-time markets?
Will unit commitment procedures be necessary, or, if not,
how must the market clearing models be enhanced? How
will transmission flows and congestion price hedging be
impacted if increased variability is present? How will growing amounts of small resources, either residentially owned
or located on distribution systems, compete in wholesale

What Does a Future Market Design
Need to Do?
Today, marginal cost pricing provides several benefits. It
incentivizes resources to use low-cost fuels and improve heatrate efficiency to generate more energy per unit of fuel consumed. It also provides rents for resources that are inframarginal. Locational pricing motivates suppliers to build in areas
with the highest value. Ancillary service co--optimization
prompts resources to provide services that are most valuable
to the grid at the least cost. Lastly, designs such as shortage
pricing primarily incentivize resources to provide energy and
services at critical time periods. Many of these attributes will
remain important in the future system, but some may be less
significant. For example, there may not be fuel to procure

Alberta
Electric
System
Operator

Dec. 2018: 25%

Variable
Renewable
Instantaneous
Penetration
Records

April 2020: 73.2%

Ontario
IIndependent Electric
System Operator

April 2020: 32%

Midcontinent
M
ISO

ISO
New England
April 2020: 18.1%
New York ISO
PJM
Interconnection

Southwest
Power Pool

May 2020: 16.4%

Calfornia
ISO
May 2019: 69.9%
Electric Reliability
Council of Texas

M
May 2020: 59.3%

(c)

figure 1. (Continued) U.S. goals for (c) The most recent instantaneous VRE penetration records. Data are accurate as of
September 2020. (Source: Electric Power Research Institute and Energy Systems Integration Group; used with permission.)
44

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january/february 2021

IEEE Power & Energy Magazine - January/February 2021

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