Renewable Energy Finance: Theory and Practice - 8 - Renewable energy in power markets

In many countries the electricity sector has been restructured and generators compete to sell electricity in wholesale power markets. Power markets are complex; to protect reliability, these markets must reflect numerous constraints regarding the operation of generating and transmission assets. A key concept in power markets is transmission congestion, which can occur when transmission capacity is scarce on the grid. Locational marginal pricing is used in some systems to price transmission congestion and losses. This creates different electricity prices at many different locations on the grid. In some other systems, zonal pricing mechanisms are used. Capacity and ancillary services markets also exist in many markets and have their own varied and complex rules. Special rules often govern the operation of renewable resources such as wind and solar in these markets.