Key Elements of a Successful Market Design

Key elements of a successful market design are discussed in this paper with reference to several US markets in Mid-Atlantic (PJM), New England (ISO-NE) and Midwest (MISO) regions. The key market elements discussed include: locational marginal pricing (LMP), financial transmission right (FTR) and co-optimized energy and ancillary service market. As critical components of a successful market design, risk hedging mechanisms are presented including multi-settlement scheme, virtual bidding and bilateral contracts. A capacity market construct is presented that is under development in the US and is intended to provide price signals for long-term generation and transmission investments. Examples are used to demonstrate the workings of the key market elements.