Power Shift: Decarbonization and the New Dynamics of Energy Markets

Ricardo Raineri ()
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Ricardo Raineri: Departamento de Ingeniería Industrial y de Sistemas, Escuela de Ingeniería, Pontificia Universidad Católica de Chile, Santiago 8320165, Chile

Energies, 2025, vol. 18, issue 3, 1-52

Abstract: This paper examines the transformative effects of decarbonization on electricity market design, emphasizing the challenges and opportunities posed by the rapid integration of renewable energy sources such as wind and solar. It analyzes the evolution of key wholesale market segments—including day-ahead, real-time, capacity, long-term purchase agreements, ancillary services, and transmission markets—highlighting their critical roles in managing the variability of renewable energy generation through efficient price signals and resource coordination. Variable renewable energy integration introduces significant operational challenges, including overgeneration risks, ramping capacity demands, forecast inaccuracies, and transmission constraints. Addressing these issues requires enhanced market flexibility, dynamic pricing mechanisms, and advanced real-time balancing strategies. This paper assesses these challenges, offering strategies to align generation with demand and optimize market outcomes. As electricity systems evolve, legacy market structures must adapt to incorporate carbon-free resources while maintaining grid reliability and economic sustainability. By exploring case studies such as Chile and California, this paper demonstrates the importance of targeted innovations in market design, regulatory frameworks, and operational technologies. It advocates for a holistic approach to ensure a reliable, affordable, and equitable transition to a decarbonized energy future.

Keywords: decarbonization; renewable energy integration; electricity market design; resilient grids; clean energy dynamics; energy transition; power shift; future-proof energy (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2025
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