WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: VISIONS FOR THE FUTURE

The paper argues that current wholesale electricity markets, designed for large fuel-burning plants with high production costs, are ill-equipped for a future dominated by wind, solar, and storage, which have near-zero production costs and different operational characteristics. It identifies a disconnect between federal wholesale rates and state retail rates as a barrier to demand-side flexibility. The authors propose ten principles for modern markets—including technology neutrality, grid reliability, and long-run efficiency—and outline two emerging pathways for reform: a "Robust Spot Market" approach focusing on decentralized bilateral contracting, and a "Long-Term Plus Short-Term Markets" approach utilizing a centralized forward market.

• Existing wholesale electricity markets were designed around a 'marginal cost dispatch' paradigm where prices and revenues are tied to the production costs of large central station plants, primarily fuel-burning resources.
• Zero-carbon resources like wind, solar, and storage differ from traditional thermal plants in three key ways: they have near-zero production costs, smaller unit sizes allowing for faster deployment, and production characteristics tied to resource availability rather than dispatchability.
• A regulatory split between the Federal Energy Regulatory Commission (FERC), which governs wholesale rates, and state regulators, who govern retail rates, prevents wholesale price signals from reaching demand-side resources.
• The authors propose ten principles for modern wholesale electricity markets to ensure technology neutrality and least-cost system goals, including the need to accommodate rapid decarbonization, support grid reliability, and facilitate demand-side participation.
• Two primary pathways for market evolution are identified: the "Robust Spot Market" pathway, which emphasizes decentralized bilateral contracting and the elimination of capacity markets, and the "Long-Term Plus Short-Term Markets" pathway, which suggests a centralized forward market to complement energy and services markets.
• Current U.S. capacity markets are viewed as flawed because they trade capacity without sufficient regard for the specific operational characteristics of the energy resources.

APA

AGGARWAL, S., & ORVIS, R. (2019). WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: VISIONS FOR THE FUTURE. Energy Innovation. https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-Visions-For-The-Future_updated.pdf

Chicago

AGGARWAL, SONIA, and ROBBIE ORVIS. WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: VISIONS FOR THE FUTURE. Energy Innovation, 2019. https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-Visions-For-The-Future_updated.pdf.

Wikipedia

{{cite report |last1=AGGARWAL |first1=SONIA |last2=ORVIS |first2=ROBBIE |title=WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: VISIONS FOR THE FUTURE |publisher=Energy Innovation |date=June 2019 |url=https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-Visions-For-The-Future_updated.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{aggarwal2019wholesale, author = {AGGARWAL, SONIA and ORVIS, ROBBIE}, title = {{WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: VISIONS FOR THE FUTURE}}, institution = {Energy Innovation}, year = {2019}, month = jun, url = {https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-Visions-For-The-Future_updated.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }