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Designing an electricity wholesale market to accommodate significant renewables penetration: Lessons from Britain

Author

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  • Newbery, D.

Abstract

The wholesale market has to address two major market failures - inadequate carbon prices in the EU ETS, and the learning externalities and missing futures markets for energy and ancillary services needed to guide flexible dispatchable plant. The paper discusses the importance of locational price signals to guide investment, the need to reform transmission pricing and renewables support. The case for capacity auctions for renewables and quantifies the justifiable level of renewables support. These proposals are consistent with the EU Clean Energy Package, but the nature of the renewables target and its financing should change.

Suggested Citation

  • Newbery, D., 2017. "Designing an electricity wholesale market to accommodate significant renewables penetration: Lessons from Britain," Cambridge Working Papers in Economics 1756, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:1756
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    Keywords

    renewables; market failures; locational signals; contract design;
    All these keywords.

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D52 - Microeconomics - - General Equilibrium and Disequilibrium - - - Incomplete Markets
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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