Electricity market design for the energy transition

The project assesses market design options to enable the transition towards a carbon-free and reliable electricity system at lowest costs by 2035.

  • Project Duration: 01/2022 - 12/2022

The EU aims to reduce net domestic greenhouse gas emissions by at least 55 percent by 2030 compared to 1990 levels and to become climate neutral by 2050 at the latest. The transformation of the European power sector historically relied on fossil gas to accompany the build-out of renewables and, help replacing coal generation. With the Russian invasion of Ukraine, energy supplies from Russia collapsed. This has resulted in skyrocketing gas and electricity prices, putting households at risk of energy poverty and harming European industry’s global competitiveness.

To achieve climate targets and ensure energy sovereignty, the EU needs to reduce its gas demand, use electricity more efficiently and massively scale up investments in renewables, energy efficiency and electrified applications. The power sector needs to be largely decarbonised by 2035, to facilitate the decarbonisation of the buildings, industry and transport sectors by 2050.

In this context, there is a need to assess whether the current electricity market design is able to manage the energy price crisis and foster a rapid clean energy transition. Consisting of three parts, the project first maps market design fundamentals and options, then assesses the specific impact from renewables on market prices and the ability to finance new, especially flexible supply and demand-side technologies and finally, looks into geographical aspects of market design.

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