Better, faster, stronger: A look into further electricity market reforms

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The European energy crisis was not caused by the electricity market. But it sure made people pay closer-than-usual attention to its design. That is not a bad thing. The electricity market becomes ever more important as large swaths of the economy further electrify. The electricity market therefore needs to be fit-for-purpose. In this briefing, RAP lays out how the electricity market can deliver better, faster and stronger for the energy transition and the people living it.

Any follow-up to the crisis should aim to speed up the replacement of fossil fuels with renewables, demand-side flexibility, storage and energy efficiency. The focus of market reform induced by this crisis should be to elevate the demand side on par with supply-side resources and improve hedging in the market to alleviate the remainder of the ongoing crisis and prepare for the next. This requires boosting a new portfolio of longer-term market features to share risks and benefit consumers.

Here, RAP discusses the following advances in market design:

  • Short-term markets see location and scarcity
  • Forward markets allocate risks
  • Contracts for Difference are carefully designed and procured
  • Infrastructure planning and operation integrates sectors
  • Windfall profit taxation as the exception
  • Capacity remuneration mechanisms fit for flexibility
  • Required demand-side flexibility
  • Empowered and protected consumers

Review of Integrated Resource Planning and Load Forecasting Techniques in India

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Accurately forecasting electricity demand in India is imperative for governments, utilities and industries when it comes to investment and planning decisions. Over the years, forecasting has becoming even more challenging as planners must take into account changes in technology, load profiles, consumer energy end-use, and economic growth. The changes are the leading cause of uncertainty when it comes to future electricity demand.

In Review of Integrated Resource Planning and Load Forecasting Techniques in India, the authors provide an overview of India’s system of load research and integrated resource planning (IRP), describe related experiences in other developing countries, and deliver recommendations that could strengthen the process in India. The goal is to enable India’s power sector to reliably, efficiently and sustainably meet the country’s demand for electricity.

Comment on NEA’s latest draft policy “Electricity Spot Market Basic Rules”

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As part of the ongoing effort to establish a unified national electricity spot market, in December, China’s National Energy Administration (NEA) issued two draft policy documents, “Electricity Spot Market Basic Rules” and “Measures for the Supervision of the Electricity Spot Markets”. These policies propose standardized national spot market rules and market monitoring procedures.  This standardization has the potential to provide common ground upon which provinces implement their version of spot market rules. More broadly, the spot market effort has the potential to help support integration of renewable energy.

Sharing the ongoing development of electricity markets challenges and opportunities worldwide, authors Max Dupuy and Chi Gao provided comments to NEA on the two documents, suggesting four practical improvements:

  • Further specifying the detailed implementation of market monitoring and cost survey procedures to prevent market abuse.
  • Canceling price ceiling and floor in spot markets to allow better price signals to support system flexibility.
  • Cautioning against capacity payments, which could exacerbate overbuilding of coal-fired generation capacity.
  • Dissolving interprovincial barriers to renewable integration and encouraging the establishment of truly unified multi-province dispatch regions.

The paper is Chinese only.

Tapping the Mother Lode: Employing Price-Responsive Demand to Reduce the Investment Challenge

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The rapid and parallel growth in both variable electricity production from wind and solar, and in large inherently flexible loads (such as electric vehicles and heat pumps) presents an opportunity to ensure that each transition is both reliable and affordable. In a future that will be increasingly capital-intensive, demand flexibility can significantly reduce the amount of infrastructure that must be financed. But much remains to be done to access that potential, most of which is beyond the reach of traditional approaches to demand response.

The primary focus must shift from strategies that require flexible demand to mimic centrally dispatched generation, to strategies that empower consumers to save money by linking their consumption more dynamically to daily fluctuations in variable supply. At a retail level, this includes adopting a series of innovations that widen consumers’ access to the untapped potential for flexible loads to reduce costs and lower electricity bills. At the wholesale level, it means attacking institutional practices that discriminate against flexible demand reliant on energy market pricing, and that artificially depress energy prices by pre-emptively committing consumers to pay for uneconomic investments through forward capacity mechanisms. Overall, it means progressively assessing and integrating responsive demand into forward resource planning and procurement processes.

