Adapting energy-market designs and infrastructures

Adapting energy markets, institutions and infrastructures to low-carbon alternatives is necessary to advance them, especially tailoring electricity markets designs to variable renewables like solar PV and wind generation and complementary flexibility technologies for system balancing. This chapter examines how electricity market designs balance controlling market power of generators in tight markets while ensuring electricity prices reflect the true scarcity value of electricity over time to remunerate system investments. Such scarcity pricing would also in principle need to remunerate upfront investments in advancing low-carbon power technologies in the absence of market-creating policies for them. Electricity market reforms such as capacity remuneration mechanisms aim to strike the market-design balance and ensure adequate investment in generation capacity and flexibility. Natural gas infrastructures also need to adapt to low-carbon alternatives. A key challenge is coordination of investments in low-carbon energy alternatives in existing buildings, a task aided by upfront investments in building thermal efficiency.