The Challenge

The clean energy transition gives rise to fundamental changes in the mix of resources we rely on to generate electricity. The growing integration of new variable renewable energy (like wind and solar) into the grid is creating many new challenges for planning and operating the electrical power system in an efficient and reliable manner. In parallel with this technological transition, many areas of the United States and internationally have introduced wholesale electricity markets, where suppliers compete to provide electricity to meet demand on a continuous basis. These markets provide price incentives that govern both operations and investments in the power system. As we shift towards more weather-driven electricity supply, managing the uncertainty and variability in wind, solar and other renewable resources in a cost-effective manner is an increasingly important challenge. The operation of traditional generation technologies (natural gas and coal for example) is largely driven by the fuel cost of generating an additional unit of energy. Emerging technologies such as wind, solar and batteries experience almost all of their costs during construction, and once built face essentially zero cost for producing each additional unit of energy. This has implications for price formation in electricity markets, which traditional is driven by the marginal cost of the last generator that is needed to serve demand in each period. Electricity markets therefore face the dual challenge of accelerating the transition to clean energy resources while at the same time maintaining or increasing the reliability of the grid. Improving understanding of how electricity markets can evolve to meet the evolving needs to the future grid is therefore a very active area of research.

Argonne’s Approach

We have developed extensive insights and a comprehensive suite of quantitative modeling tools, including the Argonne Low-carbon Electricity Analysis Framework (A-LEAF), capable of analyzing the complex interactions between engineering, economics, and policy in current and future electricity markets. This enables us to analyze how different rules and regulations in the electricity market, i.e., electricity market design, may impact the short- and long-term performance of electricity markets. For instance, we can analyze operational needs for flexibility and operating reserves to maintain reliability with existing assets in the grid. We are also investigating the ability of energy and reserve markets - possibly combined with additional resource adequacy mechanisms - to provide investments in an adequate mix of generation, storage, and demand response for the future. We also account for how overarching climate and environmental goals intersect with electricity market design and operations.