Abstract

A
low-carbon electricity system has a dominance of plant with high fixed costs
and low variable costs, backed up with flexible controllable generation. In a
liberalised market all required new investment will need to cover its full
cost, necessitating payments for capacity, energy and quality of service to
deliver reliability (long-term adequacy) and security of supply (short term
resilience to shocks). Their value varies over time and space. Current
liberalised markets lack futures markets and proper spatial signals to guide
investment. Networks have always had high fixed, very low variable costs and
long-run marginal costs well below average costs, creating challenges for
setting network tariffs. Consumers need to pay for these generation and
network services in ways that are efficient, equitable and acceptable, in a
system that offers a greater range of scale and location (voltage level) of
options for delivering the three services of capacity, energy and quality of
servic e, requiring more careful tariff design than hitherto. ICT can help
deliver but cannot avoid the tensions between efficiency, equity and
acceptability. The talk will identify the challenges, the theoretical
solutions drawing on the mature subject of public economics, and possible
solutions.