Market design for electricity – Comparing the US and EU | Fabien Roques

Fabien Roques, professor at University Paris Dauphine and senior vice president at Compass Lexecon, explains why electricity is a special good (e.g. non-storability, variability of demand, etc.) and why the design of market rules is so relevant to foster efficient behaviours by market players. Different solutions for designing power markets and coordinating them with power system operation are possible. The EU and the US represent two interesting examples. The former has developed a model based on transmission system operators (TSO), self-dispatch, separate reserves procurement and zonal pricing. The latter relies in most of the cases on independent system operators (ISO), centralised dispatch, co-optimisation of reserves and nodal pricing. Both approaches have advantages and disadvantages, long debated by academics and practitioners. Nevertheless, it is likely that the US approach is more appropriate for an electricity system with more and more intermittent renewables.