The electricity market design of the future: scarcity prices or capacity mechanisms? | Graham Weale

At the end of the EURELECTRIC – FSR conference on the market design of the future, Nicolò Rossetto (FSR) and Professor Graham Weale (Bochum University) discuss the market design for electricity in 2050. Despite the relevance the European Commission attributed to scarcity prices, Professor Weale is sceptical of the idea that energy-only markets will be enough to induce and remunerate adequate investment in generation capacity. According to him, political opposition to excessively high spot prices, an increased cost of capital and the wide-ranging deployment of renewables with low variable costs can undermine a market design based on few, infrequent price spikes. A second revenue stream to remunerate capacity could be necessary for the electricity market of the future. This position is beloved by Eurelectric. At FSR we see it as controversial as it is not widely agreed upon by many scholars and practitioners. However, “retweeting is not supporting”. What is less controversial and we support is the importance to adopt a holistic and gradual approach to market reform in order to avoid unintended consequences and side-effects.