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Why fully liberalised electricity markets will fail to meet deep decarbonisation targets even with strong carbon pricing

Why fully liberalised electricity markets will fail to meet deep decarbonisation targets even with strong carbon pricing

Full Title: Why fully liberalised electricity markets will fail to meet deep decarbonisation targets even with strong carbon pricing
Author(s): Oscar Kraan, Gert JanKramer, Igor Nikolic, Emile Chappin, Vinzenz Koning
Publisher(s): Elsevier
Publication Date: May 1, 2019
Full Text: Download Resource
Description (excerpt):

Full decarbonisation of the electricity system is one of the key elements to limit global warming. As this transition takes place, the electricity system must maintain system adequacy and remain affordable to consumers. In liberalised electricity markets investors are seen as key actors driving this transition.

Due to the intermittent character of renewable assets, such as wind or solar parks, electricity systems with large shares of renewable electricity will need to become increasingly flexible. Evaluating whether specific market designs provide the right incentives to invest in flexibility, requires the simulation of realistic investor behaviour. Agent-based modelling provides the means to explore heterogeneous, imperfectly informed and boundedly rational investor behaviour within different electricity market designs.

We evaluated two market designs; “energy-only” markets and markets with a Capacity Remuneration Mechanism (CRM). We conclude that energy-only markets, even with strong carbon pricing, do not incentivise investors to deliver a fully renewable, reliable and affordable energy system. Therefore policy makers should focus on developing CRMs which can work in combination with market incentives to reach a fully renewable, reliable and affordable electricity system in the second half of this century.

All statements and/or propositions in discussion prompts are meant exclusively to stimulate discussion and do not represent the views of OurEnergyPolicy.org, its Partners, Topic Directors or Experts, nor of any individual or organization. Comments by and opinions of Expert participants are their own.

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