Starting a decarbonised electricity market

How do we start a market in decarbonised electricity?

Here’s my thoughts so far.

If the government (thinking of the UK, but equally applicable to any other government) is serious about hitting its “80 per cent CO2 reduction by 2050” target, and on the way, a 40 per cent by 2030 target, at some point there will be a market for decarbonised electricity, since someone has to supply the electricity which doesn’t involve carbon emissions.

How will this market work?

Right now, the market for decarbonised electricity – for renewals – works by the National Grid being forced to buy all the electricity which solar and wind generate at whatever rate they are currently paying for the cheapest form of electricity (coal with CO2 emissions). The market for the other sort of decarbonised electricity – coal + CCS – doesn’t work at all. This way we get whatever low targets the government is currently happy with.

But as the requirement to decarbonise electricity grows, the logic will change.

The government could achieve its target by explicitly requiring the National Grid to purchase decarbonised electricity. At this point, there will be a market for whoever can supply it the cheapest.

The government might also achieve its targets by forcing the phase out of free burn coal power. This would mean the National Grid buying its electricity from the next cheapest option – gas. But then the government will need to start phasing this out as well, if it wants to reach its targets.

This discussion is very interesting because at some point in the future, so long as targets are met, there wil be a market for decarbonised electricity. And the people who correctly predict it, and make their investments at the right time, will make a lot of money.


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