Electrifying nearly everything is necessary as the world transitions to net zero carbon emissions. Electricity demand will double with rapid innovation in supply and demand. As the share of intermittent renewables, primarily solar and wind, grows and extreme weather events become more frequent, balancing supply and demand every second becomes more challenging. Restructured wholesale markets provide real-time balancing. The market determines clearing prices that balance supply and demand, motivating operations to maximize social welfare.
Prices vary by time and place. Electricity prices, typically about $40 per megawatt-hour, may be negative when renewable production is high and thousands of dollars during extreme weather. Participants attempt to manage this risk with forward trade, but several market failures limit risk management and undermine efficient investment. Electricity markets have struggled with these challenges for decades.
Our market platform addresses the critical market failures that have hindered efficient electricity investment and stifled innovation: incomplete markets, market power, and uncertainty. Once adopted, this research will expedite decarbonization. It leverages robust market designs to foster innovation and competition, bringing essential flexibility for reliable and resilient electricity in a setting with high renewable penetration. The research identifies the need to involve demand, particularly during extreme weather. Such a market significantly enhances price incentives, enabling efficient investment and operation of participants' resources. Notably, retail consumers stand to benefit from these reforms. The result is a net-zero economy that provides reliable and resilient electricity at the least cost.
The venture develops a forward energy market that aligns market participants' incentives with social welfare. The new market promotes competition and innovation through improved forward trading and improves investment incentives, reliability, and resilience to extreme events, avoiding a costly and inefficient capacity market. The market reforms are designed to be introduced by existing independent system operators. The process can be gradual and low-cost since core systems need not change. The open-source platform we are building and testing is highly customizable, recognizing that every system operator has its ideal adoption path.
The forward energy market allows frictionless, gradual trade of energy and related products that are defined finely in terms of time and location. It complements the system operator's spot market. The bidding language is designed for easy and effective participation, and market participants can tailor strategies to their circumstances.
Our team, comprising computer science, economics, applied math, and finance researchers, is leading a global effort to expedite the green energy transition while improving the reliability and resiliency of critical infrastructure. We have made enormous progress in developing ideas, building a proof-of-concept, and establishing ease of participation and robustness. These efforts will continue for many years through a continuous improvement and adoption cycle globally, underscoring the potential impact of our work on a global scale.
This podcast discusses the power of flow trading to allow efficient and transparent trade of time-and-location commodities like electricity, communications, and transportation. The approach maximizes social welfare, enabling market participants to manage needs and risks as information is revealed.