Electricity Markets

Market Design and Innovation

Integrating renewable energy resources into electricity grids in a way that is affordable, ensures system security, and delivers reliability is an enormous societal challenge. To meet it, we must develop a deep understanding of the markets, institutions, and regulatory structures governing electricity systems.

Market structures and policies do not provide sufficient incentives for capacity, flexibility, and innovation in electricity systems around the world. While technological progress and new mechanisms for integrating renewables continue to drive down costs, enable accessibility, and enhance operational efficiency, these improvements are not occurring fast enough to ensure that the world does not exceed its carbon budget. The market design, innovation, and grid requirements for transitioning to low carbon energy systems in the 21st century are substantial.

The key economic challenge is to create market, regulatory, and institutional arrangements that provide sufficient incentives for investment and operational efficiency—arrangements that are compatible with the technological and economic characteristics of low carbon power generation.

To address this challenge, the economics research team is undertaking economic analysis, systems modeling, empirical research, and political economy analyses focusing on two related areas: system and market design and innovation. Examples of the questions arising from the integration of large-scale renewables are as follows:

  • System market design
  • Power market arrangements, including challenges for wholesale markets, capacity and balancing markets and associated system rules;
  • Electricity pricing at geographical nodes and at different times;
  • Optimal balance of investment in flexible generation technologies, storage, interconnection, and demand side management;
  • Industrial organization and competition issues in the power sector;
  • Quantifying the industrial capabilities of countries to produce low carbon and renewable energy products in the future.
  • Innovation
  • Understanding the main drivers of cost reductions in key renewable and integrative technologies;
  • Design of instruments and interventions to accelerate technological progress in electricity system technologies;
  • Optimal public and private spending on innovation in flexible generation technologies, storage, interconnection, and demand side management;
  • The impact of innovation policy on security and capacity adequacy in future low carbon energy systems.
For more information, please contact: