Wholesale electricity markets have come under spotlight in a context of soaring commodity prices. In Europe where the price hit has been particularly high, critics highlight the market design result in a dependency of wholesale electricity prices to gas prices. As highlighted by the report titled "Beyond the crisis: re-thinking the design of power markets" for the French Authority of Regulation of the Energy Sector:
"The current debates often mix short-term adjustment measures - which do not replace the market but correct it at the margin - with new, more structural measures that would partly replace the market. The former reflects the desire to mitigate as quickly as possible the macroeconomic implications of the surge in electricity prices that began in September 2021 after gas prices soared. The latter is often linked to the effect of the development of intermittent renewable energies on the functioning of the electricity market as it has been designed since the liberalization of power markets. These issues have an important common thread: the question about short run markets which might not reflect the cost of the whole mix, but only the marginal cost of the marginal technology – whether it is gas or renewables, coupled with the lack of long-term contracting."
These issues are key worldwide and are particularly acute with the will to electrify energy use. They echo the 4 stakes met by the wholesale electricity markets the last 25 years highlighted by Wolak (2021):
According to Arriaga et al. (2021), "The estimated volume of annual investment that would be needed to achieve universal residential access to even a modest level of electricity by 2030 is $41 billion". The electrification deficit of Sub-Saharan Africa remains huge with only a half of the population who gets electricity access. In total, 789 million people were living without electricity according to estimates (Foster et al., 2021). A key issue is to attract independent power producers (IPP), to build renewables, but the articulation with existing vertical integrated utilities remains challenging. Many barriers need to be tackled such as the power structure sector and governance, the legal and regulatory framework, the competitive procurement procedure, the coordination between institutions and the financing and risk mitigation (Arriaga et al., 2021). Wholesale electricity market design is therefore key for enabling the necessary investments for adequacy, giving the right incentives to demand, and making electricity access universal and affordable for everyone.
Pérez-Arriaga, Ignacio J., et al. "Harnessing the power of integration to achieve universal electricity access: the case for the Integrated Distribution Framework." Handbook on Electricity Markets. Edward Elgar Publishing, 2021. 540-567.
Tim Schittekatte is a Research Scientist at the MIT Energy Initiative where the conducts research about power market design and regulation. He is one of the instructors of the MIT course â€œEngineering, Economics and Regulation of the Electric Power Sectorâ€. He is also a part-time assistant professor at the Florence School of Regulation (FSR), where before he was a research fellow for 5 years. Before joining FSR in May 2016, he was a visiting researcher at the Grid Integration Group of the Lawrence Berkeley National Lab and a junior economist at Microeconomix in Paris. He graduated as an engineer from Ghent University, Belgium and completed the EMIN program, an international master in economics. He holds a PhD in energy economics from University Paris-Sud XI
Jacob Mays is an Assistant Professor in the School of Civil and Environmental Engineering at Cornell University. He is interested in applications of stochastic optimization and statistical learning in energy systems. His research focuses on the design and analysis of electricity markets.
Dr. Atul Agrawal is an optimist and self-motivated energy professional focused on regulatory and policy framework of power sector. Atul holds PhD in Power Management. He is an active researcher with numerous publications across various journals and conferences. He has played key role in Central Electricity Regulatory Commission by drafting crucial Orders for Real Time Market, Green Term Ahead Market, Integrated Day Ahead Market, Forward contract (i.e. Term Ahead Market for upto 3 months). He has also contributed in drafting of Power Market Regulations and Power Trading Regulations. He is a guest/ visiting faculty at various institutes. Presently he is working at Indian Institute of Management, Sirmaur which is an institute of national importance.
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