The Transformation of Energy Markets and the Role of Innovation in Reshaping National Energy Mixes

EXECUTIVE SUMMARY

MAIN ARGUMENT

While there has been much talk about the need to move toward a decarbonized energy market in order to mitigate the impact of global climate change, and policy incentives have resulted in significant investment in renewable energy in a number of countries, the impact on the structure of the world’s energy supply has to date been rather limited. This has led many commentators, unsurprisingly including those heavily vested in the current structure, to suggest that while the energy transition will proceed, it will do so at a leisurely pace, with fossil fuels being the overwhelmingly dominant energy source for a long time to come. However, this view is partly based on a perception of renewables as a “luxury” energy source requiring substantial subsidization and does not fully reflect dramatic improvements to the cost structure of wind and solar power, which have added cost-competitiveness to their existing environmental and security of supply attributes. While significant challenges still exist, such as the intermittency of renewable energy, policymakers have yet to take full account of these changes.

POLICY IMPLICATIONS

• The new cost-competitiveness of renewable energy creates an opportunity to develop policy that no longer requires compromises between different goals, such as lowering energy costs and improving environmental friendliness.
• To take full advantage of this opportunity will require awareness of, and openness to, the possibility of creating a new energy model, including a policy framework that encourages innovation and the active participation of new players;
• A new model that moves toward a more decentralized supply structure could also offer a more cost-effective means of addressing energy poverty than traditional approaches.