| ID | 187592 |
| Title Proper | Why the sustainable provision of low-carbon electricity needs hybrid markets |
| Language | ENG |
| Author | Saguan, Marcelo ; Keppler, Jan Horst ; Quemin, Simon |
| Summary / Abstract (Note) | Deep decarbonization of energy systems poses considerable challenges to electricity markets and there is a growing consensus that an energy-only design based on short-term marginal cost pricing cannot deliver adequate levels of investment and long-term coordination across actors and sectors. Based on the instructive example of the evolution of European electricity market designs, we discuss several shortcomings of energy-only markets and illustrate how ad-hoc policies that intend to address them have limitations of their own, notably a lack of systemwide coordination. Second, we describe how the sheer scale and nature of deep decarbonization targets requiring massive investment in capital-intensive low-carbon technologies exacerbate these issues. Ambitious emission reduction targets thus require an evolution of market design towards hybrid regimes. Hybrid markets separate long-term investment decisions from short-term operations through a balanced and differentiated use of competitive and regulatory design elements to coordinate and de-risk investment. Finally, a historical analysis of the evolution of different electricity market designs shows how hybrid markets constitute contemporary forms of long-run marginal cost pricing that are appropriate for meeting deep decarbonization targets with reduced uncertainty and hence lower private and social costs. |
| `In' analytical Note | Energy Policy Vol. 171; Dec 2022: p.113273 |
| Journal Source | Energy Policy 2022-12 171 |
| Key Words | Electricity Market ; Long-term Contracts ; Deep Decarbonization ; Hybrid Market Design ; Low-Carbon Investments |