Welcome to the Power Markets Project

Renewable energy is becoming competitive in a growing number of markets, and becoming a major contributor to power supplies.  Pro-renewable policies to date have been successful at jump-starting the industry, giving it the maturity to succeed.

Now that it is succeeding, more fundamental policy reforms are needed.

Power market policies designed for conventional generation are emerging as a major stumbling block to the rapid growth of wind and solar power, and to their long-term dominance.  

By "power markets" I refer to how the money flows, rather than the important technical issues about integrating variable generation (how the power flows).  Because wind and solar have low operating (marginal) costs, and because their output is driven by the weather, their power is delivered whenever it is available, regardless (mostly) of market conditions.  

In sufficiently large amounts, this can have a major impact on electricity market prices.  Thanks to the "merit order effect," where low operating cost generators are dispatched first, market-clearing prices are driven down, sometimes to zero or even negative levels.  This draws revenues away from conventional generators who must pay for their fuel in order to run.  

Over time, this is exactly what we want to happen, for renewable energy to out-compete conventional, polluting sources like coal and gas.  There is a whole suite of smart-grid technologies on the supply and demand side that can help integrate wind and solar, including dispatchable renewables, demand response, and storage.  But for now, we still need dispatchable generation to maintain reliability.  

Managing that transition to a system dominated by wind and solar, with complementary roles played by all the other technologies and tactics, hinges on designing the dollar flows in a power market.

The Power Markets project is intended to compare electricity markets in the US and in Germany, to exchange experience and best practices between grid leaders in both countries.

While Germany is unquestionably deploying more renewable energy than other nations, it has not resolved all possible problems in the transition. Being in the vanguard creates an even greater need for expertise and ideas than being a follower.

The Project will first summarize the existing literature on electricity market issues in both countries, and survey experts about possible solutions.  It will then bring a delegation of German policy-makers and grid experts to the United States to learn about approaches.  Lastly, it will publicize the "findings" of the research and the tour, to further understanding about the issues.