Outputs and impacts
Explore outputs from the Centre for Net Zero Market Design, including working papers, reports, presentations and consultation responses.
Energy market working paper series
A series of papers investigating electricity market reform, power sector decarbonisation, and measures to reduce electricity prices to facilitate the electrification of the UK economy.
Working paper #8
Dynamics of the Power Sector Transition in China (pdf)
The transition to clean technologies in the power sector is fundamentally transforming energy systems, with important implications for electricity costs, carbon emissions, and security of supply.
In this context of structural change, cause and effect are often disproportionate. This leads to surprises, which may be either beneficial or detrimental for policy objectives. Understanding the causal feedback loops in the system— reinforcing feedbacks that amplify change, and dampening feedbacks that inhibit change and preserve stability—can help to anticipate policies’ dynamic effects, and distinguish those that are self-amplifying from those that are selflimiting. The analysis of feedbacks can also help to identify ways in which combinations of policies are mutually reinforcing or mutually offsetting.
China is undertaking the transition to clean power on an unmatched scale, and the UK is navigating it at an exceptional pace. While China is engaged in a process of electricity market liberalisation, the UK is considering a wide-ranging set of policy reforms centred around a liberalised wholesale market. Despite their different scales, starting points, and institutional structures, the two countries now face a similar set of challenges as they aim to adapt their power systems to new technologies.
In this report, we use systems mapping with causal loop diagrams—an analytical technique focussed on feedback loops—to provide a new perspective on the dynamics of the power sector transition in China. Where relevant, we complement this with insights from the UK’s experience.
Working paper #7
European Natural Gas through the 2020s: the decade of extremes, contradictions and continuing uncertainties
The European gas system has entered a structurally volatile phase defined by post energy crisis over build, dislocated demand trajectories, and a decoupling mandate under REPowerEU. This paper interrogates the contradictions between fossil lock-in through LNG import capacity and over contracting, and policy-driven demand reduction. The EU’s pivot to flexible LNG procurement exposes pricing to global volatility, while decarbonisation hinges on electrification, demand-side retrofits and hydrogen feasibility—each encumbered by cost, infrastructure lag, and political friction. We assess Europe's gas outlook through the decade’s residual volatility, policy ambivalence, and the emerging global LNG oversupply regime — a clash with geopolitical energy security imperatives, domestic backlashes against capital-intensive green technologies and market inertia. We argue that Europe’s energy system now operates in a zone of structural ambiguity—where security, sovereignty, economy and climate ambition remain deeply entangled, but as yet far from operationally aligned.
Working paper #6
Generating surplus: the challenges and opportunities of large-scale renewable deployment
The UK depends on accelerated expansion of variable renewables, particularly offshore wind, to meet its clean power target by 2030. This paper explores the ways in which growing incidence of surplus electricity generation could undermine revenue certainty for future renewables investments, particularly given the current design of Contracts for Difference (CfDs). We draw on National Grid’s Future Energy Scenarios to project potential levels of surplus in 2030, with and without stylised sources of storage and flexibility. Without flexibility, we find surplus during up to 50-60% of hours. Around three quarters of potential output from an additional GW of wind capacity is generated during said periods of surplus. Therefore, without sufficient absorptive flexibility on the system, risks of economic curtailment and price cannibalisation could deter investment or inflate CfD bids, raising energy bills. Risk-reducing options to reform CfDs are currently under consideration, but involve several trade-offs; our findings ultimately emphasise the importance of proactive policy targeting the expansion of flexibility alongside renewables, to facilitate positive feedbacks between investment in both.
Working paper #5
Regulatory Impact Assessment in an era of energy transition: insights from the UK experience
Independent energy regulators need methodologies to assess and defend their regulatory decisions. This paper summarises major difficulties with the traditional economic recommendation, for quantified cost benefit analysis (CBA) as the dominant metric, particularly in the context of energy transitions for decarbonisation. We do so by exploring the theoretical and practical limitations of CBA, including limitations of exclusive reliance on emission targets and the ‘social cost of carbon’, and the Great British energy regulator Ofgem’s response to these.
Drawing on practical author experience at Ofgem, we outline the unavoidable complexities that climate change in particular creates regarding the division of responsibilities between government and regulator, and describe the major revisions to Ofgem’s Regulatory Impact Assessment (RIA) framework that sought to address the resulting challenges. Given the realities of purposive energy transition, we explain why Ofgem concluded that beyond aggregate CBA, regulatory decision-making benefits from structured articulation of component concerns around distributional consequences for energy consumers, and direct analysis of the strategic and sustainability implications. Finally, we summarise an application, and subsequent evolution, of the Ofgem RIA framework.
