Renewable Energy and FORward Markets (REFORM)

Project Description

Decarbonisation requires investment in renewable energy and flexible complements to this, such as storage, flexible generation, and demand-side management. Investors need to manage their risk. If risk isn’t suitably hedged, there will be slow or underinvestment and we are more likely to miss our targets. Usually, risk is hedged in forward markets – participants lock in prices ahead of time. Well-functioning forward markets require many buyers and sellers. If generators already have a guaranteed price, they don’t need to sell forward. Renewable energy in Ireland receives a price support, a price guarantee, so it doesn’t need to lock in a price on the forward market. This becomes a problem as renewable energy becomes the majority generation source – 80% of electricity will be from renewable sources in 2030. This lack of participation in forward markets means that the price received on the forward market will be more volatile and the risk-reducing properties will be undermined. There will be additional risk for suppliers and for generators, which can make heading risk more expensive. This can have many negative outcomes, including a price premium for consumers and under-investment in decarbonisation and flexibility. This project will investigate the extent with which this may be a problem and identify market mechanisms to incentivise participation in the forward markets for renewables.