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UK Electricity Market Reform and the Energy Transition: Emerging Lessons

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  • Michael Grubb
  • David Newbery

Abstract

The 2013 Electricity Market Reform (EMR) was a response to problems of delivering reliability with a growing share of renewables in its energy only market. Four EMR instruments combined to revolutionise the sector; stimulating unprecedented technological and structural change. Competitive auctions for both firm capacity and renewable energy have seen prices far lower than predicted and the entry of unexpected new technologies. A carbon price floor displaced coal, whose share fell from 46% in 1995 to 7% in 2017, halving CO2. Renewables grew from under 4% in 2008 to 22% by 2017, projected at 30+% by 2020 despite a political ban on onshore wind. Neither the technological nor regulatory transitions are complete, and the results to date highlight other challenges, notably to transmission pricing and locational signals. EMR is a step forwards, not backwards; but it is not the end of the story.
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Suggested Citation

  • Michael Grubb & David Newbery, 2018. "UK Electricity Market Reform and the Energy Transition: Emerging Lessons," Working Papers EPRG 1817, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
  • Handle: RePEc:enp:wpaper:eprg1817
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    References listed on IDEAS

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    Cited by:

    1. Mason, Karl & Qadrdan, Meysam & Jenkins, Nicholas, 2021. "Investing in generation and storage capacity in a liberalised electricity market: An agent based approach," Applied Energy, Elsevier, vol. 294(C).
    2. Farrell, Niall, 2021. "The increasing cost of ignoring Coase: Inefficient electricity tariffs, welfare loss and welfare-reducing technological change," Energy Economics, Elsevier, vol. 97(C).
    3. Defeuilley, Christophe, 2019. "Energy transition and the future(s) of the electricity sector," Utilities Policy, Elsevier, vol. 57(C), pages 97-105.
    4. Paul Simshauser & Joel Gilmore, 2020. "Is the NEM broken? Policy discontinuity and the 2017-2020 investment megacycle," Working Papers EPRG2014, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    5. Simshauser, Paul, 2019. "Missing money, missing policy and Resource Adequacy in Australia's National Electricity Market," Utilities Policy, Elsevier, vol. 60(C), pages 1-1.
    6. Facchini, Angelo & Rubino, Alessandro & Caldarelli, Guido & Di Liddo, Giuseppe, 2019. "Changes to Gate Closure and its impact on wholesale electricity prices: The case of the UK," Energy Policy, Elsevier, vol. 125(C), pages 110-121.
    7. Newbery, David & Gissey, Giorgio Castagneto & Guo, Bowei & Dodds, Paul E., 2019. "The private and social value of British electrical interconnectors," Energy Policy, Elsevier, vol. 133(C).
    8. Simshauser, Paul, 2020. "Merchant renewables and the valuation of peaking plant in energy-only markets," Energy Economics, Elsevier, vol. 91(C).
    9. Finn Roar Aune & Rolf Golombek, 2020. "Are carbon prices redundant in the 2030 EU climate and energy policy package?," Discussion Papers 940, Statistics Norway, Research Department.
    10. Gencer, Busra & Larsen, Erik Reimer & van Ackere, Ann, 2020. "Understanding the coevolution of electricity markets and regulation," Energy Policy, Elsevier, vol. 143(C).
    11. Fuentes González, Fabián & Webb, Janette & Sharmina, Maria & Hannon, Matthew & Pappas, Dimitrios & Tingey, Margaret, 2021. "Characterising a local energy business sector in the United Kingdom: Participants, revenue sources, and estimates of localism and smartness," Energy, Elsevier, vol. 223(C).
    12. Philip Mayer & Christopher Stephen Ball & Stefan Vögele & Wilhelm Kuckshinrichs & Dirk Rübbelke, 2019. "Analyzing Brexit: Implications for the Electricity System of Great Britain," Energies, MDPI, Open Access Journal, vol. 12(17), pages 1-27, August.
    13. Paul Simshauser, 2020. "Merchant utilities and boundaries of the firm: vertical integration in energy-only markets," Working Papers EPRG2008, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    14. Paul Simshauser, 2019. "On the Stability of Energy-Only Markets with Government-Initiated Contracts-for-Differences," Energies, MDPI, Open Access Journal, vol. 12(13), pages 1-24, July.
    15. André Quites Ordovás Santos & Adriel Rodrigues da Silva & Jorge Javier Gimenez Ledesma & Adriano Batista de Almeida & Marco Roberto Cavallari & Oswaldo Hideo Ando Junior, 2021. "Electricity Market in Brazil: A Critical Review on the Ongoing Reform," Energies, MDPI, Open Access Journal, vol. 14(10), pages 1-23, May.
    16. Barazza, Elsa & Strachan, Neil, 2020. "The impact of heterogeneous market players with bounded-rationality on the electricity sector low-carbon transition," Energy Policy, Elsevier, vol. 138(C).
    17. David Newbery, 2020. "Club goods and a tragedy of the commons: the Clean Energy Package and wind curtailment," Working Papers EPRG2036, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.

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    More about this item

    Keywords

    Electricity market design; capacity auctions; renewables support;
    All these keywords.

    JEL classification:

    • L94 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Electric Utilities
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions

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