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Electricity Wholesale Markets: Designs Now and in a Low-carbon Future

This paper compares electricity wholesale markets in the United States and Europe. The Standard Market Design in the US involves an independent system operator, nodal pricing with financial transmission rights, and integrated markets for capacity and ancillary services. In Europe, there are national, or occasionally zonal, spot markets run by companies independent of the transmission operator, and of the latter's purchases of ancillary services. As the amount of low-carbon generation increases, prices and transmission constraints are likely to become more volatile, increasing the need to adopt an efficient market design. In most respects, the US standard market design is likely to give better results than the European models.

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Energy Specializations: Electricity – Generation Technologies; Electricity – Markets and Prices ; Electricity – Policy and Regulation; Energy and the Environment – Environmental Market Design

JEL Codes:
Q2 -
D42 - Market Structure, Pricing, and Design: Monopoly
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

Keywords: Electricity wholesale markets, US-Europe comparison, Efficiency, market design, Low-carbon generation

DOI: 10.5547/ISSN0195-6574-EJ-Vol29-NoSI2-6

Published in Volume 29, Special Issue #2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.