The impacts of distributed energy resources on price formation and market fundamentals will soon become a critical issue, according to a white paper by consulting firm ICF International.
According to Distributed Generation’s Future Impact on the US Capacity Markets, the variability of the resource and its location on the grid can undermine efficient market operations by effectively decoupling price formation from supply and demand “fundamentals.”
This effect will be felt most in the northeast where the adequacy of supply is maintained via market mechanisms, the paper says. While regions such a California, which the paper describes as being “at the forefront” of resource integration, can provide some useful lessons, the California experience will have limited applicability due to key differences in market structure.
For example, California has encouraged distributed resource integration through state procurement mandates, but that approach is “untenable” in the context of organized markets that rely on capacity market constructs for resource procurement such as, the white paper says.
In markets such as PJM and New England such solutions would compromise the integrity of price formation, the white paper says.