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Rakesh  Sharma's picture
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I am a New York-based freelance journalist interested in energy markets. I write about energy policy, trading markets, and energy management topics. You can see more of my writing...

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  • Jan 8, 2021
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Here is an interesting McKinsey article from last month about the two types of electricity markets - cost driven and policy driven - that are emerging in US electricity markets. The former label refers to states which have not set explicit or limited targets for carbon reduction and the latter label is for states that have aggressive zero-carbon targets for their economies.

Some of the conclusions are fairly predictable: power demand will grow twice as fast in policy driven markets as compared to cost driven markets due to increased electrification. Others are interesting: short-term battery storage will become a popular option in California while New York will opt for a balance between long term battery storage and wind. "Electric utilities could see a range of outcomes - from limited disruption in the cost-driven markets to a rapid increase in electrification and growth of centralized and distributed renewables in policy-driven markets, along with a host of modernizing and capacity-increasing investments in the electric grid to accommodate these changes," the authors write. 

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Bob Meinetz's picture
Bob Meinetz on Jan 8, 2021

Rakesh, what cost-driven market in electricity? All costs are recovered from captive ratepayers, who have no choice of providers. As such, there is no competitive "market" in electricity.

Arguably there is no policy-driven market either, unless one considers state governments a customer - one that doesn't pay for, or use, its product.

?

Rakesh  Sharma's picture
Rakesh Sharma on Jan 8, 2021

Bob, Both terms are used to establish a hypothetical distinction between states that have set aggressive targets to decarbonize their economy and those that haven't. The authors argue that decarbonization targets will resulting in different structures and policies at ISOs. It might be an idea to read, or at least skim, the piece before commenting. 

Bob Meinetz's picture
Bob Meinetz on Jan 9, 2021

I did read it - and the idea ISOs have created truly "competitive" market structures is a joke.
In-state ISOs, like ERCOT or CAISO, are wholly unregulated by independent, federal entities. Interstate ISOs (MISO, PJM) are, in theory, regulated by the Federal Energy Regulatory Commission - an agency with one-tenth the resources needed to protect consumers from self-dealing practices now rampant in the industry.
Competition starts from the consumer - if it doesn't exist there, it doesn't exist anywhere.

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