Great Britain’s carbon emissions from electricity generation fell by two-thirds between 2012 and 2019, providing an important example for other nations. This rapid transition was driven by a complex interplay of policies and events: investment in renewable generation, closure of coal power stations, raising carbon prices and energy efficiency measures. Previous studies of the impact of these simultaneous individual measures miss their interactions with each other and with exogenous changes in fuel prices and the weather. Here we use Shapley values, a concept from cooperative game theory, to disentangle these and precisely attribute outcomes (CO2 saved, changes to electricity prices and fossil fuel consumption) to individual drivers. We find the effectiveness of each driver remained stable despite the transformation seen over the 7 years we study. The four main drivers each saved 19–29 MtCO2 per year in 2019, reinforcing the view that there is no ‘silver bullet’, and a multi-faceted approach to deep decarbonisation is essential.
Excerpt from the Introduction:
The Federal Energy Regulatory Commission is considering potential reforms to improve the operation of organized wholesale electric markets. The purpose of this paper is to discuss a larger framework for evaluating issues of regulation and market design in electricity markets. Regulation and competition are essential elements of electricity policy. The special requirements of electricity systems create a dual challenge: First, regulation must address issues of market design; markets cannot solve the problem of market design. Second, regulation must complement competition; inconsistent choices in either can undermine the foundations of reliable electricity supply at market prices and subvert the goals of organized electricity markets.
Organized electricity markets are developing with many advanced features that address the technical requirements of electricity systems. Initial defects in market design are being addressed in a continuous process of learning and improvement. As experience accumulates, inevitably problems arise that present challenges for regulators. In some cases, the problems can be addressed through the use of markets and incentives. In other cases, the problems require regulation and mandates. A critical task for the regulator is to provide a proper balance of regulation and markets. This challenge is complicated through the unintended consequences of decisions in each realm. Market design can have significant effects on the outcome of regulation. In turn, regulation can have significant effects on the operation of markets. Whenever regulators must act, there is a choice in the type of action. Big “R” regulatory solutions often call for mandates and subsidies for favored programs. Little “r” regulatory solution would emphasize reforms of market design to improve incentives or limits on regulatory mandates to support rather than replace market choices. Regulation may be unavoidable, but there is flexibility in the type of regulation.
A framework for evaluating issues of regulation and market design in electricity markets helps regulators identify regulatory choices that minimize the unintended consequences in markets, and identify market design features that can support the goals of regulation. A concern is that major regulatory decisions are being made without consideration of the interaction with markets and market design. The result is both a failure to resolve the immediate problems and collateral damage to operation of the market. The cycle precipitates more problems and more need for regulatory mandates to counter the effects of poor incentives in market design.
This is an avoidable problem. The discussion here illustrates the type of problems that arise in organized markets and provides examples of innovative approaches addressing the problems that balance regulation and market design.
Excerpt from the Executive Summary:
Over the past several years, a number of groups have questioned whether implementation of coordinated wholesale electricity markets in several regions of the United States has benefited retail electricity customers. The development of these markets was motivated in large part by a desire to achieve increased short-term and long-term efficiency in the generation and delivery of electricity through increased reliance on market mechanisms. Along with this came the expectation of lower retail electricity prices, similar to what occurred in other industries that have undergone a deregulation, such as long-distance telephone service, passenger airlines, and interstate trucking. Spurred by recent increases in electricity prices, some groups have called for a re-examination of the deregulated market structure adopted in coordinated markets in the Midwest, Mid-Atlantic and Northeast (i.e., LMP pricing, day-ahead markets based on security- constrained unit commitment, and financial transmission rights). Some critics have even called for a return to the previous system of rate of return regulation and control area operation by vertically integrated utilities.
This paper provides an empirical analysis demonstrating that the implementation of coordinated markets has served to reduce the increase in average consumer rates that has resulted from increases in input costs for electricity generation. In addressing this policy question the issue is not whether average consumer rates have risen or declined in recent years, but whether they are lower than they would have been absent implementation of coordinated markets. In fact, average electricity rates have risen over the period since the implementation of coordinated markets, but this increase has occurred in all regions of the country as a result of increasing fuel prices, regardless of market structure.
The restructuring of the U.S. electric power industry has been described as “one of the largest single industrial reorganizations in the history of the world.” As with deregulation and reform of other industries, electricity restructuring was intended to produce cost efficiencies and price benefits to consumers. Whether it has achieved its stated objective is the focus of a number of recent studies that are examined in this review. The studies differ in numerous important ways – most importantly, in their methodologies and their conclusions. The focus of this review is on the strengths and limitations of their specific methodologies and, hence, on the confidence one might place in their conclusions. The article begins by setting out the basic methodological approaches employed in public policy evaluation. It then illustrates these points with examples from methodologies employed in several studies of electricity restructuring, concluding that several methodological deficiencies call into question the study results. In particular, despite much advocacy, there is little reliable and convincing evidence that consumers are better off as a result of the restructuring of the U.S. electric power industry.
Excerpt from the Executive Summary:
This report reviews and evaluates the outcomes of the ERCOT wholesale electricity markets in 2004. It includes assessments of the incentives provided by the current market rules and procedures, and analyses of the conduct of market participants. We find improvements in a number of areas over the results in prior years that can be attributed to changes in the market rules or operation of the markets. However, the report generally confirms prior findings that the current market rules and procedures are resulting in systematic inefficiencies.
This white paper is a primer on wholesale market design and provides background for the open meeting workshop scheduled by the Public Utility Commission of Texas for November 1, 2002. The paper is divided into six sections:
1. Reasons for this rulemaking;
2. Measures of an efficient, sustainable market;
3. Architecture of power markets;
4. Elements of a power market;
5. Basic economics of congestion management and day-ahead markets;
6. Descriptions of wholesale electric markets around the world.