Thread by @timbolord

Really important report from @escatapult on an underestimated element of the net zero transition – how we design electricity markets to deliver objectives in a low cost way that works for consumers. (1/)

https://twitter.com/guynewey/status/1377158294242914307

Decarbonisation of power is seen as “the easy bit” of delivering net zero because we’ve had success to date. But next phase of the transition is different to the last – electricity will play a different role in our energy system, and markets are not optimised for that. (2/)

We focus heavily on technology innovation, but innovation in market design is just as important. UK has long been a leader – from privatisation in the 80s/90s, to Electricity Market Reform a decade ago. We should be a leader again. (3/)

Our approach for last c20 years has been to identify problems and design fixes for them. EMR is a good example of that – problems were that renewables were too expensive, and security of supply not assured. EMR was pretty successful in fixing them. But… (4/)

… if we continue down that road, we’ll keep adding more and more complication to the market, creating perverse incentives and inefficiencies. We need to stop trying to design individual solutions for individual problems and think systemically. (5/)

Approach now should be to work out what we need the market to do in (say) 10 years, then plot a roadmap to get there. As this report shows, that means fundamental reform – not new layers of intervention. (6/)

That won’t be easy. In particular, we need to work to agree what we want our electricity system to do – that means real consumer engagement, removing barriers for innovators and disruptors, and incumbents embracing change. (7/)

We need to design a new system without undermining investment precisely when we need it. Experience of EMR is that transitioning from one market to another can either create investment rushes, or dry it up completely. Neither is good. (8/)

And we need to be fast - climate emergency won't wait 5 years for us to figure this stuff out. (9)

But that shouldn’t put us off. The prize is potentially very big – lower cost, new business models, integration of new tech, better experience for consumers, and real UK leadership in one of the biggest net zero challenges. (10/)

Finally – this is techy stuff but I think fundamental to the politics of net zero. Consensus on net zero is shaky. If the market doesn’t work for all consumers, political consent for net zero transition will be lost. (/ends)
institute.global/policy/polls-a…

PS – kudos to @georgeday27 @skeaybright @guynewey for driving forward the debate on this (and for making me feel nostalgic about options for capacity market design…).