The market is important for the electricity system of the future

Friday 13 May 2016

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Is today’s electricity market working, even under the new conditions? This has been an important focus of the Public Finances and Market work group. They present their conclusions in the fifth and final project report from Electricity Crossroads.

“When you start reading our report, you might not think it’s possible to provide complete answers in 25 pages. But we highlight a number of important issues that should be considered when discussing the electricity system of the future,” says Runar Brännlund, Chairman of the Public Finances and Market work group.

“How should the electricity market be organised? Which control mechanisms and subsidies should we have? The future of both electricity production and usage will be largely determined by how we answer these questions,” says Runar Brännlund.

Over the past year or so the work group has discussed control mechanisms, subsidies and market structures. How can they be designed to support the electricity system of the future and what consequences will they have on public finances? The conclusions are presented in a report: Public Finances and the Electricity Market 2030–2050.

The report concludes, among other things, that today’s taxes and subsidies are far too biased towards renewable energy. There is a risk that this will skew the competitive situation at a time when nuclear power and the amount of intermittent power production are in decline.

“The tax system today is not technology-neutral. It favours investments in small-scale, intermittent electricity production more than, for example, large-scale and conventional energy sources, such as hydropower and nuclear power.”

Another theme discussed in the report is the way the electricity market is organised. In today’s electricity market energy is bought and sold, but it may be necessary to introduce some form of capacity mechanism,” says Runar Brännlund.

“Developments in recent years and the predicted future increase in renewable electricity production are increasing the need for capacity mechanisms. There are different models for this and we discuss the pros and cons in the report.”

The report was presented at a seminar at IVA on 19 May. Joining Runar Brännlund at the seminar were Lars Bergman, a professor at Stockholm School of Economics, and Anna Holmberg of SKGS. Policy-makers from the Energy Commission also reflected on the report.