The MW and MWH Aren't Commodities - And Why That's A Big Problem For Centralized Electricity Markets

A lot of attention in recent years has focused on subsidy and support programs to advance clean, renewable electricity supply penetration and the challenges these interventions pose to ISO markets trying to get prices "right" to meet economic and reliability objectives.  What's also becoming increasingly apparent is that the character of these new technologies gravely complicates the single clearing price auction model ISOs use in energy, capacity and certain ancillary service markets.  In this op-ed, co-authored with former FERC Commissioner Tony Clark, I argue the root of the problem is an assumption in the pricing model that all MWs offered and all MWHs injected, from whatever source, can be treated as fungible.  Holding to this assumption has always been tricky, as anyone aware of the complex price formation and market settlement rules in ISOs can attest.   With a supply stack increasingly comprised of resources having inherently different operating attributes, it seems the single clearing price model (despite its advantages and consequently our natural reluctance to confront its failings) will result in more volatile, less reliable and less economically sound outcomes.  The time has come to stop thinking of the products bought and sold in ISO markets as commodities.

When Is A MWh Not A MWh?