The Changing Shape of Electricity Markets

If you’re in the ‘electricity business’, you’ll be familiar with the duck curve. The duck curve is essentially the result of some energy analysts observing changes in the shape of the electricity markets and trying to make these rather dry and complex market trends sound more ‘fun’ and memorable.  




In 2013, the grid operator of California, CAISO, published a report, which depicted annual changes of a 24-hour period in California during springtime, as solar energy adoption increases.  

It was one of the earlier acknowledgments of the changing shape of the electricity markets – in this particular instance – from the perspective of a major grid operator, and only considered one factor – the adoption of solar energy as a source of electricity. Since then, a number of other environmental, technological, political and regulatory developments have continued to reshape the electricity markets around the globe. At the root of these developments lie the ever-accelerating drive to decarbonize the energy industry. 


Leaving aside the further complexities that battery technology advancements are adding to the mix, one of the unique aspects of electricity from a trading perspective is that it is not (easily) storable. Hence, the markets are driven by the necessity to constantly balance supply and demand (generation and load), both of which are going through a transformation driven by a flurry of changes such as increased use of renewables and decreased use of coal as the fuel source, behind the meter generation (residential, commercial and industrial), increased demand due to electric vehicles, extreme climate events becoming more frequent (think ERCOT or Japan & Korea last winter). 


In 2020, despite the previous not-so renewable-friendly administration, the US increased its renewable energy consumption. Around the globe, countries and local governments are pushing for increased usage of renewables. A number of large C & I (commercial and industrial) users are adding to this pressure by using their economic power as an influence as well as providing the capital for behind the meter wind, solar and other renewable generation projects.  

AWS is now responsible for nearly 2% of all electrical power consumption in the US and they are aiming to be 100% renewable by 2025.  

Wal-Mart, whose US electric bill is supposed to be around $1 billion per year, has set 2035 as its target date to become 100% renewable – they may end up using RECs/renewable energy credits and similar tools to reach these goals. But still. 

A related trend is the ‘decentralization’ of generation. There is of course, all the behind-the-meter generation (residential and C & I), but also there is a need for increased flexibility in the infrastructure due to the impact of increased renewables in the mix (such as the steepening of the evening ramp-up in the duck curve). This leads to smaller generation assets becoming more attractive (CTRMCenter’s interview with David Holt discusses the UK power markets). 


Introduce regulatory changes to this and you’ll see how electricity markets are in the midst of a period of unprecedented change. How is this affecting the world of trading? How are trade cycles changing? How will changes in the portfolio mix (more renewable, less carbon) or advances in storage impact risk management? How do seasonal models work with the increased rate of extreme climate events?  

We’d love to know what you think. Contact us to start the conversation. 

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