Countries should reinvent the way they produce, trade and consume electricity to make the shift towards a low carbon system.

That’s the call from the International Energy Agency (IEA) in its latest report, which offers guidance to governments, regulators, businesses and investors to achieve their COP21 pledges.

Nations need to redesign their energy markets by ensuring investment in low carbon technologies and energy efficiency as well as guaranteeing security of supply, said the ‘Re-powering Markets’ report.

That requires efficient markets which unlock flexibility to deal with renewables’ variability as well as weather forecasting errors and network congestion, the IEA stated.

Market rules need to be modernised and better matched with low carbon policies while keeping the same overall market architecture.

It added a “robust” carbon price is also needed in the transition to a low carbon system to know the value of various technologies.

The IEA suggested regulation of distribution to be modernised to take into account the potential of batteries as well as consumers who also produce renewable electricity.

The report also details the opportunities that demand response offers “through dynamic pricing and the pooling of consumers through new technologies”, including the impact of increased electrification from widespread adoption of electric cars and other new technologies.

Fatih Birol, IEA Executive Director said: “For a century, a centralised high-carbon power system kept the lights on. The price has been the generation of over a third of global carbon emissions. Thus, to gain the full social and political support required for decarbonisation, the level of supply security that society has come to expect cannot be compromised.

“If regulatory regimes, market design and system operation end up lagging behind technology deployment, the result may undermine electricity security and ultimately, the low carbon transition itself.”