The global energy transition is accelerating in response to climate change and the pursuit of sustainable development goals (SDGs). The rapid expansion of renewable energy such as solar and wind is a promising trend, but it also reveals the limitations of existing power market structures. To maintain market efficiency and system stability while accommodating the intermittent and unpredictable nature of renewables, a fundamental redesign is increasingly recognized as necessary.

A notable contribution in this field is a recent paper by Professor Ricardo Raineri of Universidad Adolfo Ibáñez in Chile. Published in the journal *Energies* (March 2025 edition), Raineri and his research team argue that without power market design innovation, a renewable-centric electricity system will inevitably become unstable.

Wind and solar power fluctuate with weather conditions, making production difficult to predict or control without storage systems. This unpredictability poses a significant burden on electricity systems, which must balance supply and demand in real time. Traditional power markets were designed around predictable baseload generation (e.g., coal, nuclear), and when large volumes of intermittent renewables are introduced, price volatility and frequent supply-demand imbalances result.

In particular, the marginal-cost pricing system in power wholesale markets—where the price is set by the last, most expensive unit dispatched—leads to artificially low prices due to renewables’ near-zero marginal cost. Over time, this distorts price signals and undermines investment incentives in backup and balancing capacity.

Raineri’s study provides an empirical analysis based on Chile’s power market. Chile, a country that has aggressively expanded solar power (now over 20% of its mix), has seen its grid and demand management systems struggle to keep pace. Surplus electricity production has become common, with wholesale prices frequently hitting zero or even negative levels during low-demand daytime hours. Conversely, peak hours often experience supply shortages, price spikes, or reliance on expensive diesel generation.

These price spikes and curtailments increase uncertainty for market participants, discouraging long-term investment. Raineri notes that the absence of complementary mechanisms—such as real-time ramping markets, ancillary services, and capacity markets—has undermined the efficiency of Chile’s energy transition.

To successfully support energy transition, Raineri and his team propose four core elements of power market reform:

1. Introduction of Capacity Markets

   – To ensure system reliability, long-term contracts for reserve and backup capacity are needed, compensating plants for availability rather than energy output alone.

2. Expansion of Ancillary Services

   – Essential services such as frequency regulation, voltage support, and spinning reserves must be formalized with clear compensation mechanisms.

3. Enhancing Real-Time Price Signals

   – Beyond day-ahead markets, sub-hourly market designs that reflect price fluctuations every few minutes should be implemented to stimulate demand response.

4. Digitization and Integration of Distributed Resources

   – The participation of distributed energy resources (DERs) such as smart meters, virtual power plants (VPPs), and EV charging control systems must be facilitated through digital infrastructure.

In the United States, California’s CAISO and Texas’s ERCOT have already introduced sub-hourly markets and expanded demand response programs. The European Union’s 2023 electricity market reform proposal encourages real-time cross-border trading. However, even these advanced markets still face challenges: price collapses during oversupply, lack of dispatchable reserve, and grid congestion.

Thus, market redesign must go hand-in-hand with investments in grid infrastructure, improved forecasting, and better coordination across governance levels. The energy transition is a systemic challenge, not just a market one.

Energy transition is not solely a technological challenge—it is a matter of institutional architecture. Even abundant renewable energy cannot ensure sustainability without timely distribution and balanced consumption. Power market design is not just about determining prices—it defines the intelligence of the entire system.

The market reform agenda proposed by Professor Raineri and his team aligns with the principles of energy realism. It acknowledges real-world constraints, reduces social transition costs, and calls for the parallel advancement of technology and institutional systems. What is needed now is something more difficult—and more essential—than technological deployment: the courage to redesign the system.

(Resource – Energies, March 2025, “Market Design Innovations for High Renewable Penetration: Lessons from Chile,” by Ricardo Raineri et al. © MDPI. All rights reserved.)