IEEE Power & Energy Magazine - January/February 2021 - 51

with locational pricing-was conceived to deliver reliability efficiently, regardless of the mix of resources or their
short-run production cost profile. That market design, well
applied in practice, may be relied upon to perform those
tasks in a low-carbon power system. Proposers of this
option suggest that this structure, with economic dispatch
as its bedrock, along with active decentralized forward
procurements between buyers and sellers, could lead to an
adequate supply mix with short-term signals to ensure that
the system maintains reliability. Some proposers suggest
additional measures (e.g., setting minimum financial standards for retail service providers) to support needed liquidity in bilateral trade in long-term options, through which
generators and load-serving entities can mitigate their risks
in the spot market, while others do not think that is necessary. Otherwise, the proposers suggest that energy market
pricing focused on operational needs, combined with endogenizing the value of carbon dioxide emissions, could provide sufficient revenue to meet operational reliability and
investment needs. This type of structure can also improve

the participation of responsive demand that could respond
by consuming less when there is insufficient VRE or provide opportunities for storage that might sell energy at the
opportunity cost of being unable to sell later during a critical, high-price period.
A second option discussed is to pair the existing energy
market with some type of organized forward market. The
key difference in these proposals, compared to the previous ones, is the notion that energy markets alone may not
sustain efficient investment. This is due to the possibility
that short-term energy prices may have greater volatility
and may not average to long-term marginal costs as well as
the uncertain prospects of capital recovery of infrequently
used assets. The proposers suggest that the energy market alone could get investment right, but that we must also
consider the risks that this may not happen. This may be
particularly challenging for the set of enabling resources
providing flexibility and additional reliability services
during low VRE production. The quantity of the enabling
resources must be large enough to buy energy when VRE

table 2. Corneli et al. provide a common set of considerations for long-term market design,
but each has their own proposals, with the key differences shown.
Long-Term Energy
Configuration Market (Corneli) Market (Pierpont)

Firm Market (Gimon)

*	 How is a long-term
market portfolio
selected?

Bid-based, region-wide system
co-optimization model

Through exogenous guidance
from policy makers and
system planners

Bid-based, region-wide system
co-optimization model

*	 What is the objective
function of the longterm market?

Minimize the expected cost of
meeting reliability requirements
across a wide variety of possible
weather-, load-, and resourceavailability scenarios

Minimize the cost of meeting
a share of total load, specified
by policy makers, from the
eligible resources that choose
to bid

Minimize the cost of producing
a significant share of total energy
through a " default dispatch, "
which short-term markets take as
a baseline for real-time operation

Key Features

*	 What products are
Capabilities to perform as
bought in the long-term needed to meet objective
market?
functions

Annual energy output, subject Long-term energy schedules
to shape; location; resource
type; and guidance from
policy makers

*	 How is fixed cost
Resources selected are eligible
recovery carried out for for fixed-cost recovery through
selected resources?
a variety of means, including
power purchase agreements,
tolls, regulated tariffs, and
clearing prices as worked out
through additional design work

Long-term power purchase
agreements for energy, which
may be either pay-as-bid or
uniform market clearing price

Pay-as-bid long-term power
purchase agreements

*	 Is participation
mandatory?

No

Participation is presumed but not
required

*	 How often is the
Periodically, e.g., once every
long-term market
three to five years
conducted, and how
much does it purchase?

Annually

Periodically to cover incremental
amounts of needed resources

*	 Does the long-term
market drive rapid
decarbonization and
how?

Presumably, both through
clean energy resources
becoming increasingly
competitive and through
policies

Where co-optimized clean
energy resources are the
cheapest, the market will
naturally select decarbonizing
choices but will otherwise reflect
carbon prices and efficient
policies

january/february 2021	

No

Where co-optimized clean
energy resources are cheapest,
the market will naturally select
decarbonizing choices but will
otherwise reflect carbon prices
and efficient policies

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IEEE Power & Energy Magazine - January/February 2021

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