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UK Electricity Market Reform and the Energy Transition: Emerging Lessons

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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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Energy Specializations: Electricity – Policy and Regulation; Renewables – Policy and Regulation

JEL Codes: Q42: Alternative Energy Sources, Q40: Energy: General, Q54: Climate; Natural Disasters and Their Management; Global Warming, D44: Auctions, Q35: Hydrocarbon Resources

Keywords: Electricity market design, Capacity auctions, Renewables support

DOI: 10.5547/01956574.39.6.mgru

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Published in Volume 39, Number 6 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.