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Market and regulatory design for renewables dominated systems

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MESW02 - Electricity systems of the future: incentives, regulation and analysis for efficient investment

A low-carbon electricity system has a dominance of plant with high fixed costs and low variable costs, backed up with flexible controllable generation. In a liberalised market all required new investment will need to cover its full cost, necessitating payments for capacity, energy and quality of service to deliver reliability (long-term adequacy) and security of supply (short term resilience to shocks). Their value varies over time and space. Current liberalised markets lack futures markets and proper spatial signals to guide investment. Networks have always had high fixed, very low variable costs and long-run marginal costs well below average costs, creating challenges for setting network tariffs. Consumers need to pay for these generation and network services in ways that are efficient, equitable and acceptable, in a system that offers a greater range of scale and location (voltage level) of options for delivering the three services of capacity, energy and quality of servic e, requiring more careful tariff design than hitherto. ICT can help deliver but cannot avoid the tensions between efficiency, equity and acceptability. The talk will identify the challenges, the theoretical solutions drawing on the mature subject of public economics, and possible solutions.

This talk is part of the Isaac Newton Institute Seminar Series series.

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