Why the sustainable provision of low-carbon electricity needs hybrid markets

Jan Horst Keppler, Simon Quemin and Marcelo Saguan

Energy Policy, 2022, vol. 171, issue C

Abstract: Deep decarbonization of energy systems poses considerable challenges to electricity markets and there is a growing consensus that an energy-only design based on short-term marginal cost pricing cannot deliver adequate levels of investment and long-term coordination across actors and sectors. Based on the instructive example of the evolution of European electricity market designs, we discuss several shortcomings of energy-only markets and illustrate how ad-hoc policies that intend to address them have limitations of their own, notably a lack of systemwide coordination. Second, we describe how the sheer scale and nature of deep decarbonization targets requiring massive investment in capital-intensive low-carbon technologies exacerbate these issues. Ambitious emission reduction targets thus require an evolution of market design towards hybrid regimes. Hybrid markets separate long-term investment decisions from short-term operations through a balanced and differentiated use of competitive and regulatory design elements to coordinate and de-risk investment. Finally, a historical analysis of the evolution of different electricity market designs shows how hybrid markets constitute contemporary forms of long-run marginal cost pricing that are appropriate for meeting deep decarbonization targets with reduced uncertainty and hence lower private and social costs.

Keywords: Electricity market; Deep decarbonization; Hybrid market design; Long-term contracts; Low-carbon investments (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S030142152200492X
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Why the sustainable provision of low-carbon electricity needs hybrid markets (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:171:y:2022:i:c:s030142152200492x

DOI: 10.1016/j.enpol.2022.113273

Access Statistics for this article

Energy Policy is currently edited by N. France

More articles in Energy Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().