A new balance must be struck between regulation and increasing competition in energy markets, according to a new report.

The International Energy Agency’s (IEA’s) new publication considers how electricity markets need to be “reinvented” to meet the aims of the COP21 Paris Agreement.


Markets need to use prices that reflect supply and demand conditions as often as possible and as close as possible to locations where the energy is generated or consumed, the report said, through the use of day-ahead, intraday and real-time trading, as well as zoning to stimulate cross-border trading.


A “robust” carbon price is also needed to place values on the various forms of generation.


Modern regulations

The report said: “Regulation of distribution must also be modernised to take into account the potential of batteries as well as consumers who also produce renewable electricity.”


The IEA highlighted that shortages of capacity will lead to “scarcity prices”, which in turn will incentivise generators to produce and consumers to reduce demand.


But the agency warned that “an adequate regulatory framework” would be needed “during hours of capacity shortage”.


> Download the report