Working paper #4
Separating electricity from gas prices through Green Power Pools: Design options and evolution
This paper develops a detailed proposal for an efficient way to channel the value of large-scale renewables, which have become much cheaper than gas-driven wholesale electricity prices, to consumers at ‘cost-plus’ prices. This would reduce the fiscal pressure on governments for market-wide subsidies and offer more stable support for consumers most in need. We detail how this ‘green power pool’ approach could interact with the wholesale market to ensure firm power, also bringing transparency to the cost of balancing the variable renewables output and maintaining incentives for efficient supply and demand responses. We illustrate the approach with reference to the cost and volume trajectories of UK renewables backed by government CfDs, targeted initially to particular consumer groups, as a first step in a wider transition towards direct consumer access to cheap renewables.
Working paper #3
Price Inflation, Marginal Cost Pricing, and Principles for Electricity Market Redesign in an Era of Low-Carbon Transition
The energy crisis engulfing Europe is a crisis of both gas and electricity markets, with huge cost impacts on consumers across all European countries. In Britain, half of typical household energy expenditure arises from electricity. This paper examines how the cost of gas-powered generation feeds through to electricity bills, on the principle of marginal cost pricing, setting the price for most of the time though it accounts for only about 40% of GB generation. Combined with the steep decline in wind and solar costs over the past decade, this has resulted in an unprecedented degree of ‘cost inversion’ in the electricity system. We offer estimates of the increase of revenues across the wholesale market, and outline five principles for reform for addressing the combined challenges of energy costs and accelerating low-carbon transition.
Working paper #2
Where does the money go? An analysis of revenues in the GB power sector during the energy crisis
The gas crisis has fed through to a huge impact on wholesale electricity prices in Britain. We use hourly price and generation data to estimate the impact on associated revenues to different types of generators. Given the extent of forward contracting, we complement simple results based on the day-ahead prices (“Case 1”) with a more realistic case based on a representative, technology-specific assumptions on forward contracts (“Case 2”). We estimate that revenues to GB generators rose by almost £30bn, from about £20.5bn/yr (pre-Covid) to £49.5bn in 2022. About 70% of this accrued to gas generators (from about £6bn/yr to £19bn) and renewable generators with Renewable Obligation Certification (from £7.7bn to £15.5bn).
There are various indications that the increase in revenues to gas plants significantly exceeded the rise in their input costs, and no reason to think the generating cost of these renewables significantly increased. Nuclear, and some other biomass and renewables also benefited. We find that the Electricity Generation Levy, introduced in Jan 2023, would have had limited impact on these numbers if it had existed in 2022 and is likely to have less impact in 2023. Finally, we discuss reasons and potential implications of the findings.
Working paper #1
What is the role of natural gas in European electricity prices?
This paper quantifies the role of fossil-fuelled vs. low-carbon electricity generation in shaping wholesale electricity prices across European countries, based on historical data using open, sub/hourly power system data between 2015-2021. We find that, despite a declining share in electricity generation, fossil fuels are still the main power plants “at the margin”, and hence setting the wholesale electricity price. With updated analysis, we find that averaged across Europe overall, in 2021 fossil fuels set the price about 58% of the time whilst generating only 34% of electricity per year. This was a slight decline from the values in 2019 (when fossil fuels set the price 66% of the time, with 37% of the generation).
However the trend in the UK was opposite: in 2021, gas set the electricity price 98% of the time, whilst generating just over 40% of electricity; non-fossil sources set the price the other 2% of the time. This was a marked change from the years 2015-2019, when gas set the price 80-90% of the time, with lower-cost imports through interconnectors setting the price for the rest. Overall, in 2021 fossil fuels set the electricity price more than 90% of the time in seven European countries, due to varied factors increasing the role of natural gas prices. As most of Europe (including the UK) imports most of its natural gas from outside Europe, this amplifies exposure of electricity prices to the geopolitical risks of gas supply, as well as the economic risks of currency exchange and natural gas price volatility.
Reports and briefing papers
This briefing paper outlines the scale and timing of generation exiting the Renewables Obligation (RO), Contracts for Difference (CfD), and Feed-in-Tariff (FiT) schemes. Starting with the quantities and characteristics of these generators, it explores whether they are likely to be able to operate on ‘merchant’ terms in the wholesale electricity market, whether there is any closure risk, and the potential to significantly expand capacity on these sites by upgrading the installed infrastructure (‘repowering’). Finally, we indicate potential policy options that merit further consideration.
A set of studies on the appraisal of battery energy storage systems (BESS), produced for the European Investment Bank (EIB). The series explores the economic, financial, and regulatory dimensions of BESS project appraisal across Europe, with the aim of informing the EIB’s investment appraisal methodologies and strategic engagement with storage technologies.
The UK government has committed to ambitious transformation of UK energy, including a decarbonised electricity system. Policy to achieve this needs to be grounded in a firm understanding of the complexities of the energy sector, the determinants of investor confidence in a rapidly changing context, and the potentially challenging politics of energy. This short note, drawing upon extensive research expertise at UCL’s Institute for Sustainable Resources, offers seven propositions which could contribute to effective delivery of the government’s objectives.
A programme of research examining options for reforming electricity markets, focusing on how a ‘Green Power Pool’ may be designed and operated.
Consultation responses
Coming soon
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