Structural changes to the design and operation of power markets are needed to ensure adequate incentives for investment and to integrate more variable wind and solar electricity, according to the International Energy Agency (IEA).

It its World Energy Outlook 2016, the IEA said cost reductions for renewables alone will not be enough to secure efficient decarbonisation of the electricity system.

“A careful review of market rules and structures is required to ensure generators have ways to recover their costs and that the power system is able to operate with the necessary degree of flexibility, IEA said.

Demand response and energy storage will be key once renewables' share of the mix reaches about one quarter in order to avoid curtailment during times of abundant generation, it said.

IEA projected that renewables could reach as much as 60% of power generated in 2040, most of which would be wind or solar.

A 40% increase in renewables by 2040 would come with a 15% increase in cumulative subsidies and little extra cost to consumers, IEA said.

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