Introduction: A System Designed for a Different Era
The report begins by defining power system structure as the framework used to organize generation, transmission, distribution, and consumption. It explains that existing structures were built for centralized, fossil fuel-based systems with predictable supply and passive demand.
In contrast, renewable-based systems are decentralized, variable, and increasingly interactive. Electricity flows are no longer one-directional, and consumers are becoming active participants through distributed generation and storage. This shift creates structural misalignment between current system design and future system needs.
Shared Structural Challenges Across Power Systems
The report emphasizes that both regulated and liberalized systems face similar challenges. These include the capital-intensive nature of renewable generation, increased reliance on flexibility, integration of distributed energy resources, and growing system complexity.
It argues that neither market-based nor purely regulated systems alone can address these challenges. Instead, future systems must combine competition, regulation, and collaboration to manage the evolving energy landscape effectively.
Wholesale Market Misalignment
One of the central issues identified is the reliance on marginal cost pricing in wholesale electricity markets. This model was effective for fossil fuel systems but is not suited to renewable energy, which has high upfront costs and near-zero operating costs.
As renewable penetration increases, wholesale prices are suppressed, making it difficult for both renewable and conventional generators to recover costs. This leads to growing dependence on policy mechanisms such as subsidies, long-term contracts, and capacity payments.
The report highlights that such mechanisms can introduce inefficiencies and may prolong reliance on fossil fuel assets if not carefully designed.
Cost, Price, and Value of Electricity
The report distinguishes between cost, price, and value. Cost refers to production and system costs, while price reflects market outcomes and regulatory adjustments. Value, however, includes system-level and societal benefits such as emissions reduction, reliability, and economic development.
It stresses that electricity has different value depending on location and timing. Ignoring these factors leads to inefficient investment decisions, increased grid congestion, and higher system costs.
More advanced approaches that incorporate locational and temporal value signals are presented as necessary for improving system efficiency and guiding future investment.
Retail Tariffs and Load Defection Risks
The report identifies retail pricing structures as another area of concern. As electricity prices rise, consumers with financial capacity are increasingly investing in rooftop solar and storage to reduce reliance on the grid.
This creates a feedback loop where remaining consumers bear a greater share of system costs, potentially increasing inequality. Those unable to invest in distributed energy solutions face higher costs, while wealthier users reduce their contribution to shared infrastructure.
While distributed energy is essential for the transition, the report argues that tariff structures must evolve to ensure fair cost distribution and system sustainability.
The Need for Structural Redesign
The report warns against relying on incremental adjustments to existing systems. Piecemeal reforms may temporarily address issues but can lead to increased complexity and inefficiency over time.
Instead, it advocates for a comprehensive redesign of power system structures aligned with renewable energy characteristics. This includes accommodating decentralized generation, enabling bidirectional flows, and supporting active demand participation.
The Dual-Market Approach
A key proposal in the report is the introduction of a dual-market structure. This separates the system into two components: an energy market and a delivery market.
The energy market focuses on long-term investment through contracts and auctions, providing stability for capital-intensive renewable projects. The delivery market addresses short-term system needs, including balancing, flexibility, and reliability.
This structure allows each part of the system to function more effectively, ensuring that renewable generation and flexibility services are properly valued.
Balancing Competition, Regulation, and Collaboration
The report highlights the importance of balancing market forces with regulatory oversight and collaborative approaches. Competition drives efficiency, regulation ensures fairness and stability, and collaboration enables integration of diverse system participants.
This balance is necessary to manage the complexity of renewable-based systems and to ensure that the benefits of the energy transition are widely distributed.
Conclusion
The report concludes that existing power system structures are increasingly incompatible with the requirements of renewable energy systems. Without structural reform, inefficiencies, higher costs, and social inequality may increase.
A redesigned system that reflects the realities of renewable generation, flexibility needs, and distributed participation is essential. The proposed dual-market approach represents one pathway toward achieving a more efficient, reliable, and equitable energy system.
