EME 801
Energy Markets, Policy, and Regulation




For many decades, the companies that operated electricity grids had to do so with two objectives in mind: reliability (keeping the lights on) and cost (keeping electricity affordable). Despite the complexities of the electric grid, these two objectives were relatively simple to meet, in part because the regulatory system shifted a lot of the financial risk away from companies and onto ratepayers. It isn’t that hard to keep a power grid reliable by overbuilding it.

This lesson builds on the previous two by adding a third objective to power grid operations – lowering the environmental footprint of power generation by adding large amounts of low-emissions generation resources. This is, very broadly, sometimes called the “renewable integration” challenge. The technical challenges in maintaining the balance of supply and demand are immense, but our focus is on the economic challenges, particularly in the context of electricity deregulation.

Learning Outcomes

By the end of this lesson, you should be able to:

  • define the term “Variable Energy Resource” (VER);
  • explain three reasons why large-scale power generation from VERs poses an economic challenge to the electricity industry, not just a technical challenge;
  • identify the various types of ancillary services that electric system operators require to maintain reliability, and identify those that are likely to be particularly important for VER integration;
  • explain capacity payments and the rationale for having separate payments for electric capacity and electric energy;
  • explain how demand-side resources could participate in deregulated electricity markets;
  • explain why the falling costs of distributed energy (especially solar PV) and energy storage are threatening the traditional utility business model.

Additional Readings

There are a lot of good resources that describe the renewables integration challenge. We will lean on external readings more heavily in this lesson than in previous lessons.

What is due for Lesson 7?

This lesson will take us one week to complete. Please refer to the Course Calendar for specific due dates. Specific directions for the assignment below can be found within this lesson.

  • Homework: Submit a word-processed document with the answers to the Lesson 7 questions to the Lesson 07 Drop Box.
  • Discussion: Contribute to the discussion forum question about distributed solar PV and electric utilities, and comment on at least two of your classmates' responses.


If you have any questions, please post them to our Questions about EME 801? discussion forum, located in the Start Here! module. I will check that discussion forum daily to respond. While you are there, feel free to post your own responses if you, too, are able to help out a classmate. You can also contact the instructor through Canvas Conversations.