The decarbonization transition and U.S. electricity markets: Impacts and innovations

Several factors in recent years have converged in the U.S. to spur a focused effort on decarbonizing the electricity sector. First, in response to the threat of climate change, policy at all levels of governance is increasingly promoting and incentivizing the deployment of zero carbon solutions, especially variable renewable energy (VRE) sources such as utility‐scale wind and solar PV, as well as distributed energy resources (DERs) such as rooftop solar PV and battery energy storage systems. Second, the costs of these technologies have declined to result in major increases in their market penetration. Finally, in response to greater access to cheaper, clean technology solutions, customers have become more engaged and proactive in their energy choices, both as a way to lower energy costs and to be more environmentally responsible. These de‐carbonization dynamics are impacting electricity markets—those where competition has been introduced (restructured markets), as well as those where vertically integrated utilities maintain a monopoly (regulated markets). For example, increasing penetration of VRE has influenced wholesale market prices, and many of the organized wholesale markets have implemented initiatives to add greater flexibility in their market operations to accommodate larger amounts of VRE. In regulated markets, policy makers and regulators in many states are assessing a variety of changes in the existing regulatory framework to adapt to more DERs. This overview identifies the impacts of more VREs and DERs on each market structure, and describes key adaptations and changes in each market to accommodate these de‐carbonization trends. This article is categorized under: Climate and Environment > Net Zero Planning and Decarbonization Energy and Power Systems > Energy Infrastructure Policy and Economics > Energy Transitions