The interaction of wholesale electricity market structures under futures with decarbonization policy goals: A complexity conundrum

Frew, Bethany; Bashar Anwar, Muhammad; Dalvi, Sourabh; Brooks, Adria

doi:10.1016/j.apenergy.2023.120952

Title: The interaction of wholesale electricity market structures under futures with decarbonization policy goals: A complexity conundrum

Journal Article · 21 March 2023 · Applied Energy

DOI: https://doi.org/10.1016/j.apenergy.2023.120952 · OSTI ID:1969273

Frew, Bethany ^[1]; Bashar Anwar, Muhammad ^[1]; Dalvi, Sourabh ^[1]; Brooks, Adria ^[2]

National Renewable Energy Laboratory (NREL), Golden, CO (United States)
USDOE Office of Energy Research, Washington, DC (United States)

Competitive wholesale electricity markets can help facilitate energy system decarbonization by incentivizing investments in clean energy technologies that meet evolving system needs. We explore market structure impacts on generator operations and deployment by risk-averse, heterogeneous investor firms using the Electricity Markets and Investment Suite - Agent-based Simulation (EMIS-AS) model. Here we apply clean energy targets of 45%-100% by 2035 considering energy, ancillary services, capacity, and clean energy credit products and pricing and eligibility rules. Results highlight a complexity conundrum, whereby finding the "right" market design to achieve decarbonization goals and avoid unintended consequences can be a highly-nuanced, non-incremental challenge. Carefully designed energy-only markets can achieve the same clean energy targets as capacity market structures but with different revenue and profitability outcomes. Operating reserve demand curve-based scarcity pricing can substitute capacity markets for similar deployment outcomes. Carbon pricing alone is most effective at achieving decarbonization levels at low clean energy targets, and clean energy credit markets and carbon pricing are substitutionary at high clean energy targets. Restricting technology participation in capacity and operating reserve markets can impact deployment and operations, even for nonrestricted technologies. Adding an inertia product with fast frequency response yields insufficient provision at high clean energy targets, but work is needed to understand frequency requirements and capabilities.

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Research Organization:: National Renewable Energy Laboratory (NREL), Golden, CO (United States)

Sponsoring Organization:: USDOE Office of Energy Efficiency and Renewable Energy (EERE)

Grant/Contract Number:: AC36-08GO28308

OSTI ID:: 1969273

Report Number(s):: NREL/JA-5C00-80257; MainId:42460; UUID:3e2516aa-c8b5-40e8-8d2e-518a91f77d2c; MainAdminID:69264

Journal Information:: Applied Energy, Journal Name: Applied Energy Vol. 339; ISSN 0306-2619

Publisher:: ElsevierCopyright Statement

Country of Publication:: United States

Language:: English

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Title: The interaction of wholesale electricity market structures under futures with decarbonization policy goals: A complexity conundrum

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