Electricity Pricing Problems in Future Renewables-Dominant Power Systems

Long-Term Issues with the Energy-Only Market Design in the Context of Deep Decarbonization

“…However, this merit-order effect is either transitory (Antweiler and Muesgens, 2021) or caused by inadequate policy choices (Brown and Reichenberg, 2021) rather than reflective of a limitation inherent to the EOM. In fact, price distributions are more likely to change in shape than to be lowered on average (e.g., Ekholm and Virasjoki, 2020;Mallapragada et al, 2023). Rather, our results suggest that a key issue with the EOM paradigm is that long-run efficiency holds only under a set of idealistic assumptions.…”

“…In particular, prices can settle above the highest conventional generator's variable costs because of storage's roundtrip efficiency and intertemporal arbitrage, possibly forming ''price plateaus''. 42 Moreover, prices can factor in long-term cost components when capacity additions and retirements are endogenous in the model (e.g., Mallapragada et al, 2023). In this context, all conventional generators (including Peakers) pocket sufficient inframarginal rents to recover their fixed costs.…”

Electricity Retail Rate Design in a Decarbonizing Economy: An Analysis of Time-of-use and Critical Peak Pricing

“…This does not reflect either the present or, more importantly, the future as electric power systems decarbonize. As wind and solar penetration increases, wholesale price distributions will change dramatically with many more zero or very low-price hours and many more high-price and scarcity hours (Mallapragada et al, 2021). These changing wholesale price distributions, along with the increasing penetration of within-day shiftable loads, are likely to change the net social benefits of incentivizing within-day load shifting.…”

“…On the supply side, the share of intermittent renewable generation in the power mix is rising in many countries. This change in the supply mix leads to more volatile power prices, more hours of very low prices, more hours of high prices and scarcity conditions, and thus more value that can be derived from demand-side flexibility in the short and long run (Vijay et al, 2017;Ekholm and Virasjoki, 2020;Mallapragada et al, 2021;Imelda et al, 2022). On the demand side, opportunities for end-users to better manage their load are expanding, enabled by digitalization and the adoption of electric vehicles, heat pumps, stationary batteries, and other controllable loads (BNEF, 2022;IEA, 2021).…”

Meeting the Reliability Challenges of the Clean Energy Transition

“…Whether or not these potentially more volatile prices are sufficient to enable investment in various types of resources is an ongoing concern ( Joskow 2020;Joskow 2021;Gruenspecht et al 2022;Mallapragada et al 2021;Wallace et al 2022). A recent MIT study considered a future system made up of mostly renewable resources and found that a "dramatic change in future wholesale market price distributions" is likely (Gruenspecht et al 2022).…”