It’s time to redesign the world’s energy markets

By Giles Parkinson on 28 June 2012

The path from point A to point B in the de-carbonisation of the world’s electricity markets is looking more problematic by the day. Even as more people can see what the destination looks like, few are sure of the best path to get there.

More and more reports are being produced that demonstrate how the world’s biggest economies can be powered by renewable energy sources – essentially the wind and the sun. The EU has done its own scenario planning, as has the International Energy Agency and numerous other institutions and think-tanks, including Australia’s UNSW, the Melbourne Energy Institute, and Beyond Zero Emissions. The US-based National Renewable Energy Laboratory this week released a report showing how the world’s biggest economy could be powered 80 per cent by renewables by 2050. But the problem is how to manage that transition.

Most studies, such as the IEA’s, Desertec’s and NREL’s, talk of a “new paradigm” in energy markets. But it’s not just a new way of thinking. Some utilities who operate in these markets are more prosaic – fearing that these markets are effectively defunct because renewables redefine the rules on which these markets were built. Or, at least, they displace those that were previously favoured.

This is in reference to the merit order effect, which we have documented on numerous occasions, and which is now entering the broad lexicon of policy decision-making.