Institutions and Electricity Systems Transition towards Decarbonisation: The hidden change of the market regime

Dominique Finon
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Dominique Finon: CIRED - centre international de recherche sur l'environnement et le développement - Cirad - Centre de Coopération Internationale en Recherche Agronomique pour le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique

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Abstract: Apart from the UK where it has been widely discussed in the 2011 Electricity Market Reform, energy experts communities are still unaware of the impacts that carbon policies directly focused on the development of low carbon technologies produce on the electricity market regime. Public co-ordination with long term arrangements needs to be introduced as a substitute to long term co-ordination by the market. Indeed, the current market co-ordination makes carbon prices ineffective at orienting investors towards low carbon technologies : fossil fuel generation technologies are preferred because their investment risks are much lower in the market regime. So, in order to avoid delayed investment aiming at the decarbonisation of electricity systems, a number of new market arrangements which lower the investment risk of these technologies are being selected by governments. But, as these low carbon equipments develop, long term co-ordination by the market for the other technologies (peaking units, CCGT) will fade away. That means that in the future, public co-ordination and planning will completely replace market players' decisions, not only for low carbon technologies, but for every capacity development.

Keywords: Technology-focused carbon policies; electricity markets; generation investment; risk management criterion; market failures; coordination role of market; planning; Politiques des technologies bas carbone; marchés électriques; investissement; critère de gestion de risque; défaillances de marché; coordination par le marché; planification (search for similar items in EconPapers)
Date: 2012-03
New Economics Papers: this item is included in nep-ene and nep-env
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