Energy Markets Under the Microscope: Research Reveals Hidden Patterns

Energy policies and markets are more complex than they appear. While some initiatives deliver impressive results, others face unexpected challenges that can limit their effectiveness or create unintended consequences.

Cutting-edge research from Carnegie Mellon University’s Heinz College is providing new insights into how energy systems perform in practice. From analyzing which aspects of green building certification deliver real energy savings to understanding how different market structures affect power plant efficiency, these studies offer evidence-based perspectives on what works, what doesn't, and why. 

The findings provide valuable guidance for policymakers and industry leaders working to optimize energy systems, improve grid resilience, and achieve sustainability goals more effectively.

LEED-Certified, But Not Energy-Saving: Study Questions Green Building Gains

When you see a shiny LEED certification plaque on a government building, you probably assume it's saving energy and taxpayer money. A study from Carnegie Mellon University suggests the reality is more complicated. Researchers spent years analyzing nearly three decades of data from federal buildings across the country and found that most LEED-certified government buildings aren't actually using less energy than they did before their green upgrades.

Professors Karen Clay, Edson Severnini, and Xiaochen Sun identified three key reasons why LEED certification isn't delivering the expected energy savings. First, LEED works like a scorecard where buildings can earn certification by scoring well in areas that have nothing to do with energy—like using recycled materials or improving indoor air quality. Second, once buildings earn certification, changes in how they're operated can offset energy benefits. Third, all federal buildings have been improving their energy efficiency over time, making it harder to see if LEED retrofits provide additional benefits.

Here's the encouraging news: when LEED buildings specifically focused on energy efficiency, they delivered impressive results. Buildings that scored high on LEED's energy-specific criteria used up to 13% less energy—savings significant enough to pay for the retrofit investment over time. However, buildings that scored high in other categories, like water efficiency, sometimes ended up using more energy due to budget constraints and the energy demands of certain green technologies.

Key Takeaways for Industry Leaders & Policymakers:

• LEED certification doesn't guarantee energy savings unless it specifically targets energy efficiency.
  
  
• Buildings focusing on energy-specific LEED criteria can achieve up to 13% energy reductions.
  
  
• Trying to excel in all sustainability categories can dilute energy-saving efforts.
  
  
• Targeted, performance-based policies may be more effective than broad green building certification.

The Hidden Factor Shaping Your Electric Bill

You may think your electricity bill is largely determined by how often you keep the lights on at home. But there’s another factor affecting the prices you pay, according to Professor Akshaya Jha. In the U.S., regulated power plants between 2002-2012 spent $1.3 billion in unnecessary coal procurement costs each year, costs ultimately passed on to consumers.

Why is this happening? Regulated power plants –– which make up a large share of the US electricity sector –– receive an artificially high regulated rate of return on their investments, including money tied up in coal stockpiles. Because of that implicit regulatory subsidy on coal storage, Jha found that regulated power plants often purchase coal at inopportune times, when it is more expensive. 

Power plants in competitive markets, on the other hand, tend to make smarter coal purchase decisions because they face the market cost of storing coal. They also hold 9% less coal in their inventories, on average, than regulated power plants.

Key Takeaways for Industry Leaders & Policymakers:

• Regulated power plants are implicitly incentivized to hold large coal inventories. 
  
  
• Regulated power plants purchase coal inefficiently compared to power plants in competitive markets. Deregulation, therefore, may improve efficiency.
  
  
• The regulated rate of return earned by the majority of U.S coal-fired power plants could delay the country’s transition to cleaner energy sources.

When the Sun Goes Down: How Solar Power Creates Unexpected Market Dynamics

With solar power producing an increasing share of the country’s electricity, fossil-fuel-burning power plants are increasingly shutting down during the day and resuming operations in the evening once the sun sets. This change in fossil-fuel generation profiles has important implications for market competition, according to Jha of Heinz College and Professor Gordon Leslie of Monash University.

Some fossil-fuel power plants displaced by solar during the day decide not to incur the start-up costs necessary to resume operations when the sun goes down. The remaining plants that do start back up in the evening benefit from decreased competition and thus higher electricity prices, Jha and Leslie found.  Profits earned by electricity suppliers may increase in aggregate with rooftop solar penetration, ultimately increasing the retail prices paid by consumers.

Key Takeaways for Industry Leaders & Policymakers:

• Due to the meaningful costs associated with restarting generators, not all power plants displaced by solar generation during the day start back up once the sun sets.
  
  
• Increases in solar energy during the day may consequently reduce competition at night, resulting in higher evening time profits among fossil-fuel power plants and perhaps higher prices for consumers.

