The net zero paradox – challenges of designing markets to bring forward low marginal cost resources

The scale and speed of the net zero targets require a refocus of the traditional goals of electricity market design to ensure efficient dispatch, adequate capacity and optimal investment. Electricity markets need to support the investment and dispatch to meet low carbon objectives, but the fundamental drivers of the electricity market are changing with the addition of zero marginal cost variable renewables and this makes returns lower and more unpredictable, and investment harder.

The paper then considers a number of possible market designs which could improve investment signals for the low carbon future and attempts to assess which one could optimally meet our low carbon objectives.

Tom Edwards, Cornwall Insight , Senior Modeller commented

“The energy transition is shaking up energy markets around the world, the falling costs of renewables make them easier to deploy and displace traditional generation technologies. The current market designs are by no means perfect, but they are not well designed to cope with a technology mix dominated by large quantities of zero marginal cost and meet our low carbon objectives we would expect to see in order to reach net zero. We consider several market designs which could be better at deploying large quantities of zero marginal cost generators to complete our journey to a decarbonised electricity system.”

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