Rethinking restructured electricity market design: Lessons learned and future needs

Many principles underlying the design of restructured electricity markets that are in-use today were developed over three decades ago when power systems were considerably different than today's and tomorrow's systems are. Systems of the past typically relied on large dispatchable thermal generators to supply energy. This can be contrasted with power systems today, which are experiencing rising penetrations of weather-dependent renewable energy sources that have limited dispatchability. Moreover, many power systems are experiencing growing adoption of distributed energy resources and novel uses of electric energy by end customers, which adds to demand uncertainty and variability. However, these technologies also provide opportunities for more active participation of the demand-side in maintaining system reliability and service quality. Given these marked changes in the architecture of electric power systems, we are at a unique point at which the tenets of restructured electricity market design can be re-evaluated. While this re-examination is largely driven by changes in power system designs, we can also rely on lessons learned from the past three decades of market-restructuring experience. in this paper, we highlight some of the challenges in designing electricity markets brought about by changes in system designs. We also discuss a number of lessons learned from market designs that have been implemented. We then suggest some important principles that should underlie future reforms of electricity market designs and raise design questions that require further research and examination.