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Faculty of Economics

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Newbery, D.

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


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.

Keywords: renewables, market failures, locational signals, contract design

JEL Codes: D47 D52 H23 L94 Q48 Q54

Author links: David Newbery  


EPRG Paper Link: 1719

Open Access Link: