WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: LONG-TERM MARKETS, WORKING WITH SHORT-TERM ENERGY MARKETS

The document examines the risks that current short-term wholesale electricity markets, based on locational marginal prices (LMPs), may fail to provide sufficient price signals to sustain the investment needed for deep decarbonization. This is primarily due to the minimal short-run marginal costs of variable renewable energy (VRE) and the fact that VRE resources often cannot capture scarcity prices during production lulls. To mitigate this, the authors propose long-term markets that provide contractual certainty through power purchase agreements (PPAs) or similar mechanisms. The report compares three specific proposals (by Corneli, Gimon, and Pierpont), identifying six core commonalities: the use of long-term contracts, voluntary participation, coordination with short-term markets, incremental implementation, optimized policy guidance, and organic implementation pathways. The authors suggest that these long-term markets can better identify efficient portfolios of VRE, storage, and flexible load across broad regions, reducing the risk of overbuild or incompatible resource mixes.

• Current short-term wholesale electricity markets face a significant risk of failing to produce price signals high or frequent enough to sustain the investment required for rapid decarbonization, particularly as variable renewable energy (VRE) resources with negligible short-run marginal costs increase.
• VRE resources are poorly positioned to capture scarcity prices in short-term markets because the periods of highest price often occur during lulls in wind or sunshine when those resources are unavailable to sell energy.
• Relying solely on short-term markets to balance VRE with complementary resources (like storage and flexible load) is risky because it is difficult to maintain the precise balance of resources needed to ensure scarcity prices are transferred to VREs without eliminating those prices entirely through over-investment.
• The three proposed long-term market models share six core elements: long-term contracts/PPAs for price-risk mitigation, voluntary participation, coordination with short-term markets, incremental implementation via tranches, optimization of policy guidance, and incremental implementation pathways.
• The Corneli and Gimon proposals specifically advocate for regional portfolio optimization using mathematical tools to endogenously identify the least-cost mix of VRE, transmission, and complementary technologies across broad geographies.

APA

CORNELI, S., GIMON, E., & PIERPONT, B. (2019). WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: LONG-TERM MARKETS, WORKING WITH SHORT-TERM ENERGY MARKETS. Energy Innovation. https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-Long-Term-Markets-Working-WIth-Short-Term-Energy-Markets.pdf

Chicago

CORNELI, STEVEN, ERIC GIMON, and BRENDAN PIERPONT. WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: LONG-TERM MARKETS, WORKING WITH SHORT-TERM ENERGY MARKETS. Energy Innovation, 2019. https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-Long-Term-Markets-Working-WIth-Short-Term-Energy-Markets.pdf.

Wikipedia

{{cite report |last1=CORNELI |first1=STEVEN |last2=GIMON |first2=ERIC |last3=PIERPONT |first3=BRENDAN |title=WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: LONG-TERM MARKETS, WORKING WITH SHORT-TERM ENERGY MARKETS |publisher=Energy Innovation |date=June 2019 |url=https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-Long-Term-Markets-Working-WIth-Short-Term-Energy-Markets.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{corneli2019wholesale, author = {CORNELI, STEVEN and GIMON, ERIC and PIERPONT, BRENDAN}, title = {{WHOLESALE ELECTRICITY MARKET DESIGN FOR RAPID DECARBONIZATION: LONG-TERM MARKETS, WORKING WITH SHORT-TERM ENERGY MARKETS}}, institution = {Energy Innovation}, year = {2019}, month = jun, url = {https://energyinnovation.org/wp-content/uploads/Wholesale-Electricity-Market-Design-For-Rapid-Decarbonization-Long-Term-Markets-Working-WIth-Short-Term-Energy-Markets.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }