Electricity market design for a decarbonised future

Abstract

In recent years, the debate on electricity market design in the EU has focused on the fitness-for-purpose of the existing dominant design, the appropriateness of energy policy that underpins the existing market design, and on the process through which energy policy is coordinated with market design. In this paper, we contribute to this debate on all three levels. First, we propose a 'module-and-level'-based framework to illustrate our diagnosis of coordination issues present in the EU's power markets. We apply this framework to make a systematic identification of existing misalignments between the components of current market design and physical RES integration/financial RES support schemes. Secondly, we argue that the role of energy policy is not just in managing existing trade-offs between competitiveness, sustainability, and reliability, but also in encouraging innovations that increase the compatibility of energy policy objectives in the future. Finally, we propose a seven-step condition-dependent evolution of power market design, where the government/regulatory authority plays the role of meta-coordinator, matching the adaptation of market-based coordination modules with a hybrid future where distributed energy resources coexist with centralised generation, while decentralised market participants trade with each other and with incumbents.

Electricity Markets in the Resource-Rich Countries of the MENA: Adapting for the Transition Era

“…This is specifically an issue in capacityconstrained power systems. The coexistence of long-term contracts and short-term energy-only markets risks pricing distortions-most transactions occur in the long-term market, undermining the relevance of the short-term market (market foreclosure) (Peng and Poudineh, 2017). As a result, generators may limit their participation in the short-term market, affecting competition in the short market, and hence prices.…”

“…Moreover, integrating demand-side resources faces a significant hurdle when ownership and operation of the national electricity grid are not decoupled. There are many examples of potential friction if reforms are designed independently of renewables policies (see Peng and Poudineh et al [2017]).…”

European Union retail electricity markets in the Green Transition: The quest for adequate design

“…The situation can become self-reinforcing if more renewables induce higher end-user prices, reducing the possibility of achieving decarbonization by means of electrification, ultimately undermining the sustainability goal (Poudineh & Peng, 2017).…”

“…Support scheme funding-through surcharges on electricity bills-makes the business case for the electrification of mobility, heating, and cooling relative to fossil fuels less attractive for consumers. The situation can become self-reinforcing if more renewables induce higher end-user prices, reducing the possibility of achieving decarbonization by means of electrification, ultimately undermining the sustainability goal (Poudineh & Peng, 2017) In addition, the likely ongoing transition may be characterized by a high penetration of DERs. Presently, this is mostly limited to generation, for example, solar photovoltaic (PV) in some countries, but in the future this may include other resources such as EVs and heat pumps.…”

Peer-to-peer and community-based markets: A comprehensive review

“…Although power systems are evolving to a more decentralized management, electricity markets still perform resource allocation and pricing based on the conventional hierarchical and top-down approach [11] of power system management, which makes prosumers behave as passive receivers. Reorganizing electricity markets within decentralized management and collaborative principle will instead allow for a bottom-up approach that would empower prosumers [12]. This may then dynamically influence the market through implementation of prosumers' preferences [13], for instance renewable type, CO 2 emissions and localized energy.…”