This paper is one of a series of eight produced by ESIG’s Aligning Retail Pricing with Grid Needs Task Force, led by RAP’s Carl Linvill. The task force examined ways that retail pricing may be used more widely and more efficiently to allow flexible demand to respond to grid needs.


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Discom Business Models Require Changes to Promote Distributed Energy Resources

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In this third part of our distributed energy resources (DER) in India series, we look at changes to the current distribution company (discom) business models. These models can overcome the financial disincentives DERs often face. Instead, discoms can embrace and promote DERs to improve system efficiency, increase consumer savings, and address climate change goals.

This short paper discusses the reasons the current discom model should change and how regulators should listen to concerns many discoms have when it comes to the changes associated with promoting DERs.

The paper also discusses the steps regulators can take when it comes to transforming the current discom business model, including:

  • Require discoms to evaluate non-wires alternatives to meet system needs where practical and cost effective
  • Require discoms to create distribution system platforms
  • Require discoms to modify tariff design to send unbundled granular price signals to facilitate DERs
  • Require discoms to develop DER programs
  • Develop a process to effectuate changes to the discom business model

Read Part 1: Empowering Retail Customers: Improve Efficiency, Lower Costs and Reduce Emissions

Read Part 2: Facilitating Distributed Energy Resources Requires Policy Actions 

Electricity market reform, beyond the gas crisis

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In the past, power market reform happened to increase efficiency, to reduce greenhouse gas emissions, or to improve reliability and security of supply. Today in Europe, the desire to further change the market stems from the ongoing energy crisis. As the European Union introduces a new round of electricity market reforms, RAP explores where new market regulation would usefully tackle the root causes of the ongoing energy crisis, meet consumer needs and help Europe move away from fossil fuels.

The current energy crisis is a gas crisis. It is a nightmarish scenario stemming from the Russian invasion of Ukraine and the resulting supply disruption of cheap pipeline gas, converging with decommissioning of nuclear capacity and low hydro output. Hedging strategies by energy suppliers and consumers fell short and unprecedented wholesale market prices for fossil gas made consumer gas and electricity bills explode.

Strategies must therefore improve hedging in the market if Europe is to mitigate the energy crisis – and prepare for the next. To this end, RAP recommends replacing the role of fossil gas with renewables, demand-side flexibility and energy efficiency. More precisely, this requires:

  • Recognising and promoting demand-side resources as a vital system resource.
  • Building out more solar and wind, and doing so better and faster.
  • Protecting basic consumer needs better than in the past.

For policymakers weighing whether to implement these actions, the authors explain the various considerations.

Power Outage Rapid Response Toolkit

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Interruptions in electricity supply – ‘the lights going out’ – make for arresting headlines and capture public attention. Yet it is strikingly rare for any kind of electricity generation shortfall to trigger blackouts: major reliability events are nearly always the result of grid failure incidents such as wires frying or being damaged by trees.

Furthermore, none of the recent events that have occurred in markets with high shares of renewables have been caused by over-reliance on renewables to provide sufficient electricity supplies. In spite of this, the fossil energy industry has a track record of seizing on any opportunity to promote the narrative that more fossil generation is needed and that the growing shift to renewables is undermining and driving up the cost of secure supplies.

To dispel many of the myths surrounding the causes of recent significant power outages, the toolkit looks at four case studies: Texas 2021, California 2020, Great Britain 2019 and South Australia 2016.

These case studies prove it is important that advocates for a clean energy transition can set the record straight quickly, credibly and substantively. This package equips advocates with information and tools to respond quickly to the misinformation that spreads rapidly in the wake of power grid reliability events, and in particular:

  • introduces the advocate to reliability events, and their causes and consequences; 
  • provides a checklist for advocates to understand and analyse emerging reliability events (a separate, interactive checklist can be downloaded here: Power Grid Rapid Response Checklist);
  • provides holding lines for advocates during the information vacuum that normally proceeds a reliability event;
  • explains why large-scale reliability events are almost always caused by network failures and not renewable electricity generation.


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