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What future(s) for liberalized electricity markets: efficient, equitable or innovative?

David M Newbery

Year: 2018
Volume: Volume 39
Number: Number 1
DOI: 10.5547/01956574.39.1.dnew
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Abstract:
Well-designed electricity liberalization has delivered effciency gains, but political risks of decarbonizing the sector have undermined investment incentives in en-ergy-only markets, while poorly designed regulated tariffs have increased the cost of accommodating renewables. The paper sets out principles from theory and public economics to guide market design, capacity remuneration, renewables support and regulatory tariff setting, with an illustration from a high capital cost low variable cost electricity system. Such characteristics are likely to become more prevalent with increasing renewables penetration, where poor regulation is already threatening current utility business models. The appendix develops and applies a method for determining the subsidy justifed by learning spillovers from solar PV.



UK Electricity Market Reform and the Energy Transition: Emerging Lessons

Michael Grubb and David Newbery

Year: 2018
Volume: Volume 39
Number: Number 6
DOI: 10.5547/01956574.39.6.mgru
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Abstract:
The 2013 Electricity Market Reform (EMR) was a response to the twin problems of securing efficient finance for a new generation of low carbon investments, and delivering reliability along with a growing share of renewables in its energy-only market. Four EMR instruments combined to revolutionize the sector; stimulating unprecedented technological and structural change. Competitive auctions for both firm capacity and renewable energy have seen prices far lower than predicted and the entry of unexpected new technologies. A carbon price floor displaced coal, whose share fell from 46% in 1995 to 7% in 2017, halving CO2. Renewables grew from under 4% in 2008 to 22% by 2017, projected at 30+% by 2020 despite a political ban on onshore wind. Neither the technological nor regulatory transitions are complete, and the results to date highlight other challenges, notably to transmission pricing and locational signals. EMR is a step forwards, not backwards; but it is not the end of the story.





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