On March 29, the Electric Power Supply Association hosted its first Competitive Power Summit in Washington, DC. Leaders from across the competitive power market discussed the key issues facing the sector, including maintaining reliability as the grid changes, market innovations, advancing decarbonization, ensuring a just transition with continued customer and economic benefits, and future market design. While there was much to debate around these topics, many speakers agreed on the basic tenets of what’s necessary to achieve reliable, affordable, and clean power.
This is the final installment of a six-part blog series on the themes and key takeaways from EPSA’s Competitive Power Summit, which will highlight the key considerations for future market design in competitive markets.
In case you missed it:
Market Design for the Future
“There are a lot of opinions around market design and the key issues to think about. As we’ve heard throughout the day, not getting this right is a recipe for really bad outcomes, and getting it right isn’t easy, so we need to put a lot of brainpower behind how we want to think about [market design],” said Todd Snitchler, president and CEO, EPSA
Many policymakers and regulators working on market design issues take a longer-term view on what the future market will look like and the technology options that are being incentivized for deployment. However, this sacrifices the present-day need of balancing the grid. Stakeholders need to start from the real-time market and work backward to the longer-term implications. Over the years, a number of lessons have emerged that can inform future market design, according to Prof. William Hogan, including:
- Design Principle: Integrate system operators and market design
- Design Framework: Bid-based, Security Constrained Economic Dispatch
- Design Implementation: Pricing evolution for better scarcity pricing to support resource adequacy
- Design Challenge: Infrastructure Investment
These lessons need to be applied as clean energy sources increase in penetration, which is raising questions about clean energy’s changing operational costs at different times of the day (especially when the variable cost reaches zero) and the implications of that variability. This also raises questions on the path forward to incorporating climate change challenges into policy, with a deeply divided Congress with oppositional views on the best path forward, per the panel.
Additionally, governments are making aspirational promises to address climate change that are ambitious at best and very often unrealistic. Pragmatic approaches, like implementing a carbon price, will provide the framework necessary for market and societal adaptation and increase competition. Because the electricity market has heterogeneity, meaning it varies from market-to-market on a regional basis, the impacts will also be variable based on region. There will be no perfect solution for the entire market. Regions will need more latitude and variability to ensure reliability, according to the panel.
The principles of competition need to be applied to clean energy source deployment to avoid stranded assets, the panel agreed. Market design must be the north star of the energy transition, and competitive market operators know what works and what doesn’t. Avoiding picking winners and losers, as well as hedging against the low frequency, high impact events will be key. There is also value in incrementalism. Every stakeholder agrees with a carbon price, but what are the incremental steps to improve the market if the carbon price is not implemented by policymakers?
If market design is going to continue delivering electricity reliably, the panel concluded that several solutions will be key:
- System planning
- Rate transparency
- Rebut false notion that competition hurts reliability
- Shoulder months may be when future reliability risks occur
- Address load curtailment policies
- Scarcity pricing will play a larger role in the future
- Need demand-side participation.
This concludes the six-part Competitive Power Summit Blog Series. If you have any questions about the Summit or the information presented throughout this six-part series, please contact us.