The Interplay of Market Dynamics and Policy in Electric Sector Transition

An expert in electricity markets explains why market price signals alone will struggle to incentivize adequate investment in the flexible electricity resources needed for future grid reliability.

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In the 1990s the process of deregulation – or restructuring – of the U.S. electricity system began, leading to the introduction of competition to an industry that had for a century been dominated by vertically-integrated utility monopolies. Today, competitive markets produce two-thirds of the electricity consumed in the country. Yet concern has grown that these modern markets may not be up to the task of driving the types of investment needed to ensure that an ample and reliable supply of clean electricity will be available in the future.

Kelli Joseph, a senior fellow with the Kleinman Center, offers a deep dive into the theory of competitive electricity markets and the role that market price signals play in driving investment in many parts of the United States. She explores the need to incentivize investment in flexible resources essential to the reliability of a grid that is increasingly reliant on natural gas and renewable generation, and discusses how electricity markets and policy might meet the challenges of the energy transition.

Kelli Joseph is a senior fellow with the Kleinman Center for Energy Policy.

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