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The Future Of Centrally-Organized Wholesale Electricity Markets

The Future Of Centrally-Organized Wholesale Electricity Markets

Full Title: The Future Of Centrally-Organized Wholesale Electricity Markets
Author(s): Craig Glazer, Jay Morrison, Paul Breakman, Allison Clements, & Lisa Schwartz
Publisher(s): Lawrence Berkeley National Laboratory
Publication Date: March 1, 2017
Full Text: Download Resource
Description (excerpt):

The electricity grid in the United States is organized around a network of large, centralized power plants and high voltage transmission lines that transport electricity, sometimes over large distances, before it is delivered to the customer through a local distribution grid. This network of centralized generation and high voltage transmission lines is called the “bulk power system.”

Costs relating to bulk power generation typically account for more than half of a customer’s electric bill.1 For this reason, the structure and functioning of wholesale electricity markets have major impacts on costs and economic value for consumers, as well as energy security and national security.

Diverse arrangements for bulk power wholesale markets have evolved over the last several decades. The Southeast and Western United States outside of California have a “bilateral-based” bulk power system where market participants enter into long-term bilateral agreements — using competitive procurements through power marketers, direct arrangements among utilities or with other generation owners, and auctions and exchanges.

Seven other areas of the United States have regional transmission operators or independent system operators (RTOs/ISOs) that administer centrally-organized wholesale electricity markets (see map). These markets operate at day-ahead, same-day and real-time time scales for energy trades, each playing an important role in reliably operating and economically optimizing regional grids and ultimately delivering electricity to consumers. Aspects of the bilateral model exist in RTO/ISO regions as well, particularly in the Southwest Power Pool and Midcontinent Independent System Operator. RTOs/ISOs also operate ancillary services markets to help ensure reliability, and three regions use a mandatory capacity markets approach to ensure adequate resources up to three years in the future.

Relevant FERC dockets,3 meetings of the National Association of Regulatory Utility Commissioners,4 and discussions at stakeholder engagement meetings5 — as well as a markets technical workshop6 for the U.S. Department of Energy’s Second Installment of the Quadrennial Energy Review (on electricity) — all suggest that the bulk power landscape in the United States is functioning reasonably well, despite its enormous complexity, diversity and multiple challenges. However, the same record indicates that bulk power markets, particularly aspects of the RTO/ISO markets, remain a work in progress and in some cases the subject of continued debate. Much of the debate concerns the functioning of these markets in the long term.

This report presents differing viewpoints on four major long-term issues concerning RTOs/ISOs which lack a consensus: 1. Are today’s centrally-organized market designs adequate to accommodate state public policy goals, and what potential design changes would further enable deployment of resources that achieve the goals of reliability,

  1. Are today’s centrally-organized market designs adequate to accommodate state public policy goals, and what potential design changes would further enable deployment of resources that achieve the goals of reliability, affordability and resource mix?
  2. What are the market impacts of environmental regulations further constraining the deployment of fossil fuel resources?
  3. What are the market impacts of integrating increasingly higher levels of renewable resources with zero marginal cost?
  4. Are today’s market designs adequate to acquire the flexible resources needed to better integrate increasing levels of variable energy resources at least cost?

All statements and/or propositions in discussion prompts are meant exclusively to stimulate discussion and do not represent the views of OurEnergyPolicy.org, its Partners, Topic Directors or Experts, nor of any individual or organization. Comments by and opinions of Expert participants are their own.

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