A revolutionary review of Britain’s electricity market structure, which the UK government announced today (Monday, July 18), could significantly lower the UK’s exposure to volatile global gas markets and consumers’ energy bills over the long run.
The Review of Electricity Market Arrangements (REMA) will solicit opinions on a wide range of alternatives to meet the overlapping difficulties of responding to rising global energy costs, the requirement to further enhance energy security, and the transition of the UK to a greener energy system.
Among the modifications being discussed are:
Offering incentives for users to use grid energy at reduced prices during times of low demand or when it’s very sunny and windy will enable homeowners to save money.
modifying the capacity market to enhance the participation of low-carbon flexibility technologies that enable a cleaner, less expensive system, such as electricity storage
separating the price of expensive global fossil fuels from the electricity generated by less expensive renewable, a move that will help guarantee that consumers will pay less because of less expensive clean energy sources
Because gas is frequently the final source of supply to fulfil demand, under the current system, gas prices frequently wind up dictating the wholesale price of electricity.
As renewable become more and more integrated into the grid, prices will eventually be more frequently influenced by the cheaper electricity that they produce.
In order to ensure that consumers fully benefit from the UK’s abundant and competitive supply of cheaper, cleaner energy, this consultation will examine how to update this pricing mechanism to more accurately reflect the surge in cheaper renewable electricity.
Kwasi Kwarteng, the secretary for business and energy, said:
Because gas is making up less and less of our mix of electricity generators and because the price of offshore UK wind power has recently fallen to an all-time low, we need to look into measures to make sure the electricity market is evolving with the times.
This entails making sure that the cost advantages of our expanding access to cheaper energy trickle down to consumers as well as safeguarding the future viability of our system, particularly given that electricity consumption is predicted to quadruple by 2035.
I am convinced that this study will greatly improve GB’s energy security and supply for future generations in what may be the biggest electrical market shake-up in decades.
The government’s thorough study of the energy market, initially revealed in the British Energy Security Strategy, is part of today’s consultation launch (BESS).
As part of UK aspirations to provide a clean and safe electrical grid by 2035, the BESS greatly increased ambitions for developing low carbon and less expensive-to-run technologies such as offshore wind, solar, and nuclear.
The UK has already made significant strides toward accelerating the supply of less expensive, domestic renewable energy.
Through the government’s flagship renewable programme, the UK earlier this month acquired a record capacity of about 11GW of clean energy at record low costs – nearly double the capacity achieved in the previous round and enough to power about 12 million British homes.
With the demand for electricity expected to at least double over the next 13 years, REMA will concentrate on creating a design for the market that is appropriate for its intended use and identifying and enacting the necessary reforms to make the GB electricity markets functional for commerce, industry, and households.
In order to ensure continuous supply during times when there is no wind or sun, at the lowest possible cost for consumers, this includes consulting on both the continued evolution and expansion of current schemes, such as the Capacity Market and Contracts for Difference, as well as the introduction of more fundamental change where needed.
Greg Hands, the energy minister, said:
The REMA launch today is a significant step toward ensuring that Britain has a secure energy future. It establishes the electricity market structure required to make the most of our unrivalled diversity of power sources while providing customers with better value.
Within REMA’s extensive work programme, today marks the beginning of the first significant consultation phase.
The UK government will interact widely with the industry through this initial consultation to develop and evaluate reform alternatives; a response is anticipated to be released this winter.
Before implementing recommended reforms, the department will further research, improve, and narrow possibilities for reform throughout 2022–2023.
A representative with National Grid ESO stated:
We applaud the BEIS’s Review of Electricity Market Arrangements for its depth and breadth.
To achieve net zero and provide better results for consumers across Britain, wholesale markets need reform.
The appropriate platform for stakeholders to agree on what is required is REMA.
A representative for Ofgem stated:
Our main goal is to protect consumers, which is why we are helping the government conduct this comprehensive Review of Electricity Market Arrangements.
Only if we can make the most of Britain’s affordable, abundant renewable resources and invest in strategies that offer a low-cost net zero power system utilising our domestic energy will an equitable energy market that safeguards consumers’ interests function.
Now that this timely assessment has begun, we look forward to working closely with the government and other parties to make sure that our energy market arrangements serve consumers’ interests and lower bills.
Adam Berman, Deputy Director at Energy UK, stated:
The energy sector is prepared to contribute to the development of a clean, cheap power system that satisfies both our Net Zero and Energy Security goals.
REMA will contribute to ensuring that the energy market can direct private investment to meet the lofty goals set by the government for the delivery of clean, affordable, domestically produced electricity.
The government should assess how to create the most effective market arrangements to encourage decarbonization in order to lower costs over the long run as energy prices have reached unprecedented heights.
Barnaby Wharton, the director of RenewableUK’s Future Electricity Systems, said:
Over the coming ten years, as we continue to increase our capacity for renewable energy, the power system will undergo a fundamental upheaval.
We must have a market that encourages investments in new initiatives and infrastructure while enabling customers to fully enjoy the advantages of a system that is low cost and low carbon.
This consultation represents a significant advancement in that process, and the business community and the government will continue to collaborate closely to develop the renewable energy infrastructure that the UK needs to quickly reach net zero.