Examining the viability of energy-only markets with high renewable penetrations

An illustrative energy-only electricity market model was used to explore possible market outcomes in scenarios with 100% renewable energy, including high penetrations of low operating cost variable technologies such as wind. Results indicate that even in scenarios with wholesale market prices at $0/MWh in the majority of periods, all technology types can precisely recover their costs via energy-only wholesale market revenues, if the generation mix is least cost optimized. Importantly, this includes the variable generation technologies. Furthermore, it is illustrated that exercise of market power is not essential for the modelled energy-only market; generators recover costs based upon short run marginal cost (SRMC) pricing alone (representing a highly competitive market), as long as the Market Price Cap (MPC) is set appropriately to reach the desired level of unserved energy. The appropriate setting for the MPC depends upon the cost parameters for the highest SRMC plant (often open cycle gas turbines).