The energy landscape is transforming at an unprecedented pace: anticipated growth in electricity demand, expansion of all types of energy sources, including variable energy resources and energy storage technologies, and decentralized resources that have the potential to reshape the traditional grid. This shift presents both incredible opportunities and significant challenges for power market participants. How do we ensure grid reliability and efficiency while integrating these new technologies and adapting to evolving regulatory frameworks?
Recently, I had the privilege of discussing these critical issues with Sidhartha Dash at the Energy 50 virtual conference hosted by Chartis Research. Our fireside chat, titled “Evolving Power Market Structures,” explored how regulatory changes, decentralization, and renewable integration are reshaping power market dynamics globally.
In this blog post, I’ll share some of the key insights from our conversation, focusing on the evolving needs of market participants, the strategies being implemented to manage grid transformation, the enduring role of natural gas, and the crucial importance of transmission infrastructure.
The evolving needs of market participants
Over the past 30 years, the fundamental principles of power markets — their role as the most efficient grid optimization mechanism and the crucial importance of technology — have remained constant. However, the complexity of the environment in which these markets operate has changed dramatically. While we were pushing the limits of computing power even back in the early 2000s to handle complex calculations like Security Constrained Unit Commitment (SCUC), today’s challenges are on a different scale. We’re now dealing with integrating a large amount of variable renewable energy sources, energy storage systems, and distributed energy resources, all while maintaining grid stability and reliability.
The North American Electric Reliability Corporation (NERC) has appropriately described this as a “hyper-complex risk environment.” We’re facing a rapidly changing resource mix, increasingly frequent and severe weather events, and evolving load profiles driven by electrification and other trends. Market operations have become significantly more data-intensive, with five-minute scheduling intervals and smaller, more distributed assets like batteries and DERs trading in near real-time. This influx of granular data and the need for rapid decision-making has made automation no longer a “nice-to-have” but an absolute necessity.
The Midcontinent ISO’s description of this paradigm shift is particularly insightful. We’ve moved away from a traditional power system focused on forecasting load and dispatching large, centralized generation resources. Now, we must accurately forecast generation from variable renewables and intelligently dispatch demand, including the complex interplay of distributed energy resources and battery storage systems.
This evolving landscape has created a new set of needs for market participants. Across our client base, which includes generators, utilities, traders, and retail providers, we see some common trends. They need sophisticated tools to:
- Manage complex assets: Batteries, in particular, require advanced optimization algorithms to maximize their value and ensure efficient operation within the market
- Trade in near real-time: The increasing granularity of market data and the fast-paced nature of energy markets demand systems capable of rapid data processing and decision-making
- Handle massive amounts of granular data: Five-minute scheduling and the proliferation of smaller assets have created an explosion of data that must be managed and analyzed effectively
- Manage smaller, more diverse positions: DER aggregations, virtual power plants (VPPs), and individual renewable energy resources require systems that can handle a much higher volume of transactions and positions
All of these factors point to one overarching requirement: more automation. Market participants need solutions that can automate key processes, from data management and analysis to bidding and dispatch optimization. This isn’t just a matter of improving efficiency; it’s essential for survival in today’s increasingly complex power markets.
Adapting to grid transformation
The power grid is undergoing a dramatic transformation, driven by the increasing integration of renewable energy sources, energy storage technologies, and distributed energy resources (DERs). This shift presents both challenges and opportunities for power market regulators and operators. How are they adapting to this evolving landscape?
In the United States, two key Federal Energy Regulatory Commission (FERC) orders are playing a pivotal role in shaping market evolution and driving necessary software updates:
- FERC Order 841: This order directed regional grid operators to remove barriers to the participation of electric storage in wholesale markets. This has spurred a wave of activity in the energy storage sector, leading to increased deployment of battery storage systems and the development of new market mechanisms to accommodate their unique capabilities.
- FERC Order 2222: This order aims to better enable DERs, including rooftop solar, distributed generation, and energy storage, to participate in the electricity markets run by regional grid operators. This is a complex undertaking, requiring the development of new rules and market structures to aggregate and manage these distributed resources effectively. Read thoughts on FERC Order 2222 from PCI’s VP of Enterprise Product in “FERC Order 2222 Delivers New Opportunities for Utilities.”
Beyond these specific FERC orders, we’re seeing a broader trend toward the expansion of power market services. In the U.S. Western Interconnect, for example, nearly every balancing authority is evaluating options like joining the California Independent System Operator’s (CAISO) Extended Day-Ahead Market (EDAM), the Southwest Power Pool’s (SPP) Markets+, or the SPP regional transmission organization (RTO) expansion. These initiatives are not only making new day-ahead markets available in the region but also facilitating the trading of new and more granular energy products, reflecting the changing nature of supply and demand. Similarly, Canadian markets in Ontario and Alberta are upgrading their market programs, joining the U.S. and Mexico in embracing locational marginal pricing (LMP) and day-ahead markets.
At PCI Energy Solutions, we recognize the importance of staying ahead of these rapid developments. Our solutions support bid-to-bill processes across all major North American markets, and given the constant shifts driven by FERC regulations and market evolution, active engagement is essential. Our product managers are deeply involved in this process. They don’t just passively track changes; they actively participate in RTO market initiatives and working groups, working alongside industry stakeholders to shape the future of power markets. We also conduct monthly client roundtables to share market updates, discuss our software roadmaps, and develop collaborative strategies with our clients.
Our work on major initiatives like the Independent Electricity System Operator’s (IESO) Market Renewal in Ontario, ERCOT’s Real-Time Co-optimization in Texas, and the evolving efforts of CAISO and SPP in the West provide concrete examples of how we’re adapting our software to keep pace with these fast-moving developments. We understand that our clients need solutions that are not only robust and reliable but also flexible and adaptable to the ever-changing market landscape. By staying closely connected to the evolution of these markets, we can ensure that our solutions continue to meet the evolving needs of our clients and empower them to thrive in this dynamic environment.
