June, 2023
Globally, the energy sector is transforming rapidly. The green transition and the urgency of addressing the climate crisis is leading to significant changes in how energy systems operate. Lessons from evaluation can provide a valuable perspective on how to develop green energy systems that are sustainable, secure and affordable.
This paper focuses on providing evidence-based insights from evaluation on two central themes: the technical integration of intermittent renewable energy and building markets to set the right incentives. At the core of the green energy transition will be low-cost, renewable energy such as wind and solar. Whilst affordable and sustainable, these mechanisms for generating energy create new technical challenges due to the intermittency of generation. The cost profile of renewable technology, the dynamism within the sector, and the intermittency factor also requires structural changes in how markets operate and generate incentives.
The technical integration of intermittent renewable energy is the critical foundation for the green energy transition. Intermittent and fluctuating energy generation is challenging for grid operators, with respect both to grid infrastructure and developing an appropriate mix of power sources. Evaluations have consistently focused on the need to balance investments between renewable energy generation and transmission infrastructure, in order to ensure that grids have the capacity to accommodate intermittent energy generation.
Looking forward, policy-makers will have access to an increasingly diverse range of tools to support integration. Increasing electrification, energy storage mechanisms, and smart grids will provide new opportunities to support the integration of intermittent renewable energy. However, evaluations have also demonstrated the continuing role that hydrocarbon sources of power generation might play in some contexts, in providing balancing services which support the integration of intermittent energy.
Markets will need to evolve in tandem with the physical infrastructure of energy systems. Evaluations have shown that a market approach to energy systems which combines private sector investment with public sector oversight is critical to a successful green transition. The rapid increase in renewable energy capacity also necessitates a systemic approach to ensure appropriate risk mitigation. Dynamic markets enable risk to accumulate quickly, particularly if policy and regulatory regimes remain static despite evolving market circumstances.
The interaction between electricity markets and renewable energy generators may also have to change. In more mature markets, moving away from the security of price stability and guaranteed off-take could support more flexible, secure and affordable energy systems. Addressing constraints on investment is also critical, particularly given the cost profile of renewable energy generation and the outsized influence that the cost of capital has on the cost of energy generation