Electricity systems are undergoing rapid structural change, increasing the need for market frameworks that keep pace with evolving operational and investment requirements and possibilities. Electricity is central to modern economies, and its role is expanding as consumption patterns shift, digitalisation accelerates, energy systems decentralise, and variable resources grow. Across major regions, these trends are increasing the complexity of real-time operations and reshaping investment dynamics. Short-term and seasonal flexibility needs are projected to grow faster than demand over the next decade, while electrification in many sectors is strengthening the dependence of households, businesses and industry on the reliable performance of electricity systems. These developments reinforce the importance of market arrangements that ensure efficient resource co-ordination while supporting stable long-term investment.

Recent system stresses have underscored the importance of durable market design that can withstand a wide range of system conditions. Higher financing costs, supply chain constraints, network development delays and broader geopolitical pressures have all contributed to a more uncertain operating environment. Since 2019, many jurisdictions have seen annual wholesale market price volatility at five to nine times 2019 levels. In Europe in 2021, triggered by the sudden and drastic reduction in Russian pipeline gas deliveries to Europe, wholesale electricity prices increased over four times compared with levels in 2019. These increases were largely the result of volatile and rising gas prices, prompting over 400 emergency measures to mitigate impacts on consumers. These experiences have heightened public and political scrutiny of electricity markets and underlined the importance of ensuring that market frameworks remain resilient, efficient and practical as system pressures grow.

Short-term markets have been broadly effective in maintaining reliable and efficient operations even as systems become more complex. In the markets analysed across parts of Europe, the United States, Australia and Japan, electricity has been securely supplied more than 99.9% of the time over the past five years. Short-term markets have enabled efficient scheduling, transparent price formation and broad participation across a diverse set of resources and actors. In Europe, the day-ahead market processes more than 400 000 bids every hour across thousands of registered actors. As variability and decentralisation have increased, these markets continued to translate real-time conditions into meaningful price signals that align operational behaviour with system needs.

Growing variability and decentralisation require refinements that unlock flexibility and strengthen the co-ordination role of short-term markets. As more resources operate at the distribution level or behind the meter, and as weather-dependent generation expands, short-term markets must capture system conditions with finer temporal and locational granularity. This includes reducing day-ahead market time intervals to 15 minutes or less where this has not yet been implemented, and dividing large bidding zones into smaller areas where needed to better reflect real network conditions. Further refinements, including improved access for distributed resources and more flexible participation frameworks can help unlock the full range of demand- and supply-side flexibility needed in modern electricity systems. These enhancements support the continued effectiveness of short-term markets as the central co-ordination mechanism for electricity systems.

Long-term markets have not kept pace with rising investment needs and growing exposure to uncertainty, leaving participants with limited tools to manage risk. While the generation mix is shifting toward a higher share of capital-intensive technologies, the vast majority of forward and futures markets suffer from low liquidity, limiting how easily market participants can buy or sell contracts. In addition, these markets remain shallow across all regions analysed in this report, with most trading concentrated within the first two years of delivery. This restricts participants’ ability to hedge revenue and cost risks over longer periods. Heightened exposure to wholesale price volatility can raise financing costs and weaken investment confidence in new generation, storage and in electrification projects that depend on predictable long-term prices, a challenge that grows as more sectors rely on electricity as a core input.. Strengthening long-term markets is therefore essential to support timely investment in both supply and demand-side resources.

Power Purchase Agreements (PPAs) help many market participants manage price risk, but they cannot substitute for deep and liquid long-term markets accessible to all. Corporate and utility PPAs have expanded where long-term markets are thin, providing tailored risk-management options. However, access is uneven: in Australia, Japan, Europe and the United States, between half and three-quarters of corporate PPAs have been signed by companies with revenues above USD 1 billion, with limited uptake among smaller actors. Pay-as-produced PPAs can also induce misalignments with short-term signals, affecting how participants react to real-time system conditions. While PPAs will remain an important tool, they cannot alone fulfil the role of well-functioning long-term markets.

Complementary mechanisms, such as capacity remuneration mechanisms and renewable support schemes, now play a major role in delivering investment and policy objectives across many jurisdictions. These and other investment tools have expanded as governments pursue objectives such as ensuring resource adequacy, supporting domestic industry and advancing low-carbon generation. In Australia, for example, 98.8% of capacity additions in the National Electricity Market over the last decade has relied on some form of government support. Similar dynamics are visible across Europe, Japan and several US markets: they have become a structural feature of electricity systems, supporting the entry of new large-scale, low-emission generation and the continued operation of existing dispatchable and flexible plants that remain essential while operating at declining capacity factors.

The design of these mechanisms must be carefully co-ordinated with short- and long-term markets to avoid unintended consequences. Poorly aligned mechanisms can weaken price signals, increase system costs and create uncertainty, while well-designed mechanisms can reinforce market efficiency and mobilise timely investment. For example, support schemes that remunerate output  at a fixed price irrespective of market conditions can prompt generation even when low prices indicate abundant supply, reducing the responsiveness of generators and flexibility providers to market conditions. Recent reforms illustrate approaches to improve alignment, such as two-sided contracts for difference with safeguards during negative price periods. Ensuring that complementary mechanisms support, rather than hinder, the functioning of existing markets is essential for maintaining investor confidence and efficient system operation.

Effective market design requires co-ordinating complementary mechanisms with market signals across all time horizons to support efficient investment and system operation. Secure and affordable electricity depends on the interaction of short-term markets, long-term contracting tools, complementary mechanisms and broader system governance. While complementary mechanisms play an important role, they can add to overall system costs and can expose investors to policy instability. This underscores the need to strengthen long-term markets and refine short-term arrangements, ensuring that complementary mechanisms are well co-ordinated within a coherent investment framework that supports efficient outcomes and sustains confidence among investors and consumers.

Predictable and well-co-ordinated reforms are crucial for maintaining confidence, enabling timely investment and ensuring electricity systems keep pace with growing needs. As electricity systems evolve, market design must be treated as a regular, iterative process rather than a one-off exercise, with periodic reviews built in to keep frameworks aligned with changing conditions. Clear objectives, transparent consultation and well-signalled implementation timelines provide the stability participants need to plan and invest effectively. Abrupt or retrospective changes risk undermining trust and increasing system costs. Clear, co-ordinated action on market design is essential to deliver the reliable, affordable electricity paving the way in the Age of Electricity.