Perspectives on market designs for low carbon economies

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• Alberto Lamadrid (Lehigh University)
• Monday 01 July 2024, 12:30-13:30
• Cambridge Judge Business School, W4.03.

If you have a question about this talk, please contact Jacque Woolley.

Obtaining appropriate market-clearing prices for electricity markets is a challenging problem due to the way in which electricity is produced, transmitted and consumed, as well as the fact that electricity, loosely speaking, cannot yet be economically stored. Thus, in many electricity markets (e.g., California ISO , PJM Interconnection, New York ISO , New England ISO , ERCOT, and Nordpool), a market administrator is tasked with the central administration of the market that is referred as the independent system operator (ISO). One of these challenges arises from the increasing penetration of variable renewable energy sources (VRES); like solar, wave and wind generators, as a result of efforts to move towards a low carbon economy. Namely, the uncertain nature of the power generated by VRES generating units introduces uncertainty in the market-clearing model used to compute the desired market-clearing prices. In this talk I present a framework to study the problem of deriving financially adequate prices for trading electricity under a centralized auction with environmental considerations. Our model has producers using conventional technologies with byproduct emissions; and environmentally clean producers subject to exogenous weather realizations, but lower emissions in production. For this purpose, we derive a new financially adequate market clearing pricing scheme. Unlike related financially adequate pricing schemes that only take into account the marginal market costs associated with market clearing commodity demands, the proposed pricing scheme also takes into account the marginal market costs associated with the market participants operating at maximum capabilities. The proposed pricing scheme allows to analyze the effects of environmental limitations in the market, as it internalizes, in the pricing signals, the costs or benefits associated with compliance of these limits by the market participants; and in particular, conventional technology producers.

This talk is part of the EPRG Energy & Environment Seminars series.

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• Cambridge Judge Business School, W4.03

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