Designing electricity markets for high penetration of zero or low marginal cost intermittent energy sources

Abstract

This article explores key market design issues to be addressed in future electricity markets dominated by intermittent renewable generation with near zero private marginal costs for generating electricity. Changing technology mixes will change market outcomes, but they do not change the fundamental economic principles behind market design. Market-clearing prices in such a market are not necessarily mostly zero even in an energy-only market, especially with grid scale storage, an active demand side of the market, and scarcity pricing. However, increasing intermittent generator penetration increases the importance for adequately pricing scarcity and all network constraints and services. Such pricing is required to deliver investment incentives for the right technologies to locate at the right locations to efficiently maintain a stable and reliable electrical network.