When Stability Costs More: The Trade-Off Between Predictable Prices and Market Efficiency

From 1983 to 1997, power plants in the U.S. signed long-term contracts to procure the majority of their coal, even though the price of coal under those contracts was higher than the spot market price. Power plants made these choices partly due to the regulation they faced, which induced them to behave as if they were risk-averse, Jha found. 

Regulators set the price that utilities can charge consumers, a practice intended to allow regulated utilities an opportunity to earn a reasonable rate of return on their invested capital. But Jha argues that regulators in practice are more likely to deem high coal costs “imprudent”, and thus not pass these costs into the regulated electricity price. If the spot price of coal skyrockets, regulators may deem it imprudent for the utility to purchase coal at that price. 

Power plants, therefore, have chosen long-term contracts to ensure their coal costs remain stable. Contract coal purchases are very likely to be deemed prudent by regulators and thus included as part of the regulated electricity price charged to consumers. Yet, if power plants did not sign these coal contracts and instead purchased coal from the spot market, they could have saved about $2.9 billion annually, Jha found.

Key Takeaways for Industry Leaders & Policymakers:

• Regulated power plants are willing to pay more for long-term stability in the price of coal.
  
  
• This is likely because of the structure of regulation they face, which implicitly penalizes high procurement cost realizations but does not reward low procurement costs.
  
  
• Understanding the risk-aversion exhibited by regulated power plants is essential for designing economic and environmental policies pertaining to these plants.

Beyond Band-Aids: A New Era of Power Grid Resilience

When extreme weather hits, power grids often fail—and the traditional approach of just fixing things after they break isn't working anymore. A new study from Carnegie Mellon University proposes a smarter strategy: plan ahead by figuring out the worst-case scenarios and preparing for them before storms strike.

Ph.D. candidate Shuyi Chen and Professors Shixiang Zhu and Ramteen Sioshansi developed a sophisticated planning framework that does something most utilities don't do well—it coordinates long-term infrastructure investments (like hardening power lines) with short-term emergency responses (like dispatching repair crews). Most current approaches treat these as separate problems, but the researchers found they're actually deeply connected. Where you invest in stronger infrastructure today determines how effectively you can respond to outages tomorrow, and your emergency response capabilities should influence where you make those investments.

The breakthrough came in how they model uncertainty. Instead of relying on historical weather patterns that may not predict future extreme events, they used a technique called "conformal prediction" to create worst-case scenarios that account for the complex, ever-changing nature of severe weather. When they tested this approach on both simulated power systems and real outage data from Massachusetts, they found it consistently outperformed traditional methods—especially when resources were limited and the stakes were high. 

Key Takeaways for Industry Leaders & Policymakers:

• Traditional “wait and fix” approaches to power grid failures are increasingly inadequate for extreme weather.
  
  
• Coordinating long-term infrastructure investments with emergency response planning significantly reduces worst-case outage impacts.
  
  
• New uncertainty modeling techniques can better prepare grids for unprecedented weather events.
  
  
• The integrated approach works especially well when utilities have tight budgets and face large-scale disruptions.

Why Power Companies Are Learning to Think Backwards During Disasters

When wildfires rage or hurricanes approach, power companies are racing against time to make critical decisions: Where should they deploy emergency generators? Which power lines need protection first? The problem is that traditional planning treats these as two separate steps—first predict where damage might happen, then figure out how to respond. But new research shows this split approach wastes precious resources and leaves communities vulnerable when they need power most.

A team of researchers from Carnegie Mellon University, the University of Virginia, and Argonne National Laboratory have developed a smarter solution called "predict-all-then-optimize-globally" (PATOG) that combines forecasting and decision-making into one powerful system. Instead of making predictions and then trying to match resources to those forecasts, this AI-powered approach works backwards—it figures out the best possible deployment of limited resources across an entire region, then adjusts its predictions to support those optimal decisions. Think of it like a chess master who doesn't just predict the opponent's next move, but considers how that prediction should influence their entire strategy.

When researchers tested this approach on real disasters, including a major 2018 Nor'easter in Massachusetts, it consistently beat conventional methods. The key breakthrough is that the system makes small, strategic tweaks to its forecasts—like slightly overestimating risk in critical areas—to trigger earlier, more targeted responses. The result is fewer missed opportunities and better outcomes when disasters strike, showing how AI can help utilities act not just quickly, but wisely.

Key Takeaways for Industry Leaders & Policymakers:

• Integrated planning beats separate steps: Combining forecasting with decision-making significantly improves resource allocation and grid resilience compared to traditional "predict-then-optimize" approaches.
  
  
• Proactive beats reactive: The model's ability to slightly overestimate risk in critical areas enables better pre-positioning of resources, reducing outage duration and economic impact when disasters strike.
  
  
• AI enables system-wide coordination: Advanced AI tools can align resilience strategies across entire regions and jurisdictions, reducing miscommunication and misallocated aid during emergencies.