MarketStructuresRMI’sGlobalEnergyTransformationGuide:ElectricityNovember2022GLOBALGUIDErmi.org/2MarketStructuresGLOBALGUIDEAboutRMIRMIisanindependentnonprofitfoundedin1982thattransformsglobalenergysystemsthroughmarket-drivensolutionstoalignwitha1.5°Cfutureandsecureaclean,prosperous,zero-carbonfutureforall.Weworkintheworld’smostcriticalgeographiesandengagebusinesses,policymakers,communities,andNGOstoidentifyandscaleenergysysteminterventionsthatwillcutgreenhousegasemissionsatleast50percentby2030.RMIhasofficesinBasaltandBoulder,Colorado;NewYorkCity;Oakland,California;Washington,D.C.;andBeijing.rmi.org/3MarketStructuresGLOBALGUIDEAuthorsCaraGoldenbergIanWelch-PhillipsAuthorslistedalphabetically.ContactsIanWelch-Phillips,iphillips@rmi.orgCaraGoldenberg,cgoldenberg@rmi.orgCopyrightsandCitationIanWelch-PhillipsandCaraGoldenberg,MarketStructures—RMI’sGlobalEnergyTransformationGuide:Electricity,RMI,2022,https://rmi.org/global-energy-transformation-guide-market-structures.RMIvaluescollaborationandaimstoacceleratetheenergytransitionthroughsharingknowledgeandinsights.Wethereforeallowinterestedpartiestoreference,share,andciteourworkthroughtheCreativeCommonsCCBY-SA4.0license.https://creativecommons.org/licenses/by-sa/4.0/.AllimagesusedarefromiStock.comunlessotherwisenoted.rmi.org/4MarketStructuresGLOBALGUIDETheauthorswouldliketothankthefollowingindividualsfortheirhelpfulinsightsand/orfeedbackonthisreport.Allerrorsremainourown.RMIBevBendixKaitlynBunkerCollinsDadzieGrantGlazerLeiaGuccioneGenevieveLillisJagabantaNingthoujamKatieSiegnerCharlesTeplinPaulaValenciaQinZhouAcknowledgmentsExternalMarkAhlstrom,NextEra/EnergySystemsIntegrationGroupEmmanuelBoujieka,PowerAfricaWestAfricaEnergyProgramIsidroCachoJr.,IndependentElectricityMarketOperatorofthePhilippinesPabloCampillos,EnergyWebTonyChappel,formerlyAustralianEnergyMarketOperatorJosellCo,IndependentElectricityMarketOperatorofthePhilippinesAnnaCollyer,AustralianEnergyMarketCommissionRuchikaDeora,CenterforNewEnergyTechnologiesWalterGraf,PJMJoanneGreenan,NationalGridElectricitySystemOperator(ESO)Jo-JoHubbard,ElectronTravisKavulla,NRGDominicKelly,AustralianEnergyMarketOperatorDebraLew,EnergySystemsIntegrationGroupKarlaRica,IndependentElectricityMarketOperatorofthePhilippinesKarenAnneSiruma,IndependentElectricityMarketOperatorofthePhilippinesArjonValencia,IndependentElectricityMarketOperatorofthePhilippinesrmi.org/5MarketStructuresGLOBALGUIDETableofContentsAboutThisReport................7ExecutiveSummary...............9Introduction...................11GlobalTrendsEmerginginElectricityMarkets......................14WholesaleMarketLiberalization............14RetailMarketFormationandLiberalization.....16IntegratingRegionalMarkets..............18EvolvingCapacityMechanisms.............20WholesaleMarketAccessforDERs...........22PricingAccuracyinWholesaleMarkets........25AncillaryMarketCreation................28LocalEnergyMarkets...................30KeyChallengesandOpportunitiesFacingMarketReform..................33rmi.org/6MarketStructuresGLOBALGUIDEHowMarketStructuresCanSupportPriorityOutcomes.....................36EnsureaFairandInclusiveEnergyTransition....37CreateaSystemPoisedforSustainableGrowth...41IncreaseEfficientUtilizationofCleanAssets.....42InnovationinMarketStructuresacrossCountries.....................46DevelopingEconomies..................48EmergingMarkets.....................51AdvancedEconomies...................55Spotlights.....................58RegionalMarketsDrivingDecarbonizationandEnergyAccessintheSahel.............59GreatBritain’sForward-ThinkingAncillaryMarkets..59EnablingDERMarketAccessinAustralia........60EnhancedWholesaleMarketDesigninthePhilippines..60Conclusion....................61AppendixA:ElectricitySubmarkets....63AppendixB:MarketLiberalization.....65AppendixC:FunctionsandDesignofDifferentWholesaleMarketFeatures...67Endnotes.....................71rmi.org/7MarketStructuresGLOBALGUIDEAboutThisReportThisreportispartofRMI’sGlobalEnergyTransformationGuide:Electricityseries,whichisaresearchendeavoraimedatunderstandingwheretheleadingedgeofinnovationisforforward-thinkingelectricitysystemtransitionsacrosstheworld.TheintentoftheGlobalGuideistoassesswhatnewdevelopmentsareinmotiontosecureuniversalaccesstoreliable,affordable,andcleanelectricitybyidentifyingkeytrends,exploringemergingchallengesandopportunities,andsharingsuccessstoriesfromelectricitysystemleaders.Theseriesfocusesoneight“catalystsforchange”thatourresearchhasshowntohavethegreatestpotentialtosupportelectricitysystemtransformation.Thesecatalystsarehigh-impactleversavailabletoindustryleadersacrosscountriestotransformthepowersector.RMIplanstopublishseparatereportsforalleightcatalyststoprovidemoredetailsonwheretheinnovationedgeisandwhereleadershipisneededmost.rmi.org/8MarketStructuresGLOBALGUIDEThisreportisfocusedonMarketStructures.Othercatalystsinthisseriesinclude:•FossilFuelTransitionStrategies•SystemPlanningandProcurement•Carbon-FreeTechnology•CustomerSolutions•UtilityIncentiveStructures•PublicPolicies•AccessibleFinanceAdditionally,foranintroductiontothiseffort,explanationoftheguidingframeworkusedtoframeourdiscussionofdifferentcatalysts,andfurthercontextonwherecountriesareintheirenergytransition,wehavepublishedacomplementaryreporttitledPointsofProgress—AnIntroductiontoRMI’sGlobalEnergyTransformationGuide:Electricity.rmi.org/9MarketStructuresGLOBALGUIDEExecutiveSummaryElectricitymarketsareacriticalpieceoftheelectricitysystem,providingtheavenuesforelectricitygenerationtoreachconsumers.Formodernelectricitymarketstobesuccessfulinthefaceofelectricityaccessgoals,decarbonizationpressures,andincreasinglyseverereliabilityandresiliencechallenges,theywillberequiredtonotonlyprovidereliableelectricityattheleastcost,butalsobeflexibletoadapttoandaccommodatenewtechnologiesandparticipants.Giventhedifferentstagesofmarketmaturityacrosstheglobeandthewiderangeofpowersectorprioritiesthatmarketsarebeingdesignedtoadvance,itcanbedifficultforpolicymakers,regulators,andgridoperatorstoknowwhatinnovativenewmechanismsorreformsaremostappropriatefortheirjurisdictions.Thisisespeciallydifficultgiventhenumberofdifferentfeaturesofelectricitymarketsthatvaryacrossregions,includinghowthewholesalepriceofelectricityiscalculated,howsufficientsupplyissecuredtomeetdemand,howgridservicesaredefinedandcompensated,andhowmarketparticipantsarepreventedfromexercisingunfairpower.Manyofthesedesigndecisionsdependonmarketsize,location,thepolicyandgovernanceframeworksmarketsareoperatingwithin,generationportfolios,consumermix,andgridoperators’resourcesandcapacity.However,tohelpinformmarketinnovationinthepursuitofsustainabledevelopmentanddecarbonizationgoals,thereareseveraleffortsacrosstheglobethatcanprovidehelpfullessonsandbestpractices.Theseincludeinitiativesfocusedon:rmi.org/10MarketStructuresGLOBALGUIDE•Introducingcompetitioninwholesaleandretailmarketswhereitisbeneficialforconsumerstodoso•Adjustingmarketsizetoincreaseenergyaccess,improveelectricitysystemefficiency,andlowerprices•Properlyaccountingfordistributedenergyresources’(DERs’)valuetothegridandensuringthatDERownersandmanagersarecompensatedfortheirfullvalue•Improvingtheaccuracyofwholesaleelectricitypricing,particularlyforefficientlyutilizingexistingresources,providingaccurateinvestmentsignalsfornewassets,andimprovingoverallgridflexibilitytohelpintegratehigherlevelsofrenewables•Maintainingcost-effectivesystemreliabilityandresiliencethroughreformingcapacitymarkets,andcreatingnewancillaryservicemarketsandensuringthatalleligibletechnologiescanparticipateRegulatorsandgridoperatorshaveahistoricopportunitytotransformtheelectricitymarketstheyoversee,buttheydonotneedtocharttheirownpathsinsilos.Sharingexperiencesfromcountriesacrosstheworld,fromwholesalemarketreformsinthePhilippinestomarketopportunitiesforvirtualpowerplantsinAustralia,canhelpensureinnovationsarescaledacrosstheglobalpowersector.rmi.org/11MarketStructuresGLOBALGUIDEIntroductionAttheheartoftheelectricitysystemliemarkets,wherepowerispurchased,sold,andtraded.Nearlyeverykilowatthourofelectricitydeliveredtocustomersthroughouttheworldistrackedandpaidforthroughsomeformofmarket.Thefoundationalgoalsofelectricitymarkets,bothatthewholesaleandretaillevel,aretoprovideelectricityreliablyandatleastcosttocustomers.Mostmodernmarketsarealsodesignedwithathirdgoalinmind—flexibility—whichallowsmarketstoadapttonewtechnologies,marketparticipants,andpolicies.Historically,verticallyintegratedutilitieshavemanagedmostelectricitytransactionswithmonopolyownershipovergeneration,transmission,distribution,andretail.Regulatorsoversawthesemonopoliesaccordingtodiverse,jurisdiction-specificframeworks.However,overthepast35years,policymakersinmanycountrieshaveintroducedcompetitivemarketstopartsoftheelectricitysystemwiththeintentofreducingcostandimprovingreliability.Generally,competitivemarketshaveeffectivelyloweredcosts,butduetotheuniquenatureoftheelectricitysystem,manygeographiesstillgrapplewiththebenefitsandrisksofcompetitivemarkets—andwhethercompetitionisbestforconsumersgivenlocalcontextsandpriorities.InExhibit1(onthenextpage),wemapthestatusofcompetitiveelectricitymarketsgloballyin2022.1Formoredetail,AppendixAandAppendixBexplainthesetypesofmarketsandtermsindetail.rmi.org/12MarketStructuresGLOBALGUIDEExhibit1StatusofMarketsAcrosstheWorldVerticallyIntegratedMonopolyVerticallyIntegrated+IndependentPowerProducers(IPPs)UnbundledTransmission+IPPs/State-OwnedEnterprisesWholesaleMarket–RegulatedRetailWholesaleMarket–RetailCompetitionInTransitionNoDataCanadaandUnitedStatesSeeinsetSeeinsetSeeinsetRussiaAustraliaNote:Insomecountries,suchasIndiaandChina,thereisaspectrumofcompetitioninmarketsacrossdifferentregionsorprovinces.Thismapiswithoutprejudicetothestatusoforsovereigntyoveranyterritory,tothedeterminationofinternationalfrontiersandboundaries,andtothenameofanyterritory,city,orarea.Detailinsetsnotpresentedatsamescale.Source:InternationalEnergyAgency(IEA),SteeringElectricityMarketsTowardsaRapidDecarbonisation.Allrightsreserved.rmi.org/13MarketStructuresGLOBALGUIDEAlthoughthegoalofreliablepowerhasbeenconsistentovertheyears,whatthatrequires,andwhichresourcescanbereliedupon,hasbeenevolving.Moresevereweatherevents,higherlevelsofrenewableanddecentralizedresources,andinadequateinfrastructurehavechallengedgridoperators’andplanners’moretraditionalapproachestoensuringgridreliability.Inparallel,newopportunitieshavebeenemergingtoutilizedemandflexibility,storage,andothertechnologiestooptimizesystemoperationsandsecureamorereliableandresilientgrid.Toenableflexibilityinmarketswhilealsomaintainingalevelofconsistencyandpredictability,gridoperatorsandregulatorsareexploringhowtoupdatemechanismsandapproachestoaccommodatechangingpolicyframeworks,newmarketparticipants,anddiversifyinggridassets.Theoutcomesoftheseendeavorshavebeenjustasimportantastheprocessesthemselves,whichhavefocusedoncreatingspaceforcreativityandcollaborationamongawiderangeofstakeholders.Giventhesethreeoverarchinggoalsformodernelectricitymarkets,thisreportexploreswhereelectricitymarketdesigncanbeinnovatedandimprovedupontoacceleratedecarbonizationandsupportsustainabledevelopmentbyidentifyingkeytrends,exploringemergingchallengesandopportunities,andsharingsuccessstoriesfromelectricitysysteminnovationacrosstheglobe.rmi.org/14MarketStructuresGLOBALGUIDEGlobalTrendsEmerginginElectricityMarketsElectricitymarketsareinastateoftransitionacrosstheglobe.Whethertosupportdecarbonization,increasereliability,expandaccess,orlowercustomercosts,marketdesigncanplayasignificantroleinhelpingtoadvancepowersectorpriorities.Thefollowingtrendsareemergingacrossregionstoadvancetheseobjectivesandaredrivingchangethroughouttheelectricitysystem.WholesaleMarketLiberalizationAlthoughcompetitivewholesalemarketshavebeenwellestablishedinmanyjurisdictionsfordecades,therearecountriesaroundtheglobethatarecurrentlyundergoingprocessestoliberalizetheirwholesaleelectricitymarkets.Mostoftheseeffortshavebeeninitiatedtoensurereliableandleast-costelectricitywhileaccommodatingagrowinglevelofrenewableenergyonthesystemandanincreasingnumberofmarketparticipants.Forexample,inChina,regulatorshaverecentlyallowednon-state-ownedelectricitycompaniestoparticipateinthewholesalemarket.Thecentralgovernmentplanstobuildaunifiedelectricitymarketsystemby2030consistingofthreeinteractivelayers—provincial,regional,andnationalmarkets.Thenationalmarketwillbeprimarilyusedfortrans-provincialtradingandconnectingandtradingwithregionalmarkets,promotingnationwidemarketintegration,rmi.org/15MarketStructuresGLOBALGUIDEimprovedoptimizationofresources,andincreasedrenewableenergyconsumption.2Thenationalandregionalmarketswillmostlyconsistofmonthlyorlongerbilateralcontracts,whereasthereismoreofafocusonspotmarketsattheprovinciallevel.iThereare10provincescurrentlypilotingspotmarkets,whileothersareintheprocessofcreatingspotmarketdesignandimplementationplans.Inadditiontotheseprovincialpilots,thereisalsoanorthwesterninterprovincialspotmarketcalledtheOtherwiseCurtailedRenewableSpotMarket(OCRE-iSpot),whichallowsrenewablegeneratorstoofferenergythatwillbecurtailedduringtimesofstructuralcurtailmentforotherprovincestopurchase.3Importantly,marketoperatorsinsomeprovincesarealsoprovidingfairaccesstonewmarketparticipants.Forexample,largecustomerswhowerepreviouslylockedintofixed-pricefossilfuelcontractscannowsourcepowerandnegotiatepricesthemselves.Thishasledtoanincreaseincorporateandindustrialrenewablepowerpurchaseagreements(PPAs).Indiaisalsoforgingaheadwithmarketreforms,aimingtoembedeconomicmarket-baseddispatchintothewholesalemarkettobetterdistributerenewablebenefitsthroughoutthecountry,developancillaryservices,andreducetheproportionoflong-termfossilfuelPPAs.ThegovernmentlaunchedthefirstphaseofMarket-BasedEconomicDispatch(MBED)inApril2022,whichwilluseleast-costdispatchnationallyforlimitedassetsownedbythecountry’slargestutility,ratherthanrelyingonstate-by-stateself-scheduleddispatch.MBEDisexpectedtoincreasecompetitionandlowerconsumerelectricitycostsby5%.4IndiaalsohaslauncheditsReal-TimeElectricityMarket,whichincludesthetradingof15-minutecontracts,withschedulinguptoonehourbeforedeliverythroughhalf-hourlyauctions,bringingtradingclosertorealtime.ThisenablesgreaterrenewablespenetrationthroughiSpotmarketsfacilitatetradeofelectricityforimmediatephysicaldelivery.rmi.org/16MarketStructuresGLOBALGUIDEmoreefficientmanagementofresourcevariability.Themarketreformhassignificantlyincreasedrenewableparticipationinthewholesalemarket,with28%morevolumetradedinJune2022comparedwithJune2021.5Insmallercountries,particularlysmallislandstates,wholesalemarketliberalizationcanbeconstrainedduetocostsassociatedwithsettingupthegovernancestructuresandrequiredoperationalcapabilities,andlackofeconomiesofscaleduetotheirsmallmarketsizeandlimitednumberofindustryactors.However,thereareseveraleffortsunderwaytomovetowardasingularbuyerofwholesaleelectricity,whichwouldtypicallybethestateutility,withgenerationpurchasedfromutility-ownedgeneratorsaswellasindependentpowerproducers(IPPs).Thishelpsfacilitatethedevelopmentofrenewablesincaseswherethestateutilitydoesnothavethefinancialcapacitytotakeontheseprojects.Forthistobesuccessful,anindependentregulatorneedstohavethecapacitytoensurepricingregularityandpreventutilityabuseofmarketpower.RetailMarketFormationandLiberalizationInmanyregions,thereareeffortstomovefromthestatusquoofasingle,monopolyretailsuppliertomultipleretailers.Therearedifferentstagesofretailmarketmaturity,frommultiplesupplierssimplyprovidingelectricityatcompetingratestothecreationofmultipleproductsprovidedbyeachretaileraccountingforotherfactorssuchaspricegranularity,generationsource,andprogramssupportingDERsanddemand-sidemanagement.Insmallercountries,particularlysmallislandstates,wholesalemarketliberalizationcanbeconstrainedduetocostsassociatedwithsettingupthegovernancestructuresandrequiredoperationalcapabilities,andlackofeconomiesofscaleduetotheirsmallmarketsizeandlimitednumberofindustryactors.rmi.org/17MarketStructuresGLOBALGUIDERetailmarketshavethepotentialtofacilitatedecarbonizationthroughexpandingcustomers’choicesregardingtheirelectricitysupply,wherecostistheprimaryconsideration,butsatisfyingcustomers’preferencesalsoplaysanimportantrole.Asthenumberofcustomerslookingtosupportrenewableenergyhasincreased,sohastheprevalenceofgreentariffsandsimilarproductsofferedbyretailsuppliers.Exhibit1(seepage12)showswhereretailmarketcompetitionisprevalentacrosstheglobe.SupportingCustomerChoiceinNovaScotiaDespiteNovaScotiaPowerbeingaregulatedutilitythatsuppliesanddeliverselectricitytomostoftheregion,customerscanchoosetohaveanotherelectricityretailer.TheseretailersareallowedtosellrenewableelectricityontheconditionthatithasbeengeneratedwithinNovaScotia.Acustomer’sbillhasachargeforelectricitysuppliedbytheretailer,alongwithabasechargefromNovaScotiaPowertocoverdistributioncosts.IntroducingcompetitioninNovaScotia’sretailmarketshasexpandedthesetofcustomeroptionsforelectricityservice,especiallyforrenewablesupply.6Essentialtothesuccessofcompetitiveretailmarketsaretransparentandfirmmarketruleswithadequateincentivesandpenalties,alongwithcustomerprotectionsandsufficientcompetitiontoavoidunfairpricingorunintendedimpactsoncustomers.Beyondretailchoice,retailratedesignandcustomerprogramsalsoplayanimportantroleinshapinghowtheretailmarketcanhelpdrivedecarbonizationandotherpowersectorpriorities.Thesesolutionswillbecoveredinthiseffort’sCustomerSolutionscatalystreport.rmi.org/18MarketStructuresGLOBALGUIDEIntegratingRegionalMarketsThereisagrowingnumberofeffortsaroundtheworldfocusedonintegratingmarketstoincreasecapacity,reliability,andflexibility,andtointerconnecthigherlevelsofrenewables.Largerregionalmarketsbetteroptimizesupplyanddemandoverwidergeographies,whichcanresultinreducedelectricitypricesandimprovedutilizationofrenewableenergy.Furtherbenefitsincludeenhancedsecurityofsupplyataregionallevelandreducedrequirementsforlocalpeakcapacity.Tosuccessfullyintegratemarkets,adequatephysicalinfrastructurewiththecapabilitytomanagepowerflowsoverlongerdistances,suchastransmissionandinterconnectors,aswellasrobustgovernanceframeworkstoensurefaircompetition,compliance,andaccurateaccountingareneeded.ThedevelopmentofRenewableEnergyZones(REZs)canfurtherencouragegriddecarbonizationinregionalmarkets.REZsarecarefullylocatedafterresourceassessmentsandreflectareasrichinrenewablepotential,appropriatetopographyandland-usedesignations,anddemonstratedinterestfromdevelopers.REZscanbeintegratedintotransmissionplanningprocessestohelpensuretransmissionisbuiltstrategicallytocost-effectivelyincreaserenewablepenetrationacrossgeographies.7rmi.org/19MarketStructuresGLOBALGUIDERegionalGridsinEurope,SoutheastAsia,andtheMiddleEastTheEuropeanpowergridisoneofthelargestinterconnectedgridsintheworld.Ithasbeencontinuouslyexpandedsinceitsadventinthe1900swithsignificantinvestmentincross-borderinfrastructure.Theregionalgridhashelpedtoreducepricevolatilityandincreaserenewabledeployment.In2021,theEuropeanCommissionproposeda40%renewabletargetby2030;however,toacceleratetheshiftawayfromRussianfossilfuels,thecommissioniscurrentlyconsideringincreasingitto45%.8Furthermore,inthepastfewdecades,policymakers,developers,andtransmissioncompanieshavebeenindiscussionsaroundexpandingEurope’stransmissionandmarketacrosstheMediterraneantoNorthAfricatoleveragetheregion’srenewableresources,butconcernsovercostandunjustresourceextractionhavepreventedprogress.9InSoutheastAsia,theAssociationofSoutheastAsianNations(ASEAN)PowerGridisaninitiativethataimstointegrateall10membercountries’respectivepowersystems.iiThiscross-borderintegrationisintendedtohelpmembercountriesmeettheirtargetofgeneratingatleast23%oftheirelectricityfromrenewablesourcesby2025.10Additionally,intheMiddleEast,therealsoareplansunderwaytocreateaPan-ArabElectricityMarket,whichisexpectedtobethesecond-largestregionalelectricitymarketintheworld.Theprimarylegalandlegislativeframeworkshavealreadybeenestablished,andthecreationofanArabgridcodeisinprogress.11,iiiHowever,furtherconstructionofnecessarytransmissioninfrastructurewillberequiredbeforeimplementation.Thecurrenttransitionperiodisexpectedtobecompletedin2024,afterwhichwholesalecompetitionwillbeintroduced,withafullyinterconnectedandsynchronizedPan-Arabelectricitynetworkinplaceby2038.12iiASEANincludes10membercountries:Brunei,Cambodia,Indonesia,Laos,Malaysia,Myanmar,Philippines,Singapore,Thailand,andVietnam.iiiAgridcodeconsistsofminimumtechnicalrequirementsforoperationandplanningnationaltransmissionnetworksandinternationalinterconnections.rmi.org/20MarketStructuresGLOBALGUIDEEvolvingCapacityMechanismsHavingsufficientcapacityinamarketisrequiredtoensurepowerisavailabletomaintainreliabilityduringtimesofhighloadandpreventblackouts.Oneapproachtoensuringcapacityavailabilityistodevelopastrategicreserve,whereseveralpowerplantsdonotgenerateorparticipateinthewholesalemarketbutareavailableintimesofscarcity.Anotherapproachisdirectcapacitypayments,wheregeneratorsactivelyparticipatinginthewholesalemarketreceiveanadditionalavailabilitypaymentforprovidingelectricityintimesofscarcity.Bothapproachescanbedesignedinseveralways,withtherequiredvolumeofcapacitydefinedbysystemneeds.13Systemoperatorscandeterminethepriceandassetsforneededcapacity,orcapacitycanbeprocuredthroughcompetitiveauctions.Onlargergrids,acapacitymarketissometimesused.Capacitymarketsestablishpaymentsforcapacitytobeonstandby,unlikeenergy-onlymarketsthatonlycompensatepowerthathasbeenproduced.Historically,capacitymarketswerestructuredtoallowparticipationonlyoflargefossilfuelgenerators,withapurelysupply-sideviewofcapacity.Capacitypaymentsinmanygridshavebeenacrucialsourceofremunerationforlargefossilfuelgenerationandhaveeffectivelyextendedtheirlifetimes.Currently,thereisapushforcapacitytobeviewedasbothadditionalsupplyandreduceddemand.Capacitymarketrulesalsoareevolvingtoallowandincentivizeparticipationfromrenewablesandbatteries.Forexample,gridoperatorsareimplementingcapacitypaymentswithde-ratingtoaccountforrenewables’variability,requirementsaroundflexibility,andminimumrenewablecapacityrequirements.Exhibit2(onthenextpage)providesanoverviewofcapacitymechanismsthroughouttheglobeandhowrenewablesparticipateinasubsetofthem.14rmi.org/21MarketStructuresGLOBALGUIDEExhibit2CapacityMechanismTypesandRenewableEnergyInclusionCapacityMarketsDirectPaymentsStrategicReserveSpainprovidesdirectcapacitypaymentsandholdsrenewableenergycapacityauctions.Theamountofrenewablestobeselectedisdefinedcentrally.InSouthwestAustralia,renewablescompetefor1-yearcapacitycontractsonequaltermswithothertechnologies,withspecificproceduresdeterminingavailablecapacity.TheGuatemalancapacitymarkethasauctionswithaminimumquotaofrenewables,wherethewinnersreceive15-yearcontracts.Thispromotesnewrenewableenergyinvestments.InCalifornia,theFlexibleResourceAdequacyCriteriaandMustOerObligation(FRACMOO)wasdevelopedtoaccountforflexibilityincapacitymarkets.Insteadofthehistoricallytypicalapproachofmarketsbasedontotalassetcapacity,thismarketisbasedontheflexiblecapacitythataresourceiscapableofproviding.Italsoallowstheentryofdemandresources,unlikemostexistingcapacitymarketscurrentlyinplacearoundtheworld.InRussia,thecapacitymarketisdesignedtoactasasupportmechanismforrenewableenergy.RenewableEnergyAllowedNote:WithintheUnitedStatesandAustralia,someregionsdonothavecapacitymarkets.Source:Elsevier,CombiningCapacityMechanismsandRenewableEnergySupport:AReviewoftheInternationalExperiencermi.org/22MarketStructuresGLOBALGUIDEWholesaleMarketAccessforDERsRegulatorsandutilitiesplanningforcarbon-freeelectricitysystemsareincreasinglyneedingtoaccountforsignificantlevelsofDERsondistributionnetworks,ivincludingbatterystorage,small-scalerenewables,dynamicloadfromelectrification(e.g.,electricvehicles),anddemandflexibilitymorebroadly.Beyondprovidingvaluetoassetowners,DERscanprovideawiderangeofservicestothebroaderelectricitysystem.Tooptimizethesebenefits,regulatorsandgridoperatorsneedtodesignwholesalemarketmechanismsthatproperlyvaluetheseservicesandfairlycompensateassetownersormanagersforDERs’contributionstogridoperations.Exhibit3highlightsasetofservicesDERscanprovidetobothcustomersandthewidersystem.ivDERsaresmall,decentralizedassetsorresourcesthatarelocatedonthedistributionelectricitysystem.Theycanincludedistributedgeneration,behind-the-meterstorage,anddemandflexibility.CostandFlexibilityReliabilityExhibit3CustomerandSystemServicesfromDERsDistributedEnergyResourcesCustomerServicesSystem(GridandUtility)ServicesIncreasedDGSelf-ConsumptionTime-of-UseBillManagementDemandChargeReductionPowerQualityBackupPowerTransmissionCongestionReliefTransmissionDeferralDistributionDeferralAncillaryServicesResourceAdequacySource:AdaptedfromRMI,EconomicsofBatteryEnergyStoragermi.org/23MarketStructuresGLOBALGUIDEAlthoughthereisalreadyalevelofpassiveDERparticipationthroughthereductionorvariationofsystemdemand,newmarketmechanismscansupportmorepredictableandsophisticatedDERservices.ForDERstoparticipateinwholesalemarkets,regulators,utilities,andgridoperatorsneedtodeveloptransparentstandardsforinterconnection,clearassetcommunicationprocedures,andfairregulationsaroundaccessandoperation(e.g.,minimumsizerequirements).Giventherapidlychanginglandscapeoftheelectricitysystemandtheinnovationofcarbon-freetechnologies,marketrulechangesneedtobetimelyandforward-looking.OneoftheprimarywaysDERscanaccesswholesalemarketsisthroughtheadventofvirtualpowerplants(VPPs)oraggregators,whichcombineanumberofDERstoprovideenergyorancillarygridservices.VPPsprovideameanstoscaleDERcapabilitiesthatareotherwiseinaccessibletosingularDERsystems,makingiteasierforthemtoprovidecoordinatedservicesatthevolumerequiredbythesystem.TheglobalVPPmarketsizeisexpectedtorapidlygrowinthedecadefromlessthanUS$1billionin2021toUS$6.47billionby2028.15FERC2222—RegulationPromotingDERWholesaleMarketAccessIntheUnitedStates,theFederalEnergyRegulatoryCommission(FERC)issuedOrder2222in2020,whichrequiredcompetitivegridoperatorstocreateplansthatallowDERparticipationinwholesaleenergyandgridservicemarkets.16Order2222allowsaggregatorstobundleDERstosatisfyminimumsizeandperformancerequirements.Undertherules,tariffsmustberevisedbyregionalgridoperatorstoestablishDERsasamarketparticipant,whichallowsaggregatorstoregisterthemunderoneormoreparticipationmodels.Whilesomestateregulatorsandutilitieshavelegallychallengedthenewregulations,thesechallengeshavebeenunsuccessfultodate.Althoughthecountry’slargestgridoperator,PJM,hassubmittedacomplianceplan,otherregionaltransmissionoperatorsareproposingtodelaycomplianceuntil2030.rmi.org/24MarketStructuresGLOBALGUIDETechnologyProvidingAssetTransparencyEnergyWebhascreatedanopen-sourcetechnologyforconnectingcustomers,assets,andexistingenergy-sectorinformationandoperationaltechnologysystemswithenergymarkets.17Theplatformassignsdigitalidentitiestoallconnectedassetsandflexibilityformarketparticipants,allowingthemtoself-registerinenergymarketsandoffermultipleservicestoboththedistributioncompanyandthetransmissionsystem.18MoredetailonanEnergyWebprojectunderwayinAustralia,ProjectEDGE,canbefoundinthisreport’saccompanyingspotlights.Insomeregions,DERsarelocatedoncustomerpremiseswiththeircapacitiesunknowntothesystemoperator.SomepotentialsolutionsincluderequiringDERregistrationsystems,customerdisclosures,andassetinspectionswhilenotmakingtheprocesstooburdensomeforcustomers.AclearunderstandingofavailableDERcapacitycanhelpsystemoperatorsbetterplangenerationcapacity,particularlywhenphasingoutfossilfuelgeneration.Toprovidegreatertransparency,softwaresolutionsthatmanageaggregatedDERscanprovideaninterfacewiththesystemoperatortoallowbettervisibilityofavailableDERcapacityandotherservices.rmi.org/25MarketStructuresGLOBALGUIDEPricingAccuracyinWholesaleMarketsWholesalemarketsfunctiononthepremiseofcontinuouslybalancingsupplyanddemand.Theuniquenatureofelectricityisthatithasspatialandtemporalqualitiesthatneedtobemanagedatparticularlocationsonthegridinveryshorttimeframes(seconds,minutes);however,pricingcanonlybelimitedtowidergeographiesorextendedtimeperiods(hours,days).Thiscreatesamismatch,whichresultsininefficiencyandsuboptimalpricesignalsanddispatchdecisions.Increasedpricingaccuracycanhaveasignificantimpactonaddressingtheseissueswhileincentivizinginvestmentinassetsintherightplacesonthegridfortherightpurposes.Duetorenewables’variability,forecastingelectricitysupplyhasbecomemoredifficult,withunpredictablechangesatshortnoticeduetoweather.Thisincreasestheimportanceofshorter-termmarketstomakepricingmoreflexibleandalignedwithgridneeds,whichwillhelpinformrenewablegenerators’bids.Whilemoreaccuratepricinginthewholesalemarketcanresultinmorevolatility,thisshouldleadtoincreasedinvestmentinflexibletechnologiesthatcantakeadvantageofpricingvariations,suchasbatteriesanddemandresponse.Whilemoreaccuratepricinginthewholesalemarketcanresultinmorevolatility,thisshouldleadtoincreasedinvestmentinflexibletechnologiesthatcantakeadvantageofpricingvariations,suchasbatteriesanddemandresponse.rmi.org/26MarketStructuresGLOBALGUIDEShorterTemporalMarketsinAustraliaTheAustralianEnergyMarketCommissionrecentlyimplementedaruleknownasFiveMinuteSettlementtoreducethetimeintervalforfinancialsettlementinthenationalelectricityspotmarketfrom30minutesto5minutes.19Theprocessfordispatchschedulinghasbeen5minutessince1998,butthefinancialsettlementprocess,bywhichenergyismeteredandpriced,wassetto30-minuteintervals.Thiscreatedamismatchbetweenphysicalsupplyandfinancialsettlement,whichresultedinsuboptimalpricingofelectricity.Exhibit4highlightstheadditionalvalueavailabletoflexibletechnologiesusingpricingthatbetterrepresentssystemcosts.Thisnewruleshouldresultinmoreefficientbiddingandoperationaldecisionsandinvestment,whichshouldleadtolowerwholesalecostsandelectricityprices.Exhibit4FlexibilityValuewithGranularPricingCASE1PeriodPrice(AU$)12:00–12:30$292CASE2PeriodPrice(AU$)12:00–12:05$4012:05–12:10$7012:10–12:15$6012:15–12:20$3512:20–12:25$5012:25–12:30$1,500InCase1(oldrules),financialsettlementisbasedontheaverageofthedispatchpricesforthe30-minuteperiod.InCase2(newrules),financialsettlementisbasedonthedispatchpriceforeachfive-minuteperiod.Ifaflexibleassetsuchasabatteryisdispatchedforfiveminutesfrom12:25–12:30,undertheoldrulestherenumerationwouldhavebeen$292perunitelectricitydispatched.Underthenewruleswithmoregranularsettlementperiods,thepaymentwouldbe$1,500perunitofelectricitydispatched.​Source:AdaptedfromWattClarity,5-minutesettlement—WhyitmakessuchadifferencetoutilityscalestorageinAustralia’sNationalElectricityMarketrmi.org/27MarketStructuresGLOBALGUIDEPricingoverdifferentgeographicalareasisevolvingaswell.Whilemanyregionsusezonalpricing,vnodalpricingisbeingusedthroughouttheUnitedStates.viNodalpricingprovidesabettersignaloflocalgridconditionsandmoreaccurateincentivesfordevelopment.Gridoperatorsandregulatorscanconductstudiestoinformwhichspatialformofpricingmightworkbestforaregiongivenmarketboundaries,systemresources,andexistingmarketdesigns.Interestingly,inGreatBritainthereisonezonalwholesalepriceacrossthecountry.Theelectricitysystemoperatorrecentlycommissionedareportthatshowsthatanodal,location-basedwholesalemarketisthebestoptiontosupportrenewableenergy.Undertheproposal,thenationalnetworkwillbesplitintosmallergeographiczones,eachwithitsownelectricityprice.Thenewapproachisexpectedtoreducethehighcostofgridconstraintsandcurtailedrenewablegeneration.20vZonalpricingoccurswhenauniformpriceisdeterminedoverageographicareaconsistingofseveralnodes.Zonesareoftendecidedbyprovincialorcountryborders.viNodalpricingoccurswhenpricespaidforelectricityaredeterminedatasingularphysicallocationonthegrid,forexampleasubstation.AlternativeElectricityBiddingZonesinEuropeInAugust2022,theEUAgencyfortheCooperationofEnergyRegulatorsreachedadecisiontoproposealternativebiddingzoneconfigurationsforfivememberstates—Germany,France,Italy,Netherlands,andSweden.Therewillbea12-monthperiodtoconductareviewandprovidearecommendationonkeepingoramendingthezones.21Biddingzonesarethelargestgeographicalareawithinwhichmarketparticipantscanexchangeenergywithoutcapacityallocation(whichinvolvesallocatingresourcesforaspecificservice).InEurope,biddingzonesareusuallydefinedbynationalborders,buttheaimistohavethemdefinedbystructuralnetworkcongestions.Improvedbiddingzoneconfigurationsareexpectedtoleadtomoreaccuratepricing,moreefficientnetworkinvestments,andmorecost-effectiveintegrationofnewtechnologies.rmi.org/28MarketStructuresGLOBALGUIDEAncillaryMarketCreationIngeographieswherewindandsolarcomprisealargefractionofgeneration,theirvariabilityrequiresincreasedancillaryservicestomaintainsystemstabilityandreliability.Theseserviceshelpgridoperatorsrespondtounexpectedoutages,preventdamagetoequipment,andensureasmoothsupplyofelectricityisdeliveredtocustomers.Themostrelevantservicesincludeinertiamanagement,viispecializedfrequencyproducts,viiivoltagemanagement,ixflexiblereserve,xandsystemrestoration.xiGridoperatorsinsomeadvancedeconomieshavecreatedmarketsfortheseservices,butthesearenotyetcommonplacethroughouttheworld.Ancillarymarketscancreatenewrevenueopportunitiesfortechnologies,suchasbatterystorageandrenewableresourceswithadequatecontrols.Exhibit5(onthenextpage)providesanoverviewofwhatcarbon-freeresourcescanprovideeachoftheseservices.22Marketsforinertiaareparticularlyrare,xiibutsystemoperatorsarestartingtodevelopmarketsinsomeregions.Thesetypicallyfallwithintwocategories:syntheticinertiaorrotatinginertiaasaservice.xiiiSyntheticinertiaisbeingprovidedbybatterystorage,wind,andphotovoltaic(PV)invertercapabilities.Inlieuofinertiamarkets,someviiSysteminertiaisthekineticenergyinlargerotatingturbinesorgeneratorsthatcausesthemtocontinuerotatingforafewminutesafteranoutage.Thiscreatesamoregradualdecreaseinpowersuppliedtothegrid,asopposedtoasharpcutoffiftherewereanoutageatageneratorthatdoesnotproduceinertialenergy.viiiFrequencyproductsensurethatthefrequencyoftheelectricitysystemismaintainedwithinatolerancebandprescribedbythesystemoperator.FrequencyistherateofoscillationsofACcurrentpersecond.ixVoltageistheelectromotiveforcethat“pushes”electricchargethroughtheelectricitysystem.xFlexiblereserveresourceshelpmitigatereal-timeenergyimbalancewithrampingandreservecapabilities.xiSystemrestorationservicesenableagridtorestartafterablackout.xiiSystemswithhighrenewablepenetrationexperiencereductionsinsysteminertiabecausemostinvertersonwindandsolarenergytechnologiesdonotnaturallycontributetoit.Systeminertiawashistoricallyabyproductofsynchronizedgeneratorssuchashydrounitsandlegacyfossilfuelgeneratorturbines.xiiiSyntheticinertiaisachievedbyreprogrammingpowerinvertersthatareattachedtobatteriesandrenewabletechnologiessothattheyemulatethebehaviorofrotatingturbinesinfossilfuelgenerators.rmi.org/29MarketStructuresGLOBALGUIDEcountriesaredevelopingmarketsforfasterfrequencyresponse,whichreducestheneedforsysteminertia.ThereareanumberofeffortsunderwaytoutilizesolarPVforancillaryservices,suchasvoltageandfrequencycontrol.Theadventofgrid-forminginverters,whichcansimulatethecreationofagridthroughprovidingaspecifiedvoltageandfrequency,hasbetterpositionedPVtoprovidethesecriticalservices.Two-StepFrequencyResponseProcurementinBelgiumInBelgium,thereisatwo-stepprocessfortheprocurementofcapacityforautomaticFirmFrequencyResponse.Thefirststepinvolvesprocurementforthewholedeliverydayin24-hourblocksandthesecondstepinvolvesprocuringsmallervolumesin4-hourblocks,whichprovidesopportunitiesforrenewables,demandresponse,andsmallergeneratorstoparticipate.Theunderlyingaimistoincreasecompetitionbetweenthetwoauctionstepsandavoidpricespikes.23Exhibit5OverviewofAncillaryServicesProvidedbyCarbon-FreeTechnologiesReadilysuitedtoperformserviceCannotperformserviceatthistimeCanperformserviceunderspecificconditionsorassetsetupsAncillaryService/TechnologyHydroSolarWindBatteryStorageDemandResponseInertiaFrequencyVoltageReserveSystemRestorationSource:AdaptedfromPJM,GridoftheFuture–PJMsRegionalPlanningPerspectivermi.org/30MarketStructuresGLOBALGUIDEExhibit6