by Tilburg University
edited by Sadie Harley, reviewed by Andrew Zinin
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The transition to renewable energy is not just about installing more solar panels and wind turbines. Without smarter market rules, the energy transition could become unnecessarily expensive and deepen inequality. That is the conclusion of new research by Dongchen He, who examined how electricity markets and subsidy policies should adapt as renewable energy becomes dominant.
“The energy transition is not only a technological shift, but also an economic revolution,” says He. “If we fail to redesign the rules of the market, we risk higher energy costs and policies that mainly benefit wealthier households.”
In the past, electricity mainly came from coal and gas plants. Today, a growing share is generated by wind and solar power. But renewable electricity depends on the weather, making electricity supply far less predictable.
According to research, flexible energy sources, such as power plants or storage systems that can quickly respond when wind or solar generation drops, are becoming essential to keep the electricity system reliable. Yet current market designs do not sufficiently reward companies for providing that flexibility.
“Electricity markets were largely designed for a fossil-fuel era,” He explains. “As a result, companies may underinvest in the flexible technologies that are crucial for a stable and reliable power system.”
The dissertation also examined how different subsidy schemes for residential solar panels affect households. The findings show that policy design matters greatly.
Net metering schemes, for example, are relatively expensive for governments, while feed-in tariffs tend to benefit wealthier households more. Investment subsidies that reduce upfront installation costs are more attractive to lower-income households, but they can also become fiscally costly.
The research suggests that governments could design smarter subsidy systems by offering households different subsidy options instead of a one-size-fits-all approach.
“Households respond very differently to financial incentives,” says He. “By recognizing these differences, governments can make renewable energy policies both cheaper and more effective.”
Overall, the research shows that the energy transition is about much more than producing cleaner electricity. It also requires a fundamental rethink of the economic rules behind electricity markets and climate policy.
“Poorly designed policies can unintentionally increase costs and inequality. The challenge is to make the energy transition not only green, but also affordable and fair.”
Energy transition
BSc Life Sciences & Ecology. Microbiology lab background with pharmaceutical news experience in oil, gas, and renewable industries. Full profile →
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Outdated electricity market rules and subsidy schemes can increase renewable energy costs and exacerbate inequality. Current markets inadequately reward flexibility needed for reliable renewable integration, leading to underinvestment in essential technologies. Subsidy designs often favor wealthier households; tailored, differentiated incentives could improve equity and cost-effectiveness.
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Outdated power market rules could raise renewable energy costs, dissertation concludes
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