Market Design for the Clean Energy Transition: Advancing Long-Term Approaches

Rapid expansion of zero- and low-carbon generating capacity requires effective policy frameworks for both vertically integrated utilities and organized (restructured) electricity markets. A vibrant debate has emerged regarding how well existing market designs in the US can enable the investments needed for an affordable, reliable, deeply decarbonized electric grid that relies heavily on generation resources with variable output and zero or very low operating costs; and serves load that could grow rapidly in the decades ahead as electricity plays a pivotal role in decarbonizing other sectors of the economy.

Several experts have proposed market designs that involve improved day-ahead and real-time electricity markets, paired with an organized long-term market aimed at guiding investment in new low and zero-carbon generation. These approaches typically envision a periodic, competitive procurement of energy and capacity through long-term contracts that shape the capacity mix of a grid. Some refer to the resulting framework as a “hybrid” market.

This two-day virtual workshop was co-hosted by Karl Hausker, PhD, Senior Fellow, Climate Program, World Resources Institute (WRI), and Karen Palmer, PhD, Senior Fellow and Director of the Future of Power Initiative, Resources for the Future (RFF). The workshop featured plenary speakers, presentations of four papers on organized long-term market designs and discussion of a background paper on experience with clean energy resource procurement and planning. WRI and RFF also prepared a matrix document that provided a summary description of each market design and details on specific market design features in each proposal organized into six topics areas. These six topic areas formed the basis of the six breakout groups that met twice during the two-day workshop.

Modified Chatham House Rules applied to this workshop. Speaker videos, presentations and papers are public. The workshop summary below covers discussions in plenary and break-out sessions, but it does not attribute statements or positions to specific persons or organizations.

Project Overview and Experience with Procurement and Planning

Karl Hausker, WRI, and Karen Palmer, RFF

• Presentation
• Background paper on clean energy procurement and IRP by Kathryne Cleary, RFF, and Heidi Ratz, WRI

Hybrid Electricity Markets to Support Deep Decarbonization Goals

Paul Joskow, Massachusetts Institute of Technology

• Presentation

A PRISM-Based Configuration Market for Rapid, Low-Cost and Reliable Electric Sector Decarbonization

Steve Corneli, Strategies for Clean Energy Innovation

• Presentation
• Paper

Let’s Get Organized! Long-Term Market Design for a High Penetration Grid

Eric Gimon, Energy Innovation, LLC

• Presentation
• Paper

The Need for Evolution in Market Design

Peter Fox-Penner, Boston University

Objectives, Constraints, and The Second Best

Richard Schmalensee, Massachusetts Institute of Technology

• Presentation

Wholesale Power Market Design in a Future Low-Carbon Electric System: A Proposal for Consideration

Susan Tierney, Analysis Group

• Presentation
• Paper

A Market Mechanism for Long-Term Energy Contracts

Brendan Pierpont, Sierra Club (paper and participation contributed in independent capacity)

• Presentation
• Paper

Reflections on Future Market Designs

Jon Wellinghoff, Grid Policy, Inc.