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

The research paper proposes a wholesale electricity market design to facilitate rapid decarbonization by combining a centralized regional spot market for short-term efficiency with decentralized forward procurement for long-term investment. The authors argue that this approach minimizes the risks of over-investment and political interference associated with centralized capacity markets while leveraging public policy instruments to internalize carbon externalities.

• The proposed market structure consists of a centralized regional spot market operated by a Regional Transmission Organization (RTO) and a decentralized voluntary bilateral market for long-term procurement. The spot market utilizes bid-based, security-constrained economic dispatch and locational marginal pricing to ensure short-term efficiency.
• To ensure long-term investment and lower the cost of capital, the model relies on decentralized forward procurement, such as Power Purchase Agreements (PPAs), allowing wholesale buyers (utilities, retail suppliers, or end-users) to hedge price risks.
• Rapid decarbonization is achieved by combining the market structure with external public policy instruments—such as carbon pricing, carbon regulation, or carbon-free energy targets—rather than using centralized administrative procurement to drive investment.
• The authors argue that decentralized procurement facilitates the retirement of fossil fuel generation more effectively than centralized models by allowing uncompetitive sources to be crowded out and eliminating the tendency of central administrators to over-engineer the system through forward capacity mechanisms.
• The model asserts that short-run economic dispatch remains efficient even as zero-marginal-cost renewable resources dominate the grid, as prices will be driven by reliability needs, ancillary services, and flexible demand (e.g., electrified transport and heating).
• To prevent market failures where retail suppliers cannot manage supply risks, the authors suggest that state regulators must monitor and enforce credit requirements on retail suppliers to ensure they are financially equipped to meet their obligations.

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} }