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Time to dump energy markets and deregulation?

Doug Houseman's picture
Visionary and innovator in the utility industry and grid modernization, Burns & McDonnell

I have a broad background in utilities and energy. I worked for Capgemini in the Energy Practice for more than 15 years. During that time I rose to the position of CTO of the 12,000 person...

  • Member since 2017
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  • Apr 21, 2022

Traditional energy markets and the deregulation that made them possible are failing society.

They are largely out of step with what society needs.

The central tenet of energy markets was to keep costs for power down. Largely it worked.

The designers of the markets did not foresee the impact of renewables, the need for storage, the importance of demand side management or the growing issues with security of supply. 

In some markets the price signal is insufficient to trigger needed infrastructure, like storage and demand side management programs.

This is only going to get worse as the percentage of renewables increase. The worse it gets the less secure out supply is. 

Markets need to evolve including:

1)    Making room in the value chain for storage and demand side management. Remember market signals were going to cause transmission and generation construction WITHOUT incentives.
2)    Capacity auctions should be by month. 
3)    Non-firm resources should not be allowed in a capacity auction. 
4)    Netting any resource (load or supply) over more than one market interval should not be allowed.
5)    Imbalance market activities should be stepped up.
6)    Demand side management programs should (a) participate in capacity auctions, (b) have both payments and penalties for performance and (c) be subject to a capacity true up on a quarterly basis.

Julian Silk's picture
Julian Silk on Apr 21, 2022

These are reasonable suggestions which can allow markets to continue.  4) is problematic, though.  This would eliminate all fixed contracts, and cause injury to those who are currently enrolled in them.  Even after this, it would seem more sensible to have some sort of separation for the long-term contracts and the short-term contracts.  This works for financial instruments, in that the 30-year bond market is not the 3-month bill market, and it might work for electricity, too.

Julian Silk's picture
Julian Silk on Apr 21, 2022

This can be pursued a little further. Right now, as I understand it, there is spinning reserve, which is basically a buffer stock of supply. It would seem to the unwashed that there could be spinning demand, which could absorb the excess supply in a short time interval for a high price. This could be batteries, or pumped hydro, or compressed air, or desalinization, or the reversible fuel cells that are mentioned today. If this exists, then the long-term market could be kept separate from the short-term market, and different sources might supply the demand buffer for the excess supply in the long-term market.

Michael Keller's picture
Michael Keller on Apr 25, 2022

“Deregulated” markets are in fact regulated, with the elitist political class interfering with the dynamics of the production and distribution of energy.

Seem to me we need to stop the charade of “deregulation”, accept that  electrical generation and distribution are inherently monopolistic, and insist that the resource be regulated to provide reasonably priced and reasonably clean electrical energy. The self serving zealots currently infesting the regulatory environment need to be shown the exit.

Doug Houseman's picture
Thank Doug for the Post!
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