Adapting electricity markets to decarbonisation and security of supply objectives: Toward a hybrid regime?

Authors

Fabien Roques, Dominique Finon

Abstract

The policy objectives of decarbonisation of the electricity sector whilst maintaining security of supply have led to
a new wave of market reforms in many jurisdictions which liberalised their industry. There is a wide range of
models under this new hybrid regime which essentially combine the energy market with planning and long-term
risk transfer arrangements. This paper takes an institutionalist approach in terms of modularity of the market
design, and reviews the issues with the standard historical market model which led to the introduction of
additional long term “modules”. We then study the interactions between the existing and new “modules” and
identify ways in which the initial market modules can be improved to address inconsistencies with the new
modules. We conclude by discussing the conditions under which the various changes in market architectures
could converge toward a hybrid regime structured around a “two step competition”, with a “competition for the
market” via the auctioning of long-term contracts to support investment, followed by “competition in the
market” for short term system optimisation via the energy market.

Energy Policy 105 (2017)