Power Market Design and Modeling

NREL researchers develop analytical tools to better understand how bulk power system market designs and retail rates can create price signals to support the grid and achieve goals of reliability, affordability, and equity.

Efficient market design and operations support cost-effective electricity production with system reliability, ensuring the right resources are built and made available. This involves not only optimally scheduling market resources but also sending market price signals to guide how existing resources should respond during normal and scarce conditions and where new investment should occur. NREL researchers are actively working in this space to better capture real-world complexities, multiple decision perspectives, and investment uncertainties in models.

Capabilities

• Resource adequacy and probabilistic planning
• Wholesale electricity market models
• Retail rate design tools
• Price-responsive resource models

Impact of Market Design on Resource Adequacy

NREL evaluates the effectiveness of wholesale market structures, rules, and policies in achieving system resource adequacy and clean energy targets under future economic, policy, and system condition uncertainty. Using the Electricity Markets and Investment Suite model, NREL studies how operational factors impact resource adequacy and how market structures impact resource adequacy as well as guide future research directions of wholesale electricity markets including futures with deep decarbonization.

Uniquely, NREL is also developing an alternative framework of power system planning for resource adequacy needs. The new approach overcomes the computational challenges of increasing spatial and temporal granularity required for modern power system analysis by identifying the most stressful periods and directly modeling detailed system interactions for those periods in a capacity expansion model. In doing so, it eliminates aggregate capacity examinations such as capacity credits that add computational burden without also adding interactive portfolio effects.

Multiple Decision Makers' Perspectives

Electricity systems are becoming more diverse, including many stakeholders who have different and sometimes conflicting goals and new technologies of various sizes and unique characteristics. NREL uses an integrated modeling approach called the Holistic Electricity Model to capture the characteristics and behavior of multistakeholder systems with diverse objectives, technology options, and decision-making styles. Using the Holistic Electricity Model, NREL examines questions such as: What are the specific drivers that encourage decentralized generation? How do they balance with drivers that favor centralization? And how do different stakeholders fare in different regulatory and market environments?

Market Design and Stakeholder Engagement

NREL has been awarded support through the U.S. Department of Energy's Wholesale Electricity Market Studies and Engagement Program to provide states and regions with technical and financial assistance for the development and enhancement of wholesale electricity markets. In collaboration with university researchers, wholesale market operators, and state regulators, NREL is conducting studies on how resource procurement policies, market design, and price formation can adapt to an evolving resource mix, ensuring efficiency and reliability in both the short and long term. As part of these efforts, NREL is partnering with the Electric Power Research Institute and the Southwest Power Pool to explore innovative market design features such as multiday energy availability products, intraday look-ahead commitment configurations, greenhouse gas accounting, and improved storage participation models. The U.S. Department of Energy's Office of Energy Efficiency and Renewable Energy also has multi-partner and stakeholder interaction in the Market and Retail-rate Know-how for the Energy Transition portfolio, which explores how wholesale markets and retail rates might need to evolve to continue providing affordable, equitable, and reliable electricity. These initiatives align with the broader goal of advancing clean energy technologies, lowering energy costs, and supporting the energy transition by integrating modern renewable resources into the grid.

Institutional Considerations in Market Design

Numerous institutional considerations can impact power market design. For example, transmission and distribution system planning, retail electricity rate design, regulatory policy, or market governance may influence efficient, reliable, and equitable market outcomes. NREL has capabilities in these areas and more to complement wholesale market design analysis needs. In one project, NREL developed a residential retail rate design and analysis tool called the Customer Affordability, Incentives, and Rates Optimization model, to inform Los Angeles’ equitable transition to 100% clean energy. NREL also has a deep understanding of transmission modeling, planning, costs, and rules to study a range of transmission-related research questions, such as how current transmission system policies impact trading opportunities between regions.

Market Strategies and Transmission Expansion

NREL uses production cost and capacity expansion modeling to assess how different market and transmission coordination strategies can cut system costs while ensuring reliability. One study focuses on the U.S. portion of the Western Interconnection and the Southwest Power Pool and explores how market coordination efforts might interact with transmission. Specifically, the study examines how lower costs to transfer power and coordinated generation planning might impact the prospects of interregional transmission, including expansion of the interconnection seam. The study finds that market and transmission coordination tend to bring complementary benefits and that new transmission joining the Eastern and Western Interconnections is valuable under a range of market coordination levels. Another study examines how regional coordination of operating reserves in the Southeast United States can enable the integration of higher levels of solar while reducing total system operating costs.

Publications

View all NREL publications about power market design.

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