Designing Electricity Markets for High Penetrations of Zero or Low Marginal Cost Intermittent Energy Sources

22 Pages Posted: 15 May 2020 Last revised: 3 Jun 2020

See all articles by Gordon Leslie

Gordon Leslie

Monash University - Department of Economics

David I. Stern

Australian National University (ANU) - Crawford School of Public Policy

Akshay Shanker

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Michael T. Hogan

The Regulatory Assistance Project

Date Written: May 15, 2020

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.

Keywords: Wholesale Electricity Markets, Electricity Market Design, Locational

JEL Classification: D47, L5, L94, Q41, Q42

Suggested Citation

Leslie, Gordon and Stern, David I. and Shanker, Akshay and Hogan, Michael T., Designing Electricity Markets for High Penetrations of Zero or Low Marginal Cost Intermittent Energy Sources (May 15, 2020). USAEE Working Paper No. 20-449, Available at SSRN: https://ssrn.com/abstract=3601485 or http://dx.doi.org/10.2139/ssrn.3601485

Gordon Leslie

Monash University - Department of Economics ( email )

Faculty of Business and Economics
900 Dandenong Rd
Caulfield East, Victoria 3145
Australia

David I. Stern (Contact Author)

Australian National University (ANU) - Crawford School of Public Policy ( email )

ANU College of Asia and the Pacific
J.G. Crawford Building, #132, Lennox Crossing
Canberra, Australian Capital Territory 0200
Australia

Akshay Shanker

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

ANU College of Asia and The Pacific
Crawford School of Public Policy
Canberra, Australian Capital Territory 2601
Australia

HOME PAGE: http://https://cama.crawford.anu.edu.au/

Michael T. Hogan

The Regulatory Assistance Project ( email )

50 State Street, Suite 3
Montpelier, VT 05602
United States

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