Issues around the current electricity market design acting as a barrier to investment are explored in our latest insight paper – The net zero paradox: Challenges of designing markets to bring forward low marginal cost resources and featured in Renewable Energy Magazine.
Inevitably, as we head closer towards a net zero economy, a significant proportion of the electricity mix will come from low marginal cost renewable resources.
As a result, there will be periods where renewables will be the marginal generator on the system, and the wholesale price will clear near zero. Long-range power forecasts, if they reflect the change in the generation mix to allow for this transition, will also capture this effect and be priced into investor models today. Therefore, the current wholesale market risks providing a reducing incentive to investment at the level required to meet the net zero target. This would be most felt for investment in power projects that are partially or fully reliant on wholesale power price revenues. There are also possibilities that this could be exacerbated further with the requirements for electrification of heat and transport.Tom Edwards, Senior Modelling Consultant