The accelerating integration of renewable energy sources, particularly wind and solar, is fundamentally reshaping global electricity markets, bringing with it significant operational uncertainty and exacerbating the long-standing 'missing money' problem. A pivotal study by Daraeepour et al., published in the Energy Journal in 2022, delves into the critical need for enhanced price formation mechanisms within non-convex electricity markets to address these growing challenges.

Non-convex electricity markets, characterized by indivisible generation units and start-up costs, often struggle to provide efficient price signals that fully compensate all necessary resources. The 'missing money' problem arises when energy-only markets fail to provide sufficient revenue for generators to recover their fixed costs, particularly for flexible capacity that is crucial but not always dispatched. As intermittent renewable generation increases its share, the frequency and magnitude of operational uncertainty—stemming from forecast errors, sudden drops in output, and rapid changes in net load—intensify. This variability demands greater flexibility from the remaining conventional fleet and energy storage assets, yet the market mechanisms often do not adequately reward this essential flexibility.

Daraeepour et al.'s research highlights that current market designs, predominantly optimized for a system dominated by dispatchable thermal generation, are ill-equipped to handle the unique characteristics of high renewable penetration. The study investigates how various enhancements to price formation, such as improved scarcity pricing, more granular ancillary service markets, and refined unit commitment procedures, can better reflect the true marginal costs of operating the system under uncertainty. By ensuring that prices accurately signal the value of flexibility and reliability, markets can incentivize investments in the resources needed to maintain grid stability and security.

The implications for market participants are substantial. Without robust price signals, investors may shy away from building new flexible generation or storage capacity, leading to potential reliability issues and slower decarbonization. Conversely, effective price formation can unlock new revenue streams for technologies that provide critical grid services, such as fast-ramping peakers, battery storage, and demand response. The study underscores that a holistic approach, considering both energy and capacity markets, alongside a deeper understanding of operational constraints, is essential for designing resilient and economically efficient electricity markets fit for a renewable-dominated future.