Program on Energy and Sustainable Development (PESD) Director Frank Wolak and Associate Director Mark Thurber conducted a workshop on December 3-4 in Brasília, at the offices of Brazil's electricity regulator ANEEL. Regulatory staff used PESD's energy market game to explore what it would mean for the country to move from a cost-based to a bid-based electricity market. Brazil's electricity supply is dominated by hydroelectric power, and a shift to a bid-based market could help the country manage variable hydro output. At the same time, regulators have to make sure the incentives of participants in a bid-based market are set so they align with desired social outcomes. By playing the roles of generating companies in the energy market game, regulators at ANEEL gained a deeper understanding of what these incentives would be under different market configurations -- and specifically, the workshop examined the relative strengths and weaknesses of capacity markets and forward contracts as mechanisms for ensuring resource adequacy in a high-renewables world.

On November 2 at the University of Hawaii, Program on Energy and Sustainable Development (PESD) Director Frank Wolak gave a special seminar "How Should the Public Utilities Commission Regulate Hawaiian Electric Company for Better Integration of Renewable Energy?" He summarized inefficiencies in Hawaii's electricity system and advocates a "cost based" market in which long-term competitive contracts for power would be used in conjunction with a regulated optimization model that would set real-time prices for buying and selling of electricity and grid services.  

Read more (includes links to video of Professor Wolak's talk and slides)

Program on Energy and Sustainable Development (PESD) Director Frank Wolak, Associate DIrector Mark Thurber, and doctoral candidate Trevor Davis led an Electricity Market Simulation Workshop as part of the 2018 Western Electricity Market Forum September 20-21 in Boise, Idaho.  The audience was comprised of regulators and regulatory staff as well as policy makers representing states from across the western U.S.

The workshop used the PESD-developed Energy Market Game to explore timely questions about how electricity markets with a high share of renewable resources might function. “The Energy Market Game allows people of diverse backgrounds to understand market dynamics,” Thurber explained. “It can help policy makers and regulators set up incentives for market participants which naturally align with desired outcomes.”

The PESD team ran games with two contrasting policy approaches aimed at ensuring resource adequacy, with workshop participants playing the role of generating companies (“gencos”). In a high-renewable world, the specific resource adequacy concern is that thermal power plants won’t run enough to be profitable, and gencos therefore won’t build or keep enough thermal power plants to back up renewables when wind and sun aren’t available.

In the first game scenario, capacity markets were used to spur gencos to build enough gas-fired power plants to meet demand. Capacity markets straight-out pay gencos for holding generation capacity. They are used in a number of real-world electricity markets, but the games suggested they may not result in the cheapest power for consumers.

PESD Director Frank Wolak helps a workshop participant set up an Energy Market Game scenario.

PESD Director Frank Wolak helps a workshop participant set up an Energy Market Game scenario.
Photo Credit:  Maury Galbraith, Western Energy Board

In the second game scenario, forward contracts for electricity created the incentive for gencos to build power plants. If a genco doesn’t produce enough electricity to cover its forward contract, it risks having to buy the shortfall out of the spot market at high prices. Forward contracts therefore encourage gencos not only to build adequate generation capacity, but also to bid that capacity into the market at competitive prices. As this second game scenario showed, that can mean cheaper power for consumers.