A legal-economic framework of wholesale electricity markets: Assessing Australia's transition

Recent years have seen a surge in renewable generation investment in many countries, displacing traditional fossil-fuel generation at scale. Clean energy transitions have amplified existing problems of wholesale market designs and introduced new ones, including, but not limited to maintaining system resilience and reliability and ensuring adequate future investment levels. We develop an integrated legal-economic framework of wholesale electricity markets under transition conditions. The framework explains the dynamic interplay between different levels of electricity market regulation, regulatory objectives, policy instruments, market outcomes and electricity system objectives. The novelty arises from our separation and definition of the two main levels of (energy) law and regulation shaping electricity market design and their unique impact on market and system outcomes. We show that understanding and targeting the different levels of regulation matters for successfully addressing transition problems. We demonstrate the framework on the example of Australia's National Electricity Market. • A legal-economic framework of wholesale electricity markets is proposed. • Policy makers should consider market impact of interventions supporting transitions. • Strategic and operational levels of regulation in legal frameworks are described. • Targeting correct levels of regulatory response matters. • The framework is applied to Australia's National Electricity Market (NEM).