Market designs for a reliable electricity grid, CCC/302

ABSTRACT

The growing deployment of variable renewable energy presents a challenge for electricity market design for grids with liberalised markets. Lower operating hours and other pressures have led to rapid retirement of thermal plant in many regions, raising concerns over how to drive investment in a future grid which provides sufficient firm capacity to meet demand, as well as the essential attributes of a reliable grid. To ensure resource adequacy, many markets have employed a form of capacity mechanism, while others have opted for an ‘energy-only’ approach in which investment is driven by wholesale price signals alone. Meanwhile, compensation mechanisms for grid services such as inertia, frequency control, voltage control, and constraint management have also come under increased scrutiny, as the proportion of thermal plant which has conventionally provided these services has declined. This report reviews how various liberalised markets have addressed these issues, with a focus on how different approaches are affecting the viability of coal plant. Finally, it considers some key markets in Asia which are beginning to tackle the same challenges as they move towards less regulated models.