The Market Design Initiative and Path Dependency

Summary

Smart retirement of old, high-carbon, inflexible capacity as a prerequisite for a successful market design

The market design communication focusses primarily on the question of whether and how to intervene in support of investment in needed capacity. We believe that such interventions should be carefully considered in light of the need for smart and managed retirement of old, highcarbon, inflexible generation capacity. Interventions should also be evaluated in light of the unique characteristics of the integrated European power market. Continued support for new investment in low-carbon resources such as variable renewables will be required for the foreseeable future and should not be confused with capacity mechanisms – they are fundamentally different decisions driven by fundamentally different considerations. Finally, a proper regional approach to resource adequacy will almost certainly reveal that the most urgent challenge facing the EU power markets is not a shortage of megawatts of capacity, even on a de-rated basis. The most urgent challenge facing the EU power markets is tackling the implications of the legacy of investments in high-carbon, inflexible generation.


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