Market Design in Context: The Transition to a Decarbonised Power Sector
In this response to the European Commission’s public consultation on a new electricity market design, RAP sets out its view on the roles of markets and support policies in the context of the transition to a decarbonised power sector. The consultation fails to address the primary cause of investment uncertainty in the European power sector: widespread overcapacity. Therefore, it overlooks the urgent need for a managed approach to retirement of surplus capacity, both to restore financial health to the sector and to facilitate the new flexible, low-carbon investments envisioned by EU energy and climate policy. For this and other reasons, policy support for new investment in renewables and other low-carbon resources will continue to be necessary beyond 2020. The market must adequately recognise and pay for the value of resource flexibility. For that reason, RAP recommends establishing energy market price signals that accurately reflect real-time market conditions, accompanied by appropriate consumer safeguards. This includes an administered approach to valuation of resource adequacy that operates within, rather than outside of, energy and balancing services markets, as well as the establishment of adequately resourced, fully independent market monitors. Effective market pricing for energy and balancing services will be critical to the business case for new transmission infrastructure and for innovation in demand response, and aggregated energy demand should have full access to markets in all time frames. Regardless of what improvements might be possible in market design, complementary policies and regulation will still be needed to drive investment in cost-effective end-use energy efficiency.