Rapid technological innovations in low-carbon, demand-response and storage technologies can lead to a more efficient and secure electrical system. However, achieving the full potential of these innovations requires new approaches to policy, regulation and business models. If regulatory reforms, market design, and systems do not keep pace with technological deployment, the outcome could be a less secure electricity market and a longer low-carbon transition period. The right balance between market arrangements and the regulation of the power sector, to successfully manage the sector’s transformation, is yet to be found (IEA 2016). Policymakers must balance the need for innovation and competition while enabling capital deployment for low-carbon sources of electricity. A market design appropriate for the energy transition must provide efficient price signals and enable a flexible and adequate competitive supply. New technologies allow consumers to contribute to a more flexible and less costly electricity system, responding to wholesale market price signals. This could enable a better balancing of electricity generation with energy services and storage, increasing the system’s flexibility to integrate variable renewables and improve the security of the electricity supply. Regulating distribution networks should, in principle, enable distributed energy resources to participate in local and wholesale markets. There are presently no clear solutions to these challenges.

This project aims to improve our understanding of the various forces driving innovation in electricity markets. It leverages previous KAPSARC work in the ‘Utilities of The Future’ project.