Great read Declan, your explanation of some of the more complex nuances of the NEM are clear and simples (best meerkat voice). Making this information far easier to consume for people less actively involved in the energy sector.
South Korea, China, Vietnam, India and Philippines also have markets at slightly higher levels of regulation, and not sure if they are energy only markets.
The energy-only vs. capacity market debate is probably most interesting in those electricity markets that are in the process of liberalising. My understanding is that Vietnam is relatively early on its journey toward introducing electricity markets - market designers there must be conflicted talking to regulators around the world, some are proud of their energy-only markets, some proud of their capacity markets, and most considering changing their market design. No one seems to have really figured it out...
Good, but you guys have done much better ones. I think I just want more content on this topic. One issue: while CAISO doesn't have a formal capacity market, it puts a stringent requirement on the retailers (which are heavily regulated) to ensure there is 115% of capacity available. The market price cap is USD$2,000/MWh, which isn't sufficient to attract new generation without the other scheme. Don't reserve and/or day ahead markets, which put less pressure on the role of the real-time/5-minute market to do so much heavy lifting. (I consider capacity an ancillary -- or essential system -- service, and most places with capacity markets include it in that group.) Will you talk about locational marginal pricing? One wholesale price per state is tremendously inefficient, given transmission capacity constraints. The lovers of the NEM's "efficiency" have to explain why temporal efficiency is valuable but locational efficiency isn't. Finally --what about consumers? Protecting them is the reason there is a market price cap at all!!! Which market design is best for them?
Thanks for the comment - you've got to the heart of the challenge in writing these posts. There's lots more detail and nuance that I steered away from for the sake of the more simplified explainers. It's a good flag for a future post - the capacity market vs. energy-only market split doesn't really make that much sense in a world where most markets seem to be moving towards some form of a hybrid.
Same with LMPs - it's worthy of a dedicated post because there's so much assumed knowledge when we start talking about locational prices, how they're formed, why we don't have them, their benefits, the trade-offs of moving to an LMP system etc.
On consumers and the MPC - I dont really think of the MPC as something that protects consumers - it's a high price for protection! I think the CPT functions as price protection for consumers. On the best design for consumers? The answer you get would depend on the person you ask - I like energy-only, but I've also been biased by my experiences. I'm sure others feel very strongly that their flavour of capacity market strikes the best balance for consumers. I tried to avoid declaring which is better for consumers and just focus on explaining the differences for those wanting to understand those differences better. I footnoted a RenewEconomy article I wrote arguing against the transition away from an energy-only market in the NEM, but others at the time thought that would have been better for consumers.
Great read Declan, your explanation of some of the more complex nuances of the NEM are clear and simples (best meerkat voice). Making this information far easier to consume for people less actively involved in the energy sector.
Thanks for the great article.
Japan has a wholesale energy market.
South Korea, China, Vietnam, India and Philippines also have markets at slightly higher levels of regulation, and not sure if they are energy only markets.
Thanks Max! I think Japan has a hybrid market - they have introduced a type of capacity payment for new entrants I believe: https://www.energy-storage.news/japans-low-carbon-capacity-auctions-will-have-significant-impact-on-business-case-for-batteries/
The energy-only vs. capacity market debate is probably most interesting in those electricity markets that are in the process of liberalising. My understanding is that Vietnam is relatively early on its journey toward introducing electricity markets - market designers there must be conflicted talking to regulators around the world, some are proud of their energy-only markets, some proud of their capacity markets, and most considering changing their market design. No one seems to have really figured it out...
Good, but you guys have done much better ones. I think I just want more content on this topic. One issue: while CAISO doesn't have a formal capacity market, it puts a stringent requirement on the retailers (which are heavily regulated) to ensure there is 115% of capacity available. The market price cap is USD$2,000/MWh, which isn't sufficient to attract new generation without the other scheme. Don't reserve and/or day ahead markets, which put less pressure on the role of the real-time/5-minute market to do so much heavy lifting. (I consider capacity an ancillary -- or essential system -- service, and most places with capacity markets include it in that group.) Will you talk about locational marginal pricing? One wholesale price per state is tremendously inefficient, given transmission capacity constraints. The lovers of the NEM's "efficiency" have to explain why temporal efficiency is valuable but locational efficiency isn't. Finally --what about consumers? Protecting them is the reason there is a market price cap at all!!! Which market design is best for them?
Thanks for the comment - you've got to the heart of the challenge in writing these posts. There's lots more detail and nuance that I steered away from for the sake of the more simplified explainers. It's a good flag for a future post - the capacity market vs. energy-only market split doesn't really make that much sense in a world where most markets seem to be moving towards some form of a hybrid.
Same with LMPs - it's worthy of a dedicated post because there's so much assumed knowledge when we start talking about locational prices, how they're formed, why we don't have them, their benefits, the trade-offs of moving to an LMP system etc.
On consumers and the MPC - I dont really think of the MPC as something that protects consumers - it's a high price for protection! I think the CPT functions as price protection for consumers. On the best design for consumers? The answer you get would depend on the person you ask - I like energy-only, but I've also been biased by my experiences. I'm sure others feel very strongly that their flavour of capacity market strikes the best balance for consumers. I tried to avoid declaring which is better for consumers and just focus on explaining the differences for those wanting to understand those differences better. I footnoted a RenewEconomy article I wrote arguing against the transition away from an energy-only market in the NEM, but others at the time thought that would have been better for consumers.