LocalEnergyMarketDynamicsEnergyProducersElectricityRetailerLocalEnergyMarketLocalEnergyMarketsBeyondwholesaleandretailmarkets,localenergymarkets(LEMs)areemergingacrosscountriestofacilitatetheprovisionofleast-costandreliablepoweronasmallgeographicscale.LEMscaneitherbeisolatedandoperatedindependentlyofthelargertransmissiongrid,orformamarketconnectedtothetransmissiongrid,wheresupplyanddemandisoptimizedonalocallevelthroughtheLEMbeforewidersystembalancingoccurs(seeExhibit6).Similartolargermarkets,theycompriseacombinationofgeneration(usuallyrenewabledistributedgeneration),storage,anddemand-sidesources.Source:RMIWhileLEMsaremostlyviewedasasolutionforreducingtheimpactofsystemconstraintsandincreasingefficiencyinmoreadvancedeconomies,theycanplayanimportantroleinemergingmarketsanddevelopingeconomiesinexpandingenergyaccessandimprovingrmi.org/31MarketStructuresGLOBALGUIDEenergysecurity.Otherbenefitsinclude:•IncreasedutilizationofDERs,suchassolar,storage,anddemandflexibility•Newinvestmentpotential,whichcanstimulatethelocaleconomyandnewworkforceopportunities•Improvedsocialwelfarethroughlowercostsandothercommunitybenefits,suchasresilienceExhibit7providesanoverviewoftheprimaryattributesofLEMsandhowthesemightvarydependingonthecontexttheyareoperatingwithin.24Exhibit8(onthenextpage)providesfourexamplesofdifferenttypesofLEMs,twofromemergingmarketsanddevelopingeconomiesandtwofromadvancedeconomies.Exhibit7AttributesofLocalEnergyMarketsDescriptionEmergingMarketsandDevelopingEconomiesAdvancedEconomiesOwnershipandParticipationTheownershipofLEMinfrastructureandmarketparticipants;canbeassetowners,marketmediators,orbeneficiariesUsuallycommunityowned,occasionallyownedbydistributionorretailcompanyManyownershipmodalities,butmostoftendistributionorretailcompanyownershipCommunityBenefitsBenefitstothelocalcommunityandthewiderelectricitymarketUsuallyenergysecurityandaccess,alsoasourceofeconomicdevelopmentUsuallygridefficiencyandcarbonemissionsreductionDeliveryandTradingMechanismThetype,volume,andpriceofpowerdelivered,accountingforhowtradingisexecutedLessactivetrading,smallervolumesthanLEMsinmoreadvancedeconomiesMoreactivetrading,oftenutilizespeer-to-peernetworksandtechnologyMarketSizeVolumeofelectricityexchangedwithinthemarketOftensizedtothecommunityorvillagetheLEMservesSizedtoconstraintoravailablemarketparticipantsSource:RMIrmi.org/32MarketStructuresGLOBALGUIDEExhibit8LocalEnergyMarketsacrosstheGlobeGreatBritain—ProjectTraDER,Orkney25LEMdevelopedtoallowlocaltradingandutilizationofotherwisecurtailedwindgeneration•Ownership:Localauthority(distributionoperator)•CommunityBenefits:Energysecurity,carbonreduction•DeliveryMechanism:Trading•Size:Medium;windfarmowners,commercialandresidentialconsumersSouthAfrica—EskomRooftopPhotovoltaicMinigridProject26Eskom(theutility)deployedsolarandbatteriesonresidentialrooftops;consumerscouldtradeelectricitybetweeneachotherorwiththeutility•Ownership:Localauthority,private•CommunityBenefits:Energysecurity,consumercost,carbonreduction•DeliveryMechanism:Trading•Size:Medium;residentialconsumersSpain—LosMolinosdelRioAguas27Off-gridLEMwithenergyexchangebetweencommunityandconsumer-ownedassets•Ownership:Community,private•CommunityBenefits:Sourceofinvestment,consumercost,carbonreduction,energysecurity•DeliveryMechanism:Trading•Size:Medium;primarilyresidentialcustomersTanzania—JUMEMERuralPowerSupply28Developmentof43solarhybridminigrids(onepervillage)•Ownership:Localauthority,investor•CommunityBenefits:Energysecurityandaccess,carbonreduction,consumercost•DeliveryMechanism:Directpurchaseofelectricityfromminigridowner•Size:Large(240,000people);residentialandcommercialconsumersSource:RMIrmi.org/33MarketStructuresGLOBALGUIDEKeyChallengesandOpportunitiesFacingMarketReformAsthetrendsdiscussedintheprevioussectionillustrate,thereareexcitingdevelopmentshappeningthroughoutelectricitymarketsofallsizesandlevelsofmaturity;however,thereareseveralchallengesfacingmarketreformsthat,ifovercome,couldhaveasignificantimpactondecarbonizationandotherpowersectorpriorities.Exhibit9(startingonthenextpage)furtherexpandsonthemostsignificantchallengesandrelatedopportunitiesfacingelectricitymarketreformtoday.rmi.org/34MarketStructuresGLOBALGUIDEExhibit9KeyChallengesandOpportunitiesFacingMarketReformSYSTEMSTABILITYANDRELIABILITYChallengesOpportunities•Increasedfrequencyandseverityofweathereventsduetotheclimatecrisisposesignificantriskstogridreliability.•Insomecountries,thegrowthofrenewablegenerationhasbeenfasterthantheincreaseinrequiredsystemflexibility,leadingtocurtailmentorotheroperationalchallenges.•Outdatedmarketrulesandproductsmayinadequatelyvaluetherangeofreliabilityservicesrenewablescanprovide,limitingtheirpenetrationlevelsorpotentialrevenuestreams.•Gridoperatorscanthoughtfullydesignancillarymarketstoleveragethebenefitsofrenewableenergyandenablingtechnologies,suchasbatterystorageandgrid-forminginverters.•Utilitiesandtransmissionownerscaninvestingrid-enhancingtechnologiestoimprovegridoperationsandvisibility,aswellasallowgridoperatorstobetterdeterminemarketsizeandrequirementsforancillaryservices.WHOLESALEELECTRICITYMARKETACCESSChallengesOpportunities•Inmostcountries,cleanordistributedenergytechnologiesmaynothaveequalaccesstothesameenergy,capacity,andancillaryservicemarketsthatlegacyfossilfuelgenerationhasdespitepossessingtherequiredtechnicalcapabilities.•Newmarketparticipantsmayhavelimitedknowledgeofnewmarketrulesandrequirements.•Gridoperatorsandregulatorscanupdatewholesalemarketrulestobetechnologyneutraltoovercomelegacybiases,suchasredesigningreserverequirementssothatrenewablescanparticipateincapacitymarkets.•Marketoperatorsshouldprovideclearcommunicationsandfacilitatelearningsessionsformarketparticipantswhenruleschangeorwhennewrulesareimplemented.Exhibitcontinuedonthenextpagermi.org/35MarketStructuresGLOBALGUIDEWHOLESALEELECTRICITYMARKETPRICINGChallengesOpportunities•Theadventofnewtechnologiesandmoredistributedresourcescanmakeitmorechallengingtoaccuratelyforecastsystemsupplyanddemand,whichdirectlyimpactselectricitypricing.•Pricinginmanysystemsisbasedongridneedsoverlongdurations(e.g.,hourly,daily),whichdoesnotprovideaccuratepricesignalsforflexiblemanagementofthegrid.•Significantwholesalepricevolatilitycannegativelyimpactcustomers’retailrates.•Increaseddatatransparency,fasterinternetspeeds,newtechnologiesandsoftware,suchaslightdetectionandranging(LiDAR),xivincontrolandforecastingsystemsareincreasinggridandresourceflexibility,whichisakeyenablerformoregranularpricing.•Regulatorsandgridoperatorsarecreatingshort-termmarkets(e.g.,30minutes,5minutes)alongsidelonger-termmarkets,incentivizingparticipationofrenewabletechnologiesandmoreflexibleassets,likebatteries.•Pricevolatilitycanbeacatalystforeffortstodecarbonizegrids,incentivizingmarketsforflexibility.•Policyinterventionsmayberequiredtoprotectcustomersfromextremepricevolatility.WHOLESALEMARKETREGULATIONANDGOVERNANCEChallengesOpportunities•Thegoverningbodyoftheelectricitymarketplaysacentralroleinitsimplementation.Governancestructuresvaryacrossgeographiesandcanoftensufferfromunduepoliticalinterference,insufficientaccountability,incumbencybias,andvagueresponsibilities.•Regulatorsmaybeshortsighted,whichcanresultinadhocsolutionstomarketissues.Thisreactiveresponsecanleadtonegativeexternalitiesandfurtherregulationstofixissues.•Allowingelectricitymarketoperatorsandregulatorstobeindependentbodiescanminimizepoliticalinterference.•Technologyandsoftwareadvancementscontinuetoincreasetheabilityofoperatorstoadequatelymonitormarketsandpreventorretroactivelyuncovermarketmanipulation.•Regulatorsandgridoperatorsshouldarticulateaclearlong-termvisionforelectricitymarketdesigntoinformcomprehensiveandstrategicreformsinsteadofquickfixes.Source:RMIxivLiDARisaremotesensingmethodutilizinglasertechnologythatprovidesenhancedcapabilitiestoassessenvironmentalconditionssuchaswindspeedandsolarpotential.Anexampleforhowitcanbeutilizedcanbeseenathttps://pes.eu.com/exclusive-article/the-importance-of-lidar-in-shaping-the-future-of-wind-energy/.Exhibit9KeyChallengesandOpportunitiesFacingMarketReform,cont.rmi.org/36MarketStructuresGLOBALGUIDEToguidenationalandsubnationalelectricitysectorleadersastheynavigatethesetrendsandassociatedchallengesandopportunitiesinpursuingtheirpowersectorpriorities,therearesevenuniversaloutcomesthatcanbeusedasindicatorsofprogress,asshownonthenextpage.Thesesevenoutcomesarefurtherdescribedinthisseries’PointsofProgress—AnIntroductiontoRMI’sGlobalEnergyTransformationGuide:Electricityreportandrepresentcriticalpowersectorobjectivesthatwillneedtobeconsideredandplannedforinpolicy,regulations,operations,andinvestments.Thesevenoutcomesareaimedatachievingthreeprimarygoals:(1)ensuringafairandinclusiveenergytransition,(2)creatingasystempoisedforsustainablegrowth,and(3)increasingtheefficientutilizationofcleanenergyassets.Giventhedifferentprioritiesforcountriesastheyreformtheirmarkets,itisimportanttounderstandhowdifferentstrategiesandapproachescanadvancethesesevenoutcomes.Whilesomeoutcomesmaybemoreimportanttocertaincountriesthanothers,theyrepresentcriticallensesorcriteriatouseinthedesignandimplementationofnewsolutions.HowMarketStructuresCanSupportPriorityOutcomesrmi.org/37MarketStructuresGLOBALGUIDEEnsureafairandinclusiveenergytransitionCreateasystempoisedforsustainablegrowthIncreaseeicientutilizationofcleanassetsImproveenergyintensityAcceleratecleanenergyadoptionReducedependenceoncoalGlobalEnergyTransformationExpandaccessandenableeconomicdevelopmentPromoteaordabilityandequityEnsureenergyreliabilityandresilienceSecureutilityfinancialstabilitySevenPriorityOutcomesandThreeOverarchingGoalsExpandAccessandEnableEconomicDevelopmentExpandingelectricityaccessisfundamentalforsocialandeconomicdevelopment;however,itcanintroduceadifficultconflictforcountriesthatneedtofosterdemandgrowthandhaveeasyaccesstofossilfuelgeneration.Gridoperatorsandregulatorscanencourageincreaseddeploymentofrenewablegenerationtomeetthisgrowingdemandbydevelopingmechanismsthatfairlyvalueandcompensategeneratorsforthefullspectrumofservicesrenewableenergycanprovide,expandingmarketaccessrules,andreformingexistingrulesbiasedtowardthermalgeneration,suchascapacitymechanisms.EnsureaFairandInclusiveEnergyTransitionrmi.org/38MarketStructuresWhiletheexpansionofgrid-connectedcleangenerationandcreationofmarketsinunservedregionsiscrucialtoachieveanequitableenergytransition,whereitdoesnotmakesensetoexpandthecentralgrid,communitiesandutilitiesarecreatingLEMsasacost-effectivealternative.Forexample,inKenya,ruralcommunitiesarecreatingsmallenergymarketsmadeupofstand-alonerenewablesystems,minigrids,andgridextensions.PromoteAffordabilityandEquityInmanyregions,wholesalemarketpriceshaveincreasedoverthepastfewyears,primarilyinresponsetofossilfuelsupplyconstraints,aswellaschangingdemandpatternsandextremeweathereventsduetoclimatechange(seeExhibit10,onthenextpage).Inmanycases,thesecostsareultimatelypassedontoendusersinretailmarkets,whichcannegativelyimpactcustomersbyincreasingtheirbillsormakingbillsmorevolatile.However,increasedrenewablepenetrationinwholesaleelectricitymarketsprovidesanaturalhedgeagainsttheimpactoffossilfuelsupplyissuesandusuallyleadstoloweraveragepricing.Althoughmorerenewablesalsocanincreaseshort-termpricevolatility,marketmechanismsthatincentivizeflexibility,suchasdemandresponse,canmitigatetheseimpactsandprotectconsumerswhooftendonothavetheabilitytocoversharpandsuddentariffchanges.GLOBALGUIDEEnsureaFairandInclusiveEnergyTransitionIncreasedrenewablepenetrationinwholesaleelectricitymarketsprovidesanaturalhedgeagainsttheimpactoffossilfuelsupplyissuesandusuallyleadstoloweraveragepricing.Althoughmorerenewablesalsocanincreaseshort-termpricevolatility,marketmechanismsthatincentivizeflexibility,suchasdemandresponse,canmitigatetheseimpactsandprotectconsumers.rmi.org/39MarketStructuresExhibit10QuarterlyAverageWholesalePricesforSelectedRegions20162017201820192020202120220100200300400500600700IndiaPriceindexJapanSpainNordPoolFranceUnitedKingdomUnitedStatesAustraliaGermanyUnitedStates:Peakcausedbysupplychaindisruptionsduetoanextremeweatherevent,increasingaverageregionalpricesinElectricReliabilityCouncilofTexastoover$600/megawatthour(MWh)andinSouthwestPowerPooltoover$250/MWh.Japan:Peakcausedbyasurgeindemandduetoanextremecoldweathereventandlowgas-firedgenerationinJapan.Wholesalemarketsthatenablegenerationassetstoprovideelectricityoverabroadbalancingareacanincreasecompetitionamongsuppliers,whichcanalsoreducepricesforcustomers.Thesebroadermarketsalsoenhancetheabilitytocapitalizeonregionsthathaveparticularlyhighrenewableenergyabundance.Source:IEA,ElectricityMarketReport.Allrightsreserved.GLOBALGUIDEEnsureaFairandInclusiveEnergyTransitionrmi.org/40MarketStructuresTheWesternEnergyImbalanceMarketUnlikemanyotherregionsintheUnitedStates,westernstatesdonothaveatraditionalregionalwholesalemarket.However,theWesternEnergyImbalanceMarket(WEIM),whichwaslaunchedin2014,isastepinthatdirection.WEIMisareal-timewholesaleelectricitymarketservingnearly80%oftheelectricitydemandinthewesternUnitedStates.WEIMisintendedtoleveragethegeographicdiversityacrossparticipatingstatesandreducerenewableenergycurtailmentbyimprovingregionalefficiencyofenergydispatch.WEIMalsosupportsthereductionofcarbonemissionsbyenablinghigherlevelsofrenewablepenetrationandprovidingsystemoperatorswithreal-timevisibilityacrossneighboringwesterngrids.29Theefforthasreducedemissionsbymorethan700,000tonsandhasresultedinmorethanUS$2billioningrossbenefitstomarketparticipantssinceitslaunch.30Beyondreformstowholesalemarkets,retailmarketsandLEMsalsocanincreasecustomeraffordabilityandequity.Introducingcompetitiveretailpricinganddirectpurchasingforresidentialandcommercialcustomershasthepotentialtolowercustomerrates.Atalocallevel,communityminigridsandpeer-to-peertradingcanhelpempowercustomerstoplayalargerroleinmanagingtheirelectricityuse,creatingnewopportunitiestogeneratebothfinancialandnonfinancialbenefits.GLOBALGUIDEEnsureaFairandInclusiveEnergyTransitionrmi.org/41MarketStructuresGLOBALGUIDEEnsureEnergyReliabilityandResilienceVariousmarketmechanismscansupportgridreliabilityandresilience.Forexample,gridoperatorsandregulatorscanimposemarketpenaltiesforqualityofserviceandoutagestoincentivizeinvestmentsinsupplyadequacy,decentralization,andnecessarygridupgradestosupportresilience.Creatingancillaryservicemarketsthataretechnologyneutralcanhelpleverageawiderrangeofresourcesforreliabilitywhilealsoestablishingnewrevenueopportunitiesforcarbon-freetechnologies.Forexample,gridoperatorsontheislandofBornholminDenmarkutilizesolarPVtoprovideintegratedancillaryservicesandgridmanagement,suchasreactivepower,tomanagevoltagevariationsonthegrid.31WholesalemarketreformsthatbettervaluethecapabilitiesofDERs,suchasenablingaggregatedDERstoeffectivelybidintocapacityandancillarymarkets,canalsoimprovegridreliabilitybyshiftingandloweringdemand.Fromacustomerperspective,thesereformscanimproveDERs’valueproposition,whichcanleadtoincreasedadoptionandgreateruseofDERstomaintaincriticalloadswhenthegridisdown.Tofurthersupportreliability,interconnectingthemarketsofneighboringcountriesorregionscanhelpexpandanddiversifygridresourcestoreliablymeetdemand.GLOBALGUIDECreateaSystemPoisedforSustainableGrowthrmi.org/42MarketStructuresSecureUtilityFinancialStabilityNewmarketsorproductscanprovideutilitieswithexpandedopportunitiestoprocureenergyandothergridservicesfromnonutilitygeneratorsatlowercoststhanwhattheyareabletoprovideontheirown.Additionally,becauseelectricitypricevolatilitycancreatefinancialuncertaintyforutilities,especiallyinverticallyintegratedmarkets,utilitiescanleveragerenewablePPAstoactasahedgeagainstfuturepricevariability.Marketrulescanalsobecreatedtoincreasesystemefficiencyandthusminimizeutilitycosts.Forexample,insomemarketsgeneratorsaremandatedtoprovideagivenlevelofancillaryservicesoraregivencapacitylimits.Thiscouldhelpmaintainutilityfinancialstabilitythroughavoidingcurtailmentordeferringgridupgrades,whichcanreduceutilitycapitalexpendituresinthelongrun.CreateaSystemPoisedforSustainableGrowthGLOBALGUIDEIncreaseEfficientUtilizationofCleanAssetsImproveEnergyIntensityMostimportantly,marketscanimproveenergyintensitybysupportingtheefficientdispatchofresources,optimizingwhatgenerationassetsareusedwhen.Moreover,creatingmarketsorproductsthataccuratelycompensateflexibility,suchasflexibilitymarketsemergingacrosstheglobe,canincentivizegreaterinvestmentintostorage,demand-sideresources,andVPPs,whichcanreducetheneedtobuildgeneration.rmi.org/43MarketStructuresGLOBALGUIDEIncreaseEfficientUtilizationofCleanAssetsBeyondenergymarkets,capacityandancillarymarketsthataretechnologyneutralcanenablepowersystemoperatorstoeffectivelyutilizestorage,renewables,andaggregatedDERstomeetgridneedsinsteadofrelyingonthermalpowergenerators.AccelerateCleanEnergyAdoptionAnumberofmarketreformscangeneratenewvalueandincreasedemandforcleanenergytechnologies.Forexample,expandingeligiblemarketparticipants,suchasallowingcorporateentitiestobuypowerdirectlyfromrenewablegeneratorsthroughPPAs,hasincreasedrenewabledeploymentincountrieslikeArgentina,India,andtheUnitedStates.Insomecases,consumerdemandforrenewableenergyhasbeentheprimarydriverofretailmarketreformandderegulation.Retailchoicehasburgeonedinmanygeographiestolowerelectricitypricesandimprovecustomerofferings,especiallyprogramsthatsupportrenewables.TherangeofrenewableofferingscanincludeVPPparticipation,renewableenergycertificates,andgreentariffs.CreatingnewrevenuestreamsforrenewablesandDERsalsocanincentivizeincreasedinvestment.Forexample,thevaluingofflexibilityrequirementsandservicescangeneratenewrevenueopportunitiesforbatterystorageandinvertercapabilitiesofrenewabletechnologies.Thisappliestomarketsofallsizesandtypes,includingverticallyintegratedmarketswherethereisasingleutility.Forexample,inBermuda,asinglebatterythathasthepowercapacityof9%ofpeakdemandisutilizedtopreventlossofsupplythroughtheprovisionofspinningreserveandfrequencyresponse.Utilizingthebatteryforreliabilityhasalreadysavedmillionsofdollarsinfuelcostsandprovidesacarbon-freemeanstosecuringgridstabilityasthecountryembarksontheaccelerateddeploymentofrenewablesoverthecomingyears.32rmi.org/44MarketStructuresReduceDependenceonCoalTheparticipationofrenewablesinwholesaleenergymarketshaschangedtheeconomicsofcoalgeneration.Unlikecoalandgas,renewablestypicallyhavezeromarginalcostthroughouttheiroperationallifetimes,whichgivesthemanadvantageinwholesalemarketdispatch.Becausedispatchusuallyfollowsthemeritorder,wherethefirstgeneratorsdispatchedarethosewiththelowermarginalprices,anincreasedlevelofrenewablepenetrationcanpushcoaloutofthemarket,asillustratedinExhibit11(onthenextpage).Coalassetmarketparticipationcanbefurtherconstrainedbyenablingothertechnologiestocompetewithcoalincapacityandancillarymarkets.Inmarketswherecoalissubsidized,subsidiesorconcessionstorenewabletechnologiescanbetterenablecompetitionwithcoalgeneration.Whilethesefinancialinstrumentsdecreasetheincomeopportunityforcoalinvestmentsandcanleadtoreductionsincoalcapacity,theseinterventionsshouldonlybeusedforspecificandtime-boundpurposesgiventhedistortionofefficientpricesignalsthroughtechnology-specificmarketrules.Moresustainablesolutionsshouldfocusmoreonfairlyvaluingthecapabilitiesofrenewableswherepossible.Otherleverscanalsobeusedtofurtherdisincentivizeandpricefossilfuelsoutofthemarket,suchastheintroductionofcarbontaxesormarkets,whicharediscussedinmoredetailinthePublicPoliciescatalystreport.GLOBALGUIDEIncreaseEfficientUtilizationofCleanAssetsrmi.org/45MarketStructuresExhibit11ImpactsonMarketDispatchwithParticipationofRenewablesinWholesaleMarketsSUPPLYANDDEMANDWITHOUTVARIABLERENEWABLESSUPPLYANDDEMANDWITHVARIABLERENEWABLESMarginalcost(US$/unitenergy)Marginalcost(US$/unitenergy)HigherdemandLowerdemandCoalGasGasHydropowerHydropowerVariablerenewables(e.g.,solarandwind)HigherdemandLowerdemandCurrentdemandCoalCurrentdemandSpotpriceDecreaseinspotpriceReducedcoalandgasusageNote:Themarginalcostofgasandcoalgenerationislargelyimpactedbyvariablefuelprices.Insomeregions,coalgenerationischeaperthangas.Source:AdaptedfromResearchGate,RenewableElectricityPolicyforAustraliaGLOBALGUIDEIncreaseEfficientUtilizationofCleanAssetsrmi.org/46MarketStructuresGLOBALGUIDEInnovationinMarketStructuresacrossCountriesGiventhewiderangeofpowersectoroutcomesmarketsarebeingdesignedtoadvanceandthedifferentstagesofmarketmaturityacrosstheglobe,itcanbedifficultforpolicymakers,gridoperators,andregulatorstoknowwhatinnovativemechanismsorreformsaremostappropriatefortheirjurisdictions.Tobreakdownwhatisdrivinginnovationandwhatsolutionsareemergingindifferentcountries,weidentifiedthreebroadgroupingsthatcanhelpdistillinsightsandinformmarketdevelopmentsthroughouttheworld(seeExhibit12,onthenextpage).AppendixCprovidesmoredetailonthemostcommonfeaturesofelectricitymarketsacrosstheseregionsandtheiridealfunctionwithinadecarbonizedsystem.rmi.org/47MarketStructuresGLOBALGUIDESource:RMIExhibit12MarketReformPrioritiesacrossCountriesDEVELOPINGECONOMIES•Lowerlevelsofaccess,especiallyoutsideurbancenters​•Areaswithaccessmayexperiencereliabilityissues​•Limitedinfrastructure,withrestrictedfinancialcapabilityformaintenanceandinvestment​•Primarilygovernment-ledmarket,oftenwithasingularverticallyintegratedutility​•Generationisoftentheonlyareawheretheremightbeanopenmarket​•Prioritizingcommunityaccessandleast-costgenerationsolutions​Examples:Largepartsofsub-SaharanAfrica(e.g.,Chad,Mali,Niger),lower-incomeareasofSoutheastAsia(e.g.,Bhutan,Myanmar),smallislandstatesinthePacific(e.g.,SolomonIslands,Tuvalu)EMERGINGMARKETS•Somecountriesarefastgrowing,whereassomearemorestable​•Highelectricityaccessinurbanareas;sometimeslowerinmoreruralareas​•Manyarewithinvariousphasesofmarketliberalization,movingfromafullystate-runelectricitysystem​•Someintroductionofretailmarketcompetitioninlargercountries​•Prioritizingaffordability,resilience,andfacilitationofrenewablepenetration​•Prioritizingsupplyingloadgrowthandexpandinginfrastructureacrossfast-growingcountries​Examples:China,India,partsofCentralAmerica(e.g.,Brazil,Chile,Paraguay)andtheCaribbean,SouthAfricaADVANCEDECONOMIES​•Large,built-outgrids​withhighlevelsofreliability​•Nearuniversalelectricityaccess​​•Manymarketsareunbundled,withvariedlevelsofcompetitionacrossmarketsegments​•Well-developedwholesalemarketpresentinmostcountries​•Clearseparationbetweencompetitivemarketsandmonopolisticsegments​​•Limitedgovernmentinvolvementingenerationandsupply​•Prioritizingreliabilityandefficiency,whilemaintainingaffordabilityandsafety​​Examples:Australia,Canada,Germany,GreatBritain,Japan,theUnitedStatesrmi.org/48MarketStructuresGLOBALGUIDEDevelopingEconomiesDevelopingeconomiesusuallyhavegovernment-runmarketswhereasingleparty(usuallyastateutility)isresponsibleforgeneration,transmission,distribution,andsupplyofelectricity.Thereisofteninefficientuseofresourceswithinsufficientgenerationcapacity,leadingtoinequitableaccessandarelativelylargeunservedpopulation.Manyutilitiesintheseeconomiesstrugglefinancially,withhighlevelsofunpaidcustomerbillsandlimitedfundstomaintainandupdatecriticaltransmissionandgenerationinfrastructure.Thisisexacerbatedbygovernmentstakingondebttorecoverfromclimate-relatedcrisesandbeingunabletoallocatefundstowardinfrastructuremaintenanceduetorepaymentofthedebtandinterest.33Thiscreatesaviciouscycle,whichismadeevenmorechallengingbyincreasingelectricitydemandthatplacesfurtherstrainonthesystem.Insomecases,theutilitymightbeunbundledbyfunction(generation,transmissionanddistribution,supply),onlyresponsibleforprovidingservicetoaportionofthecountry,oracombinationofboth.However,thestatestillplaysaprimaryroleacrossmanyofthedifferentfunctions.Therecanbemoreopenmarketaccessingeneration,includingIPPsthatsellpowertodistributioncompanies.Pricingofelectricityisnotalwaysaccurateduetothelevelofunpaidbills,alongwithpossiblecross-customersubsidizationandopaquetransferpricingpolicies.Manyutilitiesintheseeconomiesstrugglefinancially,withhighlevelsofunpaidcustomerbillsandlimitedfundstomaintainandupdatecriticaltransmissionandgenerationinfrastructure.rmi.org/49MarketStructuresGLOBALGUIDEPriorityNeedsandEdgesofInnovationPrioritiesforcountrieswithdevelopingeconomiestypicallyrevolvearoundexpandingelectricityaccess,improvingutilityfinancialperformanceandgovernance,andcreatingcompetitionwherepossibletoenablebetterperformanceandincentivizeefficiencies.Wherecompetitionisintroduced,ithasbeendonemoregraduallygivengovernancelimitationsthatcanhinderopenandtransparentcompetitiveprocesses.Expandingaccesscaninvolveexpansionofanationalgridordevelopingminigridswhereexpandingthenationwidegridisinfeasibleduetocostorgeography.Clearandenforceableutilityandmarketregulationsthatenablemoreefficientuseoffiscalresourcescanimprovefinancialperformanceofutilitiesandstrengthenmarketgovernancetosupportequitableenergyaccessandeconomicdevelopment.Forexample,UgandahasunbundledthegenerationsegmentofitsenergymarketandhasmultipleIPPs,someofwhicharestateowned,thatgeneratepowerforthegrid.Overthepast20yearsunderthisstructure,thecountryhasdeployedasignificantamountofhydrogenerationcapacity,whichhasenabledtheElectricityRegulatoryAuthority(Uganda’spowersectorregulator)todrasticallyreduceloadsheddingandincreaseenergyaccess.Oneoftheothertrendsemergingindevelopingeconomiesisregionalexpansionwithstandardizedrulesandpoliciesacrosscountriesandjointdevelopmentofinterconnectioninfrastructure.Thisapproachcanhelptofosterincreasedrenewablespenetrationbyconnectingareaswithhighrenewablepotentialtodemandcenters.rmi.org/50MarketStructuresGLOBALGUIDEWestAfricanPowerPoolTheWestAfricanPowerPool(WAPP)planstointerconnect14ofthe15mainlandcountriesoftheEconomicCommunityofWestAfricanStates(ECOWAS)xvtoimprovethebuild-outofrenewablesintheregion(seeExhibit13,onthenextpage).34Thesecountrieshavereliedonsmaller,inefficient,fossilfuel–basedpowersystemsandhavesufferedfrompoorservicequalityandaccess,aswellashighcoststhateventhecountries’expensivetariffscannotcover.OneofthemajorchallengestoimplementingtheWAPPisthepoorfinancialstateofsomeoftheutilities,whichhinderstheirabilityordesiretotrade.Anotherchallengeisindividualcountries’energysecurityconcernsgivenmembercountrieswillneedtorelyononeanotherfornondomesticresources.AnimportantstepfordevelopingaregionalmarketwastheadoptionoftheECOWASDirectiveontheSecuritizationofCross-BorderPowerTradein2018.35Thisdirectiveaimedtoincreaseconfidenceintheenforcementofcommercialagreements,encourageleast-costinvestmentdecisionsthatpromoteregionaloptionsandcompetition,andpromotetransparencyonthecreditworthinessofnationalpowerutilities.TheWorldBankisplayingalargeroleinthiseffortthroughtheUS$300millionWestAfricaRegionalEnergyTradeDevelopmentFinancingprogram.Theyoutlinedthreeimportantlessonsforsimilarefforts:•Startwithjointagreementsamonghigh-leveldecisionmakers•Designactionsinamannerthatisresilienttoevents,wherestructuralmeasuresinstitutedfortheprojectarenotnegativelyaffectedbysuddenpolitical,environmental,orsocioeconomicchanges•Remainflexibletokeepontrack36xvECOWASisaregional,political,andeconomicunionof15countrieslocatedinWestAfrica.rmi.org/51MarketStructuresGLOBALGUIDENote:Darkbluelinesrepresentcurrenttransmissionlines;lightbluelinesrepresentthosethatareclosetobeingmadeoperational,underconstruction,orforwhichfundingissecured;dottedlinesrepresentfutureexpectedtransmissionlines.Source:TheWorldBank,TheKeytoAffordablePowerinWestAfrica?Exhibit13WestAfricanPowerPoolEmergingMarketsEmergingmarketsoftenhavegovernment-runelectricitysystems,withasingleutilityforaregion(eitherafullcountryoradesignatedpartofit).Thereisusuallyadequategenerationcapacityandasmallunservedpopulation.Withinthiscategory,therearesomenationsthataregrowingrapidlyandmayneedtosignificantlyinvestincapacitytomeetdemand.rmi.org/52MarketStructuresGLOBALGUIDEInsomecases,utilitiesmaybefinanciallyconstrainedtomakesufficientcapitalinvestments,butthisisusuallyduetoinefficiencyratherthaninsufficiency.Inmanycases,thereisunbundlingofutilities.Thereisoftenanestablishedmarketinatleastoneoftheutilityfunctions,withmanyofthesecountriesinvariousphasesofmarketliberalization.Thegovernmentstillplaysalargerole,butthereisusuallyanindependentregulatorybodythatprovidesmarketoversight.PriorityNeedsandEdgeofInnovationOneofthethemesacrossmanyemergingmarketsisthedevelopmentofacompetitivewholesaleelectricitymarket.Thiscanbealargeundertaking,andmanycountriesareutilizingtransitionalarrangementsasasteppingstone.Thisallowscompetitiontobeintroducedgraduallywiththeabilitytoaddressdesignflawsastheyarediscovered.Thegradualintroductioncanbedonethroughthefollowingsteps:1.Generationcapacityisdistributedamongmanyowners(whereallgenerationispreviouslyownedbythestateorcentralutility,thisinvolvessellingorleasingassetstoprivateparties).Atthisstage,eventhoughtherearemultiplesellers,thereisstillasinglebuyer(stateorcentralutility).2.Regulatedopenaccesstotransmissionanddistributionnetworksisallowed,facilitatingbilateraltradesamongmultiplepartiesinsteadofthroughasinglecentralizedbuyer.3.Thesystemoperatorisrestructuredtorepresentmarketparticipantsandremovingpotentialforconcentrationofmarketpower.37Oneofthecriticalfactorsformarketexpansion,particularlywhenconsideringrisingdemandandincreaseddeploymentofrenewableenergy,isthedevelopmentofsufficienttransmissioninfrastructure.Whilethisisaneedforallregions,itisparticularlycriticalwithinemergingmarkets.rmi.org/53MarketStructuresGLOBALGUIDEOneofthecriticalfactorsformarketexpansion,particularlywhenconsideringrisingdemandandincreaseddeploymentofrenewableenergy,isthedevelopmentofsufficienttransmissioninfrastructure.Whilethisisaneedforallregions,itisparticularlycriticalwithinemergingmarkets.Theprimaryconsiderationscountriesareusingtodeterminewhentoexpandtransmissioninfrastructurearetheexpectedlevelsoffuturegenerationanddemand,thoroughcost-benefitanalyses,andreliabilitythresholds.Oneofthebiggestchallengesthesecountriesfaceishowtofundtransmissioninfrastructure.Insomeregions,competitiveauctionshavebeenusedtoaidintheexpansionoftransmissioninfrastructure.Forexample,marketoperatorsinBrazil,Chile,andColombiaenactedreformstocentralizetransmissionexpansionplanningwithingovernmentinstitutionsbutdecentralizetheprovisionoftransmissionservicesthroughcompetitiveauctions.40Manyofthesecountriesarealsoutilizinggrid-enhancingtechnologies(GETs)torelievetransmissioncongestiontointerconnecthigherlevelsofnewcapacity.GETsareacombinationofhardwareandsoftwaresolutionsthatcanincreasethecapacity,Egypt’sMarketLiberalizationEgyptiscurrentlyliberalizingitswholesalemarketatthesametimeasexpandingitsbuild-outofrenewablegeneration,witharenewableenergygoalof42%by2035.38Egypt’spowersectoroperatedunderasingle-buyermodelupto2015,whenalawwassignedestablishingafullycompetitiveelectricitymarketwheregeneration,transmission,anddistributionactivitiesarefullyunbundled.The2015lawalsointroducedcompetitivebiddingforbothstate-ownedandprivateinvestorprojects,allowingIPPstoenterintobilateralcontractstosellpowerdirectlytocustomersusingthenationalgrid.39TheprivatesectorisexpectedtodrivemostofEgypt’snewrenewablecapacity,giventheattractiveinvestmentenvironmentcreatedwiththecountry’snewmarketstructureandregulations.rmi.org/54MarketStructuresGLOBALGUIDEMarketReforminBrazilBrazil’selectricitygenerationisprimarilydominatedbyhydropower,whichcontributes66%ofthecountry’sgeneratedpower.Thisisdownfromthe1990s,whenhydropowermadeup90%ofthecountry’sgeneration.Thisdeclinewasprimarilyduetofast-growingdemandandamajordroughtin2001,whichspurredthecountrytoreconsideritsheavyrelianceonhydro.Thecountryisawareoftheriskposedbydroughtandclimatechangetoitsremaininghydropowerresourcesandhasbeenaggressivelybuildingwind,solar,andbiomasscapacity.Thecountrywentthroughtwomajormarketreformsinthepast,focusedonunbundlingthecountry’sutilitiesandsupportingthecoexistenceofbothprivateandstatecompanies.Thiswasdonetoimprovecompetitiveconditionsandaddresssomeoftheproblemsassociatedwithincentivesfornewgenerationcapacity.43Inthepastfewyears,therehavebeenfurthereffortstoliberalizethemarket,whichhasbeenlaudedbymanymarketparticipants,eventhoughimplementationisongoing.Thenewplanslayoutamultiprongedapproachtocompletelyredesignthewholesalemarketstructure.Itismadeupofthreecomplementarymarkets:anenergymarketthatincludesancillaryservices,acapacitymarket,andamarketforcleancertificates.Theaimofthecleancertificatemarketistorationalizethemanysubsidiesthatcurrentlyexist(suchaslargediscounts)andbringthemunderoneefficientmechanism.44Thelastmajorpartofthisreformwasincreasingpricegranularity.Brazilhasnothistoricallybeencapacityconstrained,butchangingdemand,reducedwaterstorageforhydropower,andincreasedrenewablespenetrationhavemadereformanecessity.Previously,priceswerecalculatedweekly,butunderthenewregulationtheywillbecalculatedonanhourlybasis,whichwillprovideimprovedpricesignalstomarketparticipantsandenablegreaterresourceflexibility.efficiency,andreliabilityofthetransmissionsystemthroughoptimizationofexistingtransmissionassets.Forexample,ColombiaisutilizingGETstomitigatecongestiononthecountry’stransmissionsystem.41Recently,GrupoEnergiaBogotáutilizedGETstounlock232megawattsofnewcapacityforgenerationontheexistingnetwork.42rmi.org/55MarketStructuresGLOBALGUIDEAdvancedEconomiesAcrossadvancedeconomies,thereexistbothverticallyintegratedandunbundledutilities.However,wheremonopoliesdoexist,thereisclearandtransparenttransferpricingforwholesaleandretailpower.Therealsoisaseparationbetweencompetitivemarketsandsegmentsthataremonopolistic.Often,therearemultipleparticipantsingeneration,whiledistributionservicesremainprovidedbyamonopoly.Thereisalwaysanindependentregulatorybodythatprovidesmarketoversight.Historically,mostadvancedeconomieshavehadexcesscapacity,butincreasingseverityofweatherevents,fuelpricevolatility,supplychainissues,andtransmissionconstraintshaveledtocapacityshortfallsinrecentyears.PriorityNeedsandEdgeofInnovationAcrossmostadvancedeconomies,therearemarketsestablishedforprocurementofwholesaleenergy,capacity,andancillaryservices.Wholesalemarketsinadvancedeconomiesareprimarilyfocusingonprioritizingefficiencyandaffordabilityaslargervolumesofrenewableenergyareinterconnected.Oneofthelargestcausesofinefficiencyandwasteintheelectricitysystemiscongestionandcurtailedrenewablegeneration.Incentivizinginvestmentinnewassetsandresourcesthatcansupportgridflexibility,suchasGETs,andcreatingmarketmechanismstofacilitateandincentivizeefficientuseofcurrentassetscanhelpeasetheseconstraints.Forexample,oneopportunitythatisbecomingmoreimportantwithhigherlevelsofrenewablespenetrationisthecreationofflexibilitymarkets.Thesemarketsusuallyuseavailabilityorutilizationfeesaspaymentforflexibilityservices,oracombinationofboth.xvixviExamplesofflexibilitymarketsaroundtheworldcanbefoundathttps://www.cleantech.com/smart-grid-flexibility-markets-entering-an-era-of-localization/.rmi.org/56MarketStructuresGLOBALGUIDEForexample,inBelgiumthetransmissionsystemoperator,Elia,hasorganizedaflexibilitymarketaimedatlargeelectricityconsumers,whogetpaidautilizationfeeforreducingtheirdemandwhenneeded.45AnotherexampleofatypeofflexibilitymarketisNODES,anindependentmarketplacefortradingdecentralizedflexibilityandenergy,withaninfrastructurethatisconfigurabletodifferentregionsandmarkets.46Thedefinitionofwhatconstitutesa“flexible”assetvariesbymarket;however,withtheadventofadvancedcontrolcapabilities,thereisanincreasinglydiversesetofeligibleassets,particularlyonthedemandside.Regulatorsandgridoperatorscanincorporateflexibilitymarketswithinexistingwholesalemarkets,whichleadstomoreefficientsystemoptimization.Theyalsocanbecreatedtotargetspecificissuesandcanbeprocuredseparatetothewholesaleenergymarket.FlexibleMarketsIncorporatedintoWholesaleMarketsintheNetherlandsIntheNetherlands,DutchgridoperatorscreatedtheGridOperatorsPlatformforCongestionSolutions(GOPACS)toalleviatecongestionissues.GOPACSisaplatformthatactsasthebridgebetweenflexibilitymarketsandthenetworkoperator.TheplatformisconnectedtotheEnergyTradingPlatformAmsterdam(ETPA),whichisaspotpowerexchangefocusedoncontinuousintradaytradingandmarket-basedcongestionmanagement.ArangeofdemandflexibilityresourcescanparticipateontheETPAthroughGOPACS.ItworksbyutilizingbidsandofferswithlocationaltagsontheETPAtoprovideflexibilitytothenetworkoperatorswhererequired.47rmi.org/57MarketStructuresGLOBALGUIDEForexample,PowerPotentialwasatrialprojectinsoutheastEnglandthatdemonstratedhowadistributionsystemoperatorcanutilizeaDERmanagementsystemtoprocureservicesandcreatemarketopportunitiesforDERassets.ThetrialwasfortheprovisionofvoltagecontrolservicestothetransmissionnetworkandaimedtoalleviateconnectionconstraintsforDERs.48Inadditiontoflexibilitymarkets,moreadvancedeconomiesareusingmoretechnology-neutralancillaryservicemarketstohelpmaintainreliabilityinthefaceofincreasinglysevereweatherevents,supplyconstraints,andhigherpenetrationofvariablerenewables.Forexample,batteriescanprovideancillaryservicesinAustralia,Belgium,Germany,GreatBritain,Netherlands,andtheUnitedStates,amongothercountries.49Lastly,manyadvancedeconomiesexploringdifferentmarketdesignsforhigh-renewablegridsareattemptingtobetterunderstandtheinterconnectednessofelectricitysystemswithothersectors,suchastransportationandindustry,andmorediversemarketparticipants.Forexample,TradeRESaimstodevelopanopen-accesstoolthatcanmodelandsimulatemarketdesignsthatareeconomicallyefficientina(near)100%renewableenergysystem.Themodelconsidersmarketinteractionswithotherenergysectorsandflexibleconsumerdemand.50Theeffortwilliterativelymodel,develop,andtestvariousmarketdesignsthatcansupportlong-termefficiency,accountingforreal-worldhumanconsiderationssuchaslimitedforesightintothefutureandriskaversion.Theprojectconsistsof10pan-Europeanpartners,includingresearchlaboratories,universities,anelectricalutility,anenergyoptimizationcompany,andarenewableforecastingcompany.Theobjectiveoftheprojectistodevelopopen-accessresourcesthatwillenablesimilaranalysisinotherpartsoftheglobe,particularlythosewithfewerresources.51rmi.org/58MarketStructuresGLOBALGUIDESpotlightsToillustratehowcountriesarenavigatingthesedifferentchallengesandopportunities,thissectionpresentsfourcasestudiesthathighlightinnovativesolutionsbeingpursuedinarangeofcontexts.Thesespotlightsfocusoninitiativesthatarebreakingnewgroundorareaddressingathresholdquestiontoaccelerateoneormoreofthesevenpriorityoutcomes.Tochoosewhichinnovationstospotlight,weconsideredhoweachsupportedthesevenpriorityoutcomes,aswellashowscalableorapplicablespotlightsweretootherjurisdictions.Whileweprovidebriefsummariesinthisreport,youcanfindthefullspotlightsonRMI’sGlobalEnergyTransformationGuide:Electricitywebsite.RegionalMarketsDrivingDecarbonizationandEnergyAccessintheSahelTheDeserttoPower(DtP)initiativewillbuild10gigawattsofnewsolargenerationcapacityandprovideuniversalaccesstoelectricityby2030in11countries:BurkinaFaso,Chad,Djibouti,Eritrea,Ethiopia,Mali,Mauritania,Niger,Nigeria,Senegal,andSudan.Theinitiativewillleverageacombinationofpublicandprivateinterventionsandwillprovidethefoundationofaregionalelectricitymarket,wherepowercanbetradedacrossborderswhileexpandingenergyaccess.Aregionalmarketwillhelptoreducetheriskofrmi.org/59MarketStructuresGLOBALGUIDEinvestmentintheregion’selectricityinfrastructure,bothforgenerationandtransmission.TheDtPinitiativealsowillincreaseeconomicdevelopment,improveresiliencyandenergysecurity,andleadtostrongertiesthroughthesharedbenefitsofaregionalpowermarket.RegionalmarketscanprovideuniquevaluetoplacessimilartotheSahelregioninAfricathatareconfrontingexpecteddemandgrowth,supplyconstraints,andsignificantrenewablepotentialfarfromdemandcenters.GreatBritain’sForward-ThinkingAncillaryMarketsNationalGridESO,theelectricitysystemoperatorinGreatBritain,isimplementingastrategyfordevelopingagridthathasthecapacitytooperatewith100%zero-carbonelectricityby2025,withtheaimofafullydecarbonizedgridby2035.Acrucialandsignificantpartoftheabilitytooperateazero-carbongridistheprovisionofadequateancillaryservices,whicharerequiredtomaintaingridstability,reliability,andresilience.Asapartofthisstrategy,NationalGridESOismakingsystematicreformstotheservicesthatwillberequiredbymarketparticipantsandhasdevelopedspecialancillarymarkets,includingfrequencyresponse,reactivepowerservices,stabilityservices,reserveproducts,andrestorationservices.NationalGridESO’sinnovativestrategyindevelopingancillarymarketsprovidesavaluablemodelforothercountriesfacinghighrenewablepenetrationinthecomingyears,especiallyhowtoclearlydefinewhatservicesareneededtoensurereliabilityinadecarbonizedgridandhowtopursuemarket-basedsolutionsthatensureservicesareprovidedatleastcosttoconsumers.rmi.org/60MarketStructuresGLOBALGUIDEEnablingDERMarketAccessinAustraliaProjectEnergyDemandandGenerationExchange(EDGE)isaneffortinVictoria,Australia,thatisnavigatinghowbesttoco-optimizedeliveryofwholesaleandlocalservicesfromDERs.TherearethreecorefunctionsbeingtestedbyProjectEDGE:theintegrationofDERsintowholesalemarkets,includingacost-benefitanalysistoidentifytheapproachthatdeliversthemostnetbenefitforagivenpenetrationofDERs;anefficientdataexchangesystemforanypartyconnectedtotheDERmarketplace;andalocalservicesexchangetodeferordisplacenetworkcosts.ProjectEDGEisatrulyfirst-of-its-kindprojectandwillprovidealeadingexampleofhowtoeffectivelyintegrateDERsintothemodernelectricitygrid.EnhancedWholesaleMarketDesigninthePhilippinesIn2021,thePhilippines’WholesaleElectricitySpotMarket(WESM)implementedtheEnhancedWESMDesignandOperationsprojecttomovetheWESMtoareal-timemarketbyshorteningdispatchintervals(fromonehourtofiveminutes).Thereformwasintendedtoimproveforecastaccuracy,producemorestrategicpowertradingdecisions,andincentivizegreatercompetition,efficiency,andoptimaleconomicdispatch.Theprojectisalreadyshowingthebenefitsofacoordinatedsuiteofreformsrevolvingaroundenhancingthedesignoftheshort-termelectricityspotmarket.Followingthelaunchofitsfive-minuteWESMlastyear,theIndependentElectricityMarketOperatorofthePhilippines(IEMOP)hasalreadyobservedanimprovementinitsdemandprojections,alongwithotherefficiencygains,includingmoreaccurateandresponsivewholesalemarketpricesandfewerinterhourdispatchdeviations.rmi.org/61MarketStructuresGLOBALGUIDEConclusionThedesignofmarketstructuresisakeylevertodecarbonizetheglobalelectricitysystemandsupportsustainabledevelopment.Abidingbythefoundationalprinciplesofleastcostandreliabilitywhilealsoenablingflexibilitytoaccommodatenewresources,technologies,andparticipantsintoalegacyelectricitysystemrequiresinnovationthroughoutmarketfunctions.WhileRMI’sresearchhasidentifiedsomeofthemajortrendsandchallengesfacingregulatorsandsystemoperatorstoday,wealsohavecomeacrossanumberofpointsofprogressandexamplesthroughouttheglobewherecreativesolutionsarebeingpursued.Theseincludeinitiativesfocusedon:•Introducingcompetitioninwholesaleandretailmarketswhereitisbeneficialforconsumerstodoso•Adjustingmarketsizetoincreaseenergyaccess,improveelectricitysystemefficiency,andlowerprices•Properlyaccountingfordistributedenergyresources’(DERs’)valuetothegridandensuringthatDERownersandmanagersarecompensatedfortheirfullvalue•Improvingtheaccuracyofwholesaleelectricitypricing,particularlyforefficientlyutilizingexistingresources,providingaccurateinvestmentsignalsfornewassets,andimprovingoverallgridflexibilitytohelpintegratehigherlevelsofrenewables•Maintainingcost-effectivesystemreliabilityandresiliencethroughreformingcapacitymarkets,andcreatingnewancillaryservicemarketsandensuringthatalleligibletechnologiescanparticipatermi.org/62MarketStructuresGLOBALGUIDERegulatorsandgridoperatorshaveahistoricopportunitytotransformtheelectricitymarketstheyoversee,buttheydonotneedtocharttheirownpathsinsilos.Sharingstoriesfromcountriesacrosstheworldcanensurewearebuildingoffpriorsuccesses,learningfrompastexperiences,andscalinginnovationsacrosstheglobalpowersector.rmi.org/63MarketStructuresGLOBALGUIDEExhibitA1ElectricityMarketStructureRetailPowerProvidersRetailandBusinessCustomersUtilityGenerationandIndependentPowerProducers(IPPs)WholesaleEnergyMarketsLocalandPeer-to-PeerMarketsGENERATIONTRANSMISSIONDISTRIBUTIONSYSTEMOPERATIONRETAILDEMANDRetailMarketsBalancingMarketsAncillaryMarketsCapacityMarketsDistributedEnergyResourcesAppendixA:ElectricitySubmarketsExhibitA1showsthedifferentcomponentsofanelectricitymarket.Theprimarysubmarketsareinthebeigeboxes,andmarketparticipantsarerepresentedbytheblueboxes,withtheirplacementspecifictothepartsoftheelectricitysysteminwhichtheyareinvolved.Thearrowsshowtheprimaryconnectionsbetweenmarketsandparticipants.Source:RMIrmi.org/64MarketStructuresGLOBALGUIDEGiventhevarioustermsusedfordifferentcomponentsofelectricitymarkets,wedefineasetofcoretermsbelow:WholesaleEnergyMarket:Thebuyingandsellingofelectricitybetweenlargegeneratorsandretailersorlargecustomers.Wholesalemarketscanhavevariouscontractingmodalitiesandtimegranularities,forexamplebilateralcontracts,week-aheadmarkets,orspotmarkets.Todeterminehourlyenergyprices,generatorsbidtheircost(in$/MWh)andthemarketoperatorprocuresthelowest-costbidsnecessarytomeetdemand,withthepricesetbythehighestbidneededtomeetdemand.BalancingMarkets:Inbalancingmarkets,gridoperatorsensuresupplymatchesdemandinrealtimebyaccountingfordifferencesbetweenexpectedgenerationanddemandwithinanhourofdelivery.AncillaryMarkets:Inancillarymarkets,gridoperatorsprocureservicesrequiredtomaintainsystemstabilityandreliability.Theseserviceshelptorespondtounexpectedoutages,preventdamagetoequipment,andensureasmoothsupplyofelectricityisreceivedbycustomers.CapacityMarkets:Insomewholesalemarkets,capacitymarketsareusedtopayresourcesforbeingavailabletomeetpeakelectricitydemand.Capacitymarketspaygeneratorstoexistandbereadytoproduce—regardlessofwhethertheyarecalledupontoproducepower.RetailMarkets:Thepurchaseandsaleofelectricitytoconsumersisdoneinretailmarkets.Eitherautilityorretailsupplierprovidespowertoendusersusingatarifforotherpricingstructure.Someregionshaveonlyoneavailableresellerofelectricity,andsomehavemultipleretailerscompetingforcustomers,providingresidentialandbusinesscustomerswithretailchoice.LocalandPeer-to-Peer(P2P)Markets:Smallermarketsareoftenwithinaspecifiedgeographicareaorcommunity,whereelectricityisboughtandsoldonthedistributionsideofthegrid.Mostofthemarketparticipantsareresidentialorbusinesscustomers,andgenerationusuallyconsistsofDERs.rmi.org/65MarketStructuresGLOBALGUIDEAppendixB:MarketLiberalizationElectricitymarketsthroughouttheglobevarywidelyandareatdifferentstagesoftheliberalizationprocess.Thefirststageofliberalizationissomelevelofunbundling,wherecompetitionisintroducedintooneormoreoftheverticalsofanelectricitymarket(generation,transmission,distribution,retail).Partialunbundlingoccurswhenoneormoreoftheverticals(usuallystartingwithgeneration)isopenedtocompetition,whiletheothersremainwithinasingleregulatedentity.Thetypicalstagesofmarketliberalizationaredescribedbelow:VerticallyIntegratedUtility:Undertheverticallyintegratedutilitymodel,onemonopolyownsandcontrolsalllevelsoftheelectricitysupplychain:generation,transmission,anddistribution.VerticallyIntegratedUtility+IPPs:IPPsareallowedtogenerateelectricity,whichissoldviabilateralcontractstoaverticallyintegratedutility.UnbundledTransmission+IPPs:Theverticalsoftheelectricitymarketarenolongercontrolledbyasingleentityorutility,whereasystemoperatoriscreated,separatedfromgenerationandsupply.rmi.org/66MarketStructuresGLOBALGUIDEWholesaleMarket:Acentralizedmarketforgenerationiscreated,throughwhichretailers,suchasutilities,buyelectricityfromgeneratorsandsellittoendconsumers.WholesaleMarket+RetailCompetition:Thereiscompetitionacrosstheelectricitysectorwithmultiplemarketparticipantsinbothwholesaleandretailmarkets.Transmissionanddistributioncanstillbecontrolledbyoneparty.rmi.org/67MarketStructuresGLOBALGUIDEAppendixC:FunctionsandDesignofDifferentWholesaleMarketFeaturesAcrossallregions,wholesalepowermarketsexistinanumberofformatsandhavevaryingfeatures.Theseinclude:•Priceformation:howthewholesalepriceofelectricityiscalculated•Time:thetimeanddurationforthedeliveryofcontractedpower•Resourceadequacy:howtoensurethereisalwaysenoughgenerationtomeetdemand•Marketpowermitigation:howtopreventmarketparticipantsfromexercisingunfairpower.Thiscaneitherbeexante,wheremeasuresareputinplacetopreventmarketpower,orexpost,wherethereareretroactivepenaltiesforexerciseofmarketpowerThedesignofthesemarketfeaturesisusuallybettersuitedtodifferentmarketsduetofactorssuchasmarketsize,location,policyframeworkstheyareoperatingwithin,andresourceportfolios.Thereareeconomicargumentsforandagainstallapproaches;however,allfeaturescanbetailoredtoworkwithinthefutureofadecarbonizedgrid.ExhibitC1(onthenextpage)highlightsthemostcommonfeatures,theirdesign,andtheiridealfunctionwithinadecarbonizedsystem.rmi.org/68MarketStructuresGLOBALGUIDEExhibitC1FunctionsandDesignofDifferentWholesaleMarketFeaturesWholesaleelectricitymarketfeaturesDescriptionWherelikelyfoundatpresentMostsuitableconditionsIdealfunctionwithhighgriddecarbonizationPRICEFORMATIONBidBasedGeneratorssubmitcostsasbidstoacentralizedauctionthatiscoordinatedbythesystemoperator.AdvancedeconomiesRegionswithahighnumberofgeneratorsandahighlevelofcompetitionMorecomplexbiddingformatstoallowadditionalgranularity,accountingfornewtechnologies;includesaccommodationsforsimplicitywherepossible.CostBasedCentraloperatordispatchesgenerationunitstomeetdemandbasedonexpectedunitcosts.EmergingmarketsanddevelopingeconomiesRegionswithlownumbersofgeneratorsandlimitedpossibilityoftruecompetitionBettermanagementandreductionofimbalancecosts,enabledbyshort-termcost-basedmarkets.Highaccuracyofgeneratorcostsisimportant.BilateralContractsAgreementbetweengeneratorandoff-takerfortheexchangeofelectricityataspecifiedprice,time,andduration.AllregionsAllregionsthroughouttheworldFirmprocurementofrenewables,withcorporate,retailer,andpossiblyretailcustomeraccess.ZonalPricingUniformpricingacrossanumberofnodes(usuallyaregionorcountry),withassumptionsaroundthephysicalsystemconstraints.AllregionsGridswithpredictablepowerflowsandlittlecongestionEnsuringzoneselectionisfitforpurposewithgoodassumptionsreflectiveofphysicalconstraints.NodalPricing(LocationalMarginalPricing)Pricingateachnode,whichconsiderstheactualphysicalsystemconstraints.Advancedeconomies,someemergingmarketsCongestedgridsorregionswheresignificantconstraintsarecommonplacePricingreflectiveoflocationthattakesaccountofconstraintsandtransmissioninfrastructure,allowingmoreaccurateinvestmentsignalsforrenewablesorflexibility.Exhibitcontinuedonthenextpagermi.org/69MarketStructuresGLOBALGUIDEWholesaleelectricitymarketfeaturesDescriptionWherelikelyfoundatpresentMostsuitableconditionsIdealfunctionwithhighgriddecarbonizationTIMELongTermMarketsfromyearsaheadupto24hoursbeforedelivery.AllregionsAllconditionsProvideslong-termsupportforinvestmentinrenewabletechnologies(e.g.,PPAs).ShortTermMarketsbetween24hoursofdeliveryandgateclosure(timeatwhichdispatchschedulesarefinalized).AllregionsAllconditionsReducesthetimebetweengateclosureandrealtime;utilizationofthesemarketsincreasesforecastingabilityandsystemefficiency,whichhelpstomitigatethevariabilityofrenewables.BalancingReal-timemanagementofsupplyanddemand,aftergateclosure.AllregionsAllconditionsSupportsparticipationofawiderangeofresources,particularlyDERs,iftherearesufficientincentivesandaccurateaccountingoftechnologies’capabilitiesandpotential.RESOURCEADEQUACYEnergyBasedGeneratorsareonlypaidwhentheyprovideelectricitywithnopaymentsforcapacity.Theincentivemechanismforprovisionoftheelectricityusuallyinvolvesscarcitypricing.AllregionsAllconditionsMarketpricecapordemand-sideparticipationwithspecifiedreliabilitytolerancesrequiredandadequatefacilitiesformarketparticipantstohedgerisk.52CapacityBasedGeneratorscanbepaidforcapacitythatisnotalwaysutilizedtoensurethatenoughresourcesareavailableifrequired.Advancedeconomies,someemergingmarkets,anddevelopingeconomiesAllconditionsAdequateincentivesorpenaltiesforrenewablesprovidingcapacity,withmoresophisticatedandaccuratede-ratingmethodstoensureresourceadequacy.53ExhibitC1FunctionsandDesignofDifferentWholesaleMarketFeatures,cont.Exhibitcontinuedonthenextpagermi.org/70MarketStructuresGLOBALGUIDEWholesaleelectricitymarketfeaturesDescriptionWherelikelyfoundatpresentMostsuitableconditionsIdealfunctionwithhighgriddecarbonizationMARKETPOWERMITIGATIONMECHANISMSAutomaticMechanismsdesignedtomitigatebidders’abilitytoexerciseunilateralmarketpower,whicharebuiltintothesystemoperator’sgridmanagementsoftware.54AdvancedeconomiesRegionswithhighrenewablepenetrationAccuratecalculationoflevelofmitigation,specifictotherelevantsystemorgrid.RegulatedContractingGenerationunitsspecificallydesignatedbythesystemoperatortosupplyenergyorprovidegridservicesbecausetheyhavetheabilitytoexerciseunilateralmarketpower.55AllregionsAllregionsReductionoffossilfuelassetsandincreaseduseofrenewablesasregulatedcontractedunits;strongregulatoryfunctiontoensurecompliance.PriceCapsandFloorsMandatedlimitsonthepricesthatcanbesubmittedorreceivedbymarketparticipants,particularlywithinshort-termandbalancingmarkets.AllregionsAllregionsCapsandfloorssetatlevelstoreduceconstrainingrenewableswherepossibleandtoprovidecustomerprotectionfrompriceshocks.ExpostMarketruleswithregulatoryactionifitisfoundthatinappropriatemarketpowerwasexercisedinthepast.AdvancedeconomiesAllregionsStrongregulatoryfunction,andadequateincentivesandpenaltiestoensureinappropriatemarketpowerisnotexercised.Source:RMIExhibitC1FunctionsandDesignofDifferentWholesaleMarketFeatures,cont.rmi.org/71MarketStructuresGLOBALGUIDE1IEA,SteeringElectricityMarketstowardsaRapidDecarbonisation,2022,https://www.iea.org/reports/steering-electricity-markets-towards-a-rapid-decarbonisation.2MattiSupponen,etal.,ElectricityMarketsandSystemsintheEUandChina:TowardsBetterIntegrationofCleanEnergySource,EU-ChinaEnergyCooperationPlatform,June2020,http://www.ececp.eu/en/electricity-market-eu-china/.3YiyanCao,etal.,TrackingChina’sProvincialSpotMarketDesigns:2019,RMI,October2019,https://rmi.org/insight/tracking-chinas-provincial-spot-market-designs/.4“Market-BasedEconomicDispatchPhase-ItoBeginfromApril1,2022,”TheEconomicTimesIndustry,October8,2021,https://economictimes.indiatimes.com/industry/energy/power/market-based-economic-despatch-phase-i-to-begin-from-april-1-2022/articleshow/86865106.cms.5“IEXElectricityVolumeJumps17%YoYto8,267MUinJune’22,”BusinessStandardIndia,July5,2022,https://www.business-standard.com/article/news-cm/iex-electricity-volume-jumps-17-yoy-to-8-267-mu-in-june-22-122070500700_1.html.6“GuidetoPurchasingRenewableLow-ImpactElectricityinNovaScotia:UnderstandingYourElectricityOptions,”accessedSeptember15,2022,https://nsuarb.novascotia.ca/sites/default/files/RtR_Guide_-_Purchasing_Renewable_Low-Impact_Electricity_in_Nova_Scotia_0.pdf.Endnotesrmi.org/72MarketStructuresGLOBALGUIDE7NathanLee,FranciscoFlores-Espino,andDavidJ.Hurlbut,“RenewableEnergyZone(REZ)TransmissionPlanningProcess:AGuidebookforPractitioners,”September5,2017,https://doi.org/10.2172/1389211.8“EuropeanCommissionanalysinghigher45%renewableenergytargetfor2030,”Reuters,accessedOctober4,2022,https://www.reuters.com/world/europe/european-commission-analysing-higher-45-renewable-energy-target-2030-2022-04-20/.9“TheHypeandHopeofSaharaDesertGreenHydrogen,”GreenTechMedia,accessedAugust31,2022,https://www.greentechmedia.com/articles/read/the-hype-and-hope-of-desert-green-hydrogen.10NoahKittner,“ASEANNeedstoWorkTogetheronGreenEnergy,”EastAsiaForum(blog),June21,2022,https://www.eastasiaforum.org/2022/06/21/asean-needs-to-work-together-on-green-energy/.11WaleedAlsuraihandVictorLoksha,“CreatingtheSecondLargestRegionalElectricityMarketintheWorld,”WorldBankBlogs(blog),February21,2019,https://blogs.worldbank.org/ppps/creating-second-largest-regional-electricity-market-world.12KamalHassanAli,“ThePan-ArabElectricityMarket:FromVisiontoExecutionandResults,”FirstPan-ArabEnergyTradeConference,November6,2019,https://www.arabfund.org/Data/site1/pdf/Conferences/ArabPan/2019/1/2/LAS_PanArab.pdf.13M.KozlovaandI.Overland,“Combiningcapacitymechanismsandrenewableenergysupport:Areviewoftheinternationalexperience,”RenewableandSustainableEnergyReviews155(March2022):111878,https://www.sciencedirect.com/science/article/pii/S136403212101145X.14Ibid.rmi.org/73MarketStructuresGLOBALGUIDE15“VirtualPowerPlantMarketSizetoHitUSD6.74Billionby2028ExhibitaCAGRof32.89%,”GlobeNewswireNewsRoom,April26,2022,https://www.globenewswire.com/en/news-release/2022/04/26/2428738/0/en/Virtual-Power-Plant-Market-Size-to-Hit-USD-6-74-Billion-by-2028-Exhibit-a-CAGR-of-32-89.html.16“FERCOrderNo.2222:FactSheet,”FederalEnergyRegulatoryCommission,September17,2020,https://www.ferc.gov/media/ferc-order-no-2222-fact-sheet.17EnergyWeb,accessedSeptember15,2022,https://energyweb.org/.18Ibid.19“FiveMinuteSettlement,”AustralianEnergyMarketCommission,November28,2017,https://www.aemc.gov.au/rule-changes/five-minute-settlement.20NationalGridESO,“NetZeroMarketReformPhase3Conclusions,”NationalGridESO,March22,2022,https://www.nationalgrideso.com/document/247306/download.21“ACERHasDecidedonAlternativeElectricityBiddingZoneConfigurations,”EuropeanUnionAgencyfortheCooperationofEnergyRegulators,September8,2022,https://www.acer.europa.eu/events-and-engagement/news/acer-has-decided-alternative-electricity-bidding-zone-configurations.22PJMPlanningDivision,“GridoftheFuture:PJM’sRegionalPlanningPerspective,”PJM,May10,2022,https://pjm.com/-/media/library/reports-notices/special-reports/2022/20220510-grid-of-the-future-pjms-regional-planning-perspective.ashx.23JanAegenvoort,EliasDeKeyser,andPaulKreutzkamp,“OpeningtheAFRRMarketinBelgiumforAggregators,”Next(blog),March10,2021,https://www.next-kraftwerke.com/energy-blog/opening-afrr-market-belgium.24FaltiTeotiaandRohitBhakar,“LocalEnergyMarkets:Concept,DesignandOperation,”in2016NationalPowerSystemsConferenceIEEE,2016,https://doi.org/10.1109/NPSC.2016.7858975.rmi.org/74MarketStructuresGLOBALGUIDE25“ProjectTraDER—Orkney,UK,”Electron,September27,2020,https://electron.net/projects/project-trader-orkney-uk/.26AdelStrydom,“Eskom’sFirstSmartEmbeddedResidentialMicroGridProjectPilotedatLynedoch,”SustainabilityInstitute(blog),February28,2018,https://www.sustainabilityinstitute.net/5484-eskoms-first-smart-embedded-residential-microgrid-project-piloted-at-lynedoch/.27ChristosKarystinos,etal.,“LocalEnergyExchangeMarketforCommunityOff-GridMicrogrids:CaseStudyLosMolinosDelRioAguas,”Energies15(January19,2022):703,https://doi.org/10.3390/en15030703.28AfricanDevelopmentBank,“Tanzania—JUMEMERuralPowerSupply—SEFAProjectSummaryNote,”March4,2021,https://www.afdb.org/en/documents/tanzania-jumeme-rural-power-supply-sefa-project-summary-note.29CaliforniaISO,“WesternEnergyImbalanceMarket:FactSheet,”accessedSeptember15,2022,https://www.westerneim.com/Documents/WEIM-2-Billion-in-Benefits-Fact-Sheet.pdf.30CaliforniaISO,“WesternEnergyImbalanceMarket,”2022,https://www.westerneim.com/Documents/Western-Energy-Imbalance-Market-Surpasses-2-Billion-in-Benefits.pdf.31GuangyaYang,etal.,“SolarPVPlantforSupplyingAncillaryServicesinDistributionSystems,”JournalofEngineering2019(July1,2019),https://doi.org/10.1049/joe.2018.9244.32Saft,“SaftEnergyStorageinBermudaNets$1MillioninFuelSavingswithinMonths,”May25,2020,https://www.saftbatteries.com/case-studies/saft-energy-storage-bermuda-nets-1-million-fuel-savings-within-months.33AbrahmLustgarten,“BarbadosResistsClimateColonialisminanEfforttoSurvivetheCostsofGlobalWarming,”ProPublica,July27,2022,https://www.propublica.org/article/mia-mottley-barbados-imf-climate-change.34ECOWAPP,accessedSeptember22,2022,https://www.ecowapp.org/en.rmi.org/75MarketStructuresGLOBALGUIDE35TheWorldBank,“ElectricityTradetoUnlockAffordableandReliableElectricityinWestAfrica,”July28,2020,https://www.worldbank.org/en/news/press-release/2020/07/28/electricity-trade-to-un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