WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: A DECENTRALIZED MARKETS APPROACH

The authors propose a market design featuring a regional spot market operated by an independent Regional Transmission Organization (RTO) using locational marginal pricing and security-constrained economic dispatch. To ensure long-term investment in clean resources and manage price risk, the model relies on decentralized bilateral contracts, such as Power Purchase Agreements (PPAs), rather than centralized capacity procurement. The authors contend that this approach facilitates the retirement of fossil fuel generation, promotes innovation in distributed energy resources, and minimizes political interference. They emphasize that public policy instruments, such as carbon pricing or portfolio standards, should complement this market structure by internalizing greenhouse gas externalities to accelerate the transition.

• The proposed market structure consists of a centralized regional spot market for short-term efficiency and a decentralized bilateral market for long-term risk management and investment.
• Decarbonization is accelerated by combining the market structure with external public policy instruments, such as carbon prices or carbon-free energy targets, which internalize the externalities of greenhouse gas emissions.
• The model facilitates the retirement of fossil fuel generation by utilizing consolidated balancing areas, shortened dispatch intervals, and the elimination of centrally administered forward capacity procurement, which often supports surplus generation.
• Long-term investment in clean energy is supported through decentralized bilateral contracting and exchange-based trading, which provide revenue stability and lower the cost of capital compared to pure merchant investment.
• The authors argue that a decentralized approach is less vulnerable to political interference and the 'capture' of central bureaucracies by incumbent interests compared to centralized capacity markets.
• A critical structural requirement for the success of this model is the presence of credit-worthy retail suppliers, which the authors suggest should be ensured through state regulatory oversight of credit requirements.

APA

Gramlich, R., & Hogan, M. (2019). WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: A DECENTRALIZED MARKETS APPROACH. Energy Innovation. https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-A-Decentralized-Markets-Approach.pdf

Chicago

Gramlich, Rob, and Michael Hogan. WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: A DECENTRALIZED MARKETS APPROACH. Energy Innovation, 2019. https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-A-Decentralized-Markets-Approach.pdf.

Wikipedia

{{cite report |last1=Gramlich |first1=Rob |last2=Hogan |first2=Michael |title=WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: A DECENTRALIZED MARKETS APPROACH |publisher=Energy Innovation |date=June 2019 |url=https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-A-Decentralized-Markets-Approach.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{gramlich2019wholesale, author = {Gramlich, Rob and Hogan, Michael}, title = {{WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: A DECENTRALIZED MARKETS APPROACH}}, institution = {Energy Innovation}, year = {2019}, month = jun, url = {https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-A-Decentralized-Markets-Approach.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }