On Market Designs for a Future with a High Penetration of Variable Renewable Generation

The document analyzes the challenges that high levels of variable renewable energy (VRE) pose to current restructured wholesale electricity markets, specifically regarding the erosion of the price-duration curve's central gradient used for long-term cost recovery. It proposes two future market paths: one continuing to rely on spot markets enhanced by demand elasticity and storage, and another 'bifurcated' model that separates a long-term 'firm market' for capital-heavy assets from a residual spot market for real-time balancing.

• Current restructured wholesale electricity markets rely on a price-duration curve with a steady central gradient to provide the economic rents necessary for generators to recover long-term fixed operations and maintenance costs.
• High penetration of VRE challenges existing market designs because fuel-free generation pushes marginal costs toward zero, potentially eliminating the central gradient of the price-duration curve and leaving scarcity pricing as the sole mechanism for cost recovery.
• The first proposed path for future markets maintains a spot-market foundation where long-term cost recovery is achieved through extreme scarcity pricing and risk is managed via bilateral contracts, demand elasticity, and energy storage.
• The second proposed path is a 'bifurcated market' that splits the system into a 'firm market' for long-term procurement and a 'residual spot market' for real-time balancing of supply and demand gaps.
• In a bifurcated design, the firm market would use an independent algorithm to match resources and needs over the long term, while the residual spot market would handle small real-time adjustments and serve as a price referent.
• The author argues that future market designs must prioritize three core themes: alignment with the physical and financial realities of capital-heavy assets, optimization for a clean and reliable grid, and effective risk management.

APA

Gimon, E. (2017). On Market Designs for a Future with a High Penetration of Variable Renewable Generation. Energy Innovation. https://energyinnovation.org/wp-content/uploads/On-Market-Designs-for-a-Future-with-a-High-Penetration-of-Renew.pdf

Chicago

Gimon, Eric. On Market Designs for a Future with a High Penetration of Variable Renewable Generation. Energy Innovation, 2017. https://energyinnovation.org/wp-content/uploads/On-Market-Designs-for-a-Future-with-a-High-Penetration-of-Renew.pdf.

Wikipedia

{{cite report |last1=Gimon |first1=Eric |title=On Market Designs for a Future with a High Penetration of Variable Renewable Generation |publisher=Energy Innovation |date=8 September 2017 |url=https://energyinnovation.org/wp-content/uploads/On-Market-Designs-for-a-Future-with-a-High-Penetration-of-Renew.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{gimon2017market, author = {Gimon, Eric}, title = {{On Market Designs for a Future with a High Penetration of Variable Renewable Generation}}, institution = {Energy Innovation}, year = {2017}, month = sep, url = {https://energyinnovation.org/wp-content/uploads/On-Market-Designs-for-a-Future-with-a-High-Penetration-of-Renew.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }