Short Term Electricity Market Designs: Identified Challenges and Promising Solutions

Lina Silva-Rodriguez, Anibal Sanjab, Elena Fumagalli, Ana Virag and Madeleine Gibescu
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Lina Silva-Rodriguez: Flemish Institute for Technological Research
Anibal Sanjab: Flemish Institute for Technological Research
Elena Fumagalli: Copernicus Institute of Sustainable Development - Utrecht University, Netherlands
Ana Virag: Flemish Institute for Technological Research
Madeleine Gibescu: Copernicus Institute of Sustainable Development - Utrecht University, Netherlands

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Abstract: The electricity market, which was initially designed for dispatchable power plants and inflexible demand, is being increasingly challenged by new trends, such as the high penetration of intermittent renewables and the transformation of the consumers energy space. To accommodate these new trends and improve the performance of the market, several modifications to current market designs have been proposed in the literature. Given the vast variety of these proposals, this paper provides a comprehensive investigation of the modifications proposed in the literature as well as a detailed assessment of their suitability for improving market performance under the continuously evolving electricity landscape. To this end, first, a set of criteria for an ideal market design is proposed, and the barriers present in current market designs hindering the fulfillment of these criteria are identified. Then, the different market solutions proposed in the literature, which could potentially mitigate these barriers, are extensively explored. Finally, a taxonomy of the proposed solutions is presented, highlighting the barriers addressed by each proposal and the associated implementation challenges. The outcomes of this analysis show that even though each barrier is addressed by at least one proposed solution, no single proposal is able to address all the barriers simultaneously. In this regard, a future-proof market design must combine different elements of proposed solutions to comprehensively mitigate market barriers and overcome the identified implementation challenges. Thus, by thoroughly reviewing this rich body of literature, this paper introduces key contributions enabling the advancement of the state-of-the-art towards increasingly efficient electricity market.

Date: 2020-11
New Economics Papers: this item is included in nep-ene
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