A Forward Energy Market to Improve Reliability and Resiliency∗

Peter Cramton
Max Planck Institute for Research on Collective Goods, Bonn
Forward Market Design
University of Maryland

ABSTRACT  We propose a forward electricity market design that enables efficient and granular hedging in the face of growing electrification and intermittent renewables. Market participants can trade thousands of forward contracts and European call options with a high strike price (e.g., $1,000/MWh), each tailored to granular delivery windows spanning up to four years ahead. To implement this market, we apply Budish et al.’s (2023) flow trading framework to electricity markets. It encourages incremental trading and supports liquidity provision via frequent batch auctions.

(This is joint work with Simon Brandkamp, Jason Dark, Darrell Hoy, David Malec, Axel Ockenfels, and Chris Wilkens.)

BIO   Peter Cramton is Professor of Economics Emeritus at the University of Maryland and International Research Fellow at the Max Planck Institute for Research on Collective Goods. Since 1983, he has conducted research on auction theory and practice. This research appears in leading economics journals. The focus is the design of auction-based markets. Applications include communications, electricity, and financial markets. He is a co-inventor of the spectrum auction design used in Canada, Australia, and many European countries to auction spectrum. Since 2001, he has played a lead role in the design and implementation of electricity and gas auctions in North America, South America, and Europe. He has advised on the design of carbon auctions in Europe, Australia, and the United Sates, including conducting the world’s first greenhouse-gas auction held in the UK in 2002.