Evolution toward standardized market design

Abstract

The evolution toward the standardized market design (SMD) is presented in this paper with references to the market developments in New Zealand, Australia, PJM, ISO-NE, and ERCOT. In the development of market designs, two main objectives-market liquidity facilitating bilateral trading and pricing efficiency facilitating congestion management, have been pursued. The efforts to balance the seemingly conflicting objectives led to most markets designed with a uniform or zonal pricing model. Introduction of locational marginal pricing and evolution of transmission rights from physical to financial form made it possible to harmonize the potentially conflicting goals in a market design. The close coupling between energy and ancillary services requires that markets for these commodities be carefully coordinated. Different operational practices and reliability standard requirements have led to major differences in ancillary service market designs.