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Steering Electricity Markets towards a Rapid Decarbonisation

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Achieving net zero emissions by 2050 will require a significant reduction in electricity sector emissions, with around half of these coming from systems that currently have liberalised electricity markets. In order to support a rapid decarbonisation of power systems, the design of these markets will need to evolve to ensure that they maximise the value delivered by existing and new low-carbon technologies. When policymakers design electricity markets, they need to consider the interactions between all parts of the market including wholesale, retail and capacity markets. At the same time, it is essential to ensure synergies with low-carbon investment frameworks and other decarbonisation policies.

This report identifies key principles for designing different parts of the market based on evidence from electricity markets globally and provides actionable guidelines to help policy makers match decarbonisation pledges with actions. With short-term wholesale markets as the starting point for generating efficient price signals, the report systematically considers the different parts of electricity markets, perspectives for integrating technologies such as distributed resources and storage, and how the design process fits with other decarbonisation policies and system planning. The principles derived from this analysis provide policy makers with market design tools in the context of new technologies and low-carbon transitions.

Supported by

  • European Union

    This publication has been produced with the financial assistance of the European Union as part of the Clean Energy Transitions in Emerging Economies programme. This publication reflects the views of the International Energy Agency (IEA) Secretariat but does not necessarily reflect those of individual IEA member countries or the European Union (EU). Neither the IEA nor the EU make any representation of warranty, express or implied, in respect to the article's content (including its completeness or accuracy) and shall not be responsible for any use of, or reliance on, the publication. The Clean Energy Transitions in Emerging Economies programme has received funding from the European Union’s Horizon 2020 research and innovation programme under grant agreement No 952363.

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