Electricity Markets and Pricing for the Distributed Generation Era
Wholesale and retail electricity markets have changed little over the past century, with flat kilowatt-hour pricing still the norm. This outdated model will have to change to meet the future challenges facing the industry. Present market structures are ill-adapted to the cost and operating characteristics of a decarbonized supply side, especially in view of technological innovations in distributed energy resources. The prices that energy markets produce do not underpin investment in these sources or give useful operating signals for intermittent sources like wind and solar. Meanwhile, consumers are either sheltered from the impact of wholesale market volatility or faced with confusing and perverse price signals. The chapter considers various options for a pricing structure linking supply and demand coherently, including a reconceptualization of electricity into two products: “as-available” and “on-demand” power. The implications of these developments for electricity business models and investment are examined.