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

Author

Listed:
  • Gordon W. Leslie

    (Department of Economics, Monash University)

  • David I. Stern

    (Arndt-Corden Department of Economics, Crawford School of Public Policy)

  • Akshay Shanker

    (School of Economics, University of New South Wales)

  • Michael T. Hogan

    (The Regulatory Assistance Project)

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.

Suggested Citation

  • Gordon W. Leslie & David I. Stern & Akshay Shanker & Michael T. Hogan, 2020. "Designing electricity markets for high penetration of zero or low marginal cost intermittent energy sources," CCEP Working Papers 2002, Centre for Climate & Energy Policy, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:ccepwp:2002
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    File URL: https://ccep.crawford.anu.edu.au/sites/default/files/publication/ccep_crawford_anu_edu_au/2020-05/wp_2002.pdf
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Annual Review 2020
      by noreply@blogger.com (David Stern) in Stochastic Trend on 2020-12-19 07:18:00

    Citations

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    Cited by:

    1. Dongwei Zhao & Mehdi Jafari & Audun Botterud & Apurba Sakti, 2022. "Strategic Storage Investment in Electricity Markets," Papers 2201.02290, arXiv.org, revised Mar 2022.
    2. Benatia, David, 2022. "Ring the alarm! Electricity markets, renewables, and the pandemic," Energy Economics, Elsevier, vol. 106(C).
    3. Behnam Zakeri & Katsia Paulavets & Leonardo Barreto-Gomez & Luis Gomez Echeverri & Shonali Pachauri & Benigna Boza-Kiss & Caroline Zimm & Joeri Rogelj & Felix Creutzig & Diana Ürge-Vorsatz & David G. , 2022. "Pandemic, War, and Global Energy Transitions," Energies, MDPI, vol. 15(17), pages 1-23, August.
    4. Brennan, Tim, 2021. "Customer-Side Energy Management: What Role Should Utilities Play?," RFF Working Paper Series 21-03, Resources for the Future.
    5. Javier L'opez Prol & Wolf-Peter Schill, 2020. "The Economics of Variable Renewables and Electricity Storage," Papers 2012.15371, arXiv.org.
    6. Sirin, Selahattin Murat & Uz, Dilek & Sevindik, Irem, 2022. "How do variable renewable energy technologies affect firm-level day-ahead output decisions: Evidence from the Turkish wholesale electricity market," Energy Economics, Elsevier, vol. 112(C).
    7. Silva-Rodriguez, Lina & Sanjab, Anibal & Fumagalli, Elena & Virag, Ana & Gibescu, Madeleine, 2022. "Short term wholesale electricity market designs: A review of identified challenges and promising solutions," Renewable and Sustainable Energy Reviews, Elsevier, vol. 160(C).
    8. Lynch, Muireann Á. & Longoria, Genora & Curtis, John, 2021. "Future market design options for electricity markets with high RES-E: lessons from the Irish Single Electricity Market," Papers WP702, Economic and Social Research Institute (ESRI).
    9. Thomas Pownall & Iain Soutar & Catherine Mitchell, 2021. "Re-Designing GB’s Electricity Market Design: A Conceptual Framework Which Recognises the Value of Distributed Energy Resources," Energies, MDPI, vol. 14(4), pages 1-26, February.
    10. Zhao, Dongwei & Jafari, Mehdi & Botterud, Audun & Sakti, Apurba, 2022. "Strategic energy storage investments: A case study of the CAISO electricity market," Applied Energy, Elsevier, vol. 325(C).
    11. Lynch, Muireann & Longoria, Genaro & Curtis, John, 2021. "Market design options for electricity markets with high variable renewable generation," Utilities Policy, Elsevier, vol. 73(C).

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