The enduring role of natural gas
Amidst the rapid growth of renewable energy and the increasing focus on decarbonization, the role of natural gas in future power markets is a subject of much discussion. In North American markets, which are characterized by access to abundant and relatively affordable natural gas supplies, we see natural gas continuing to play a crucial role in the power generation mix for the foreseeable future.
The unique characteristics of natural gas-powered generation make it an essential component of the energy transition, particularly as we integrate more variable renewable energy sources like solar and wind. The key advantage of natural gas lies in its flexibility and ramping capabilities. Unlike solar and wind, which are intermittent and dependent on weather conditions, natural gas power plants can quickly ramp up or down their output to match fluctuations in demand or changes in renewable generation. This flexibility is critical for maintaining grid stability and reliability, especially as the penetration of renewables increases. Natural gas plants can act as a bridge, ensuring a consistent and reliable power supply even when the sun isn’t shining, or the wind isn’t blowing.
Furthermore, natural gas infrastructure is already in place, providing a reliable and readily available source of power. While investments in new natural gas generation may be debated, leveraging existing assets can offer a cost-effective way to support the growth of renewables while ensuring grid stability.
Looking ahead, we anticipate natural gas maintaining a significant presence in power markets, at least until we see substantial technological advancements in long-duration energy storage. (Learn more about LDES in RTO markets through our partner webinar with the LDES National Consortium and Sandia Laboratories.) While batteries are excellent for short-duration storage, we need cost-effective solutions for storing energy over longer periods — days, weeks, or even seasons — to fully address the intermittency challenge of renewables. Until these long-duration storage technologies become commercially viable, natural gas will continue to play a vital role in balancing supply and demand and ensuring a reliable power supply. It is important to remember that the transition to a fully decarbonized energy system will require a portfolio of solutions, and natural gas, with its inherent flexibility, will likely remain a key part of that portfolio for some time to come.
The critical role of transmission
Transmission infrastructure is the backbone of any power system, and it plays an absolutely critical role in the transformation of power markets. For many power systems around the world, and especially in geographically diverse regions like many parts of the U.S., transmission capacity is the most constrained resource. This constraint becomes even more pronounced as we integrate more renewable energy sources, often located far from load centers.
In these large, transmission-driven markets, congestion pricing, implemented through locational marginal pricing (LMP), remains the most effective mechanism for providing accurate price signals and ensuring the efficient operation of the power system. LMP reflects the real-time cost of delivering electricity to different locations, taking into account transmission constraints. This incentivizes both generation and consumption to respond to grid conditions, helping to alleviate congestion and optimize the use of existing infrastructure.
It’s no secret that the current U.S. power grid wasn’t designed for the rapid changes we’re experiencing. The grid was built for a system of large, centralized power plants and predictable load patterns. Integrating distributed generation, variable renewables, and increasing electrification requires significant capital investment in new transmission lines and upgrades to existing infrastructure. This is a major undertaking, requiring careful planning, permitting, and collaboration among stakeholders.
However, while new infrastructure is essential, I believe the potential for efficiency gains from optimizing existing transmission assets is often underestimated. A crucial pathway to enable the power industry’s transformation lies in maximizing the use of what we already have. This is precisely the objective of FERC Order 881, which aims to support the adoption of dynamic line ratings and enhance the utilization of the US transmission grid. Learn more about FERC 881 in our blog post, “FERC Order 881: How to Prepare for Compliance.”
Dynamic line ratings allow grid operators to adjust the capacity of transmission lines based on real-time conditions, such as temperature, wind speed, and solar irradiance. This can significantly increase the amount of power that can be transmitted over existing lines, without requiring costly and time-consuming upgrades.
This is also an area where software solutions can play a vital role in unlocking greater efficiencies. At PCI Energy Solutions, we recognize the importance of optimizing transmission utilization. Last year, we launched two products specifically designed to address this challenge. One module helps manage the monitoring and reporting of dynamic line ratings under FERC 881, enabling grid operators to implement this important technology effectively. Learn more in our blog post, “Achieve FERC Order 881 Compliance with PCI’s LRMS Software.” Our other product, a transmission portfolio optimization solution, assists traders in identifying unused transmission rights that can be released back to the market. This not only creates potential new revenue streams for traders but also contributes to overall cost savings for the grid by ensuring that transmission capacity is used as efficiently as possible. Learn more by visiting our Transmission Portfolio Optimization page. By combining smart grid technologies with advanced software solutions, we can make the most of our existing transmission infrastructure and pave the way for a more reliable, efficient, and sustainable energy future.
Navigating the future of power markets: key takeaways & next steps
The power market landscape is in constant flux, driven by technological advancements, evolving regulatory frameworks, and a growing emphasis on sustainability. As we’ve discussed, navigating this hyper-complex environment requires a multi-faceted approach. Market participants must adapt to the increasing penetration of renewables, energy storage, and DERs, embracing automation and data-driven decision-making. Regulators and market operators must continue to refine market rules and mechanisms to facilitate the integration of these new resources and ensure grid reliability. And finally, optimizing our existing transmission infrastructure, through innovative technologies like dynamic line ratings and advanced software solutions, is crucial for maximizing efficiency and minimizing costs.
You can learn more about PCI Energy Solutions and our innovative software solutions for the power market by visiting our website at pcienergysolutions.com. Thank you for joining me on this journey toward a brighter energy future. And a special thank you to Sidhartha Dash and Chartis Research for hosting the Energy50 virtual conference and facilitating this important dialogue.
