European power markets are being confronted with an unprecedented transition process toward a low-carbon power system. The speed and complexity of this shift are raising serious challenges and operational difficulties. This transition demands a more fundamental rethinking of the roles of the government and the market.
Governments have to be aware of being part of a process in which they stimulate and facilitate clean energy, in general, and variable renewable electricity (VRE), in particular. They have to organise their policies in such a way that ambitions, targets and guidelines for implementation are robustly defined as part of a long-term orientation and utilise market mechanisms where feasible.
- Increasing systems costs are expected to consist largely of network costs, because of a large share of VRE. Additional market elements could be introduced, such as transmission pricing with stronger locational signals.
- Investments in low-carbon generation can be incentivised in various ways. No single policy instrument could be a ‘silver bullet’.
- Adequacy of the system is more complicated and could become costly if options to improve flexibility, such as in demand response, are neglected.