Electricity Market Design and Zero-Marginal Cost Generation

Abstract

Purpose of Review: Competitive electricity systems arose in the context of thermal generation with dispatchable production and increasing variable costs. This paper addresses key impacts on efficient market design with increasing reliance on renewable energy sources such as solar and wind that are intermittent and have very low marginal costs. Recent Findings: The basics of efficient electricity markets design have been adopted by all the organized electricity markets in the USA. This is the only competitive electricity market design that supports the principles of open access and non-discrimination. Summary: An expansion of intermittent zero-marginal cost generation does not change the fundamentals of efficient electricity market design. Rather, it increases the importance of implementing the design and associated reforms that have been identified from market experience. These include improved scarcity pricing, demand participation, and carbon pricing.