As the first consultation phase of the Review of Electricity Market Arrangement (REMA) draws to a close, Regen has written to the REMA team in DESNZ to thank them for their hard work to date and setting out our priorities and recommendations for the next phase of market reform development.
A key message is that the current market is not as broken as people thought at the start of the consultation process and, although significant reform and enhancement is needed, we should be building on the strengths of GB’s trading arrangements to create a new dynamic and agile market that can make best use of lower cost renewable energy while maintaining energy security. This requires market reform but it also requires a comprehensive upgrade in how we manage system operability, constraints and balancing with a big switch towards the use of all forms of flexibility.
Regen’s principle recommendations are that REMA should:
1. Consider market reform scope in relation to other key areas of energy system reform including energy spatial planning, a holistic net zero delivery plan, accelerated network investment and retail market reform.
2. Continue to refocus market reform around the four key objectives which the REMA team has presented in recent workshops:
- investment to create a renewable based system at pace
- passing the value of lower cost renewables to the consumer
- transitioning away from unabated fossil fuels to flexible, resilient, decarbonised electricity system
- operating and optimising a renewable based system cost effectively.
3. Drop Locational Marginal Pricing as a policy option which would put at risk the investment needed to achieve net zero and the UK’s energy security goals.
4. Adopt an incremental, but ambitious and far-reaching, package of reforms that builds on the strengths of current trading arrangements, putting dynamism and flexibility at the heart of the new market. These reforms include:
- Expansion and reform of the CfD mechanism to ensure that the value of low cost renewable energy is transferred to the consumer
- Changes to the CfD to reduce the risk of negative pricing and price cannibalisation, and improve market efficiency e.g. consideration of revenue deeming
- Changes to the Capacity Market to support investment in low carbon generation, storage and flexibility.
- Adapting the capacity market to provide more value to assets that are low carbon and can provide more flexible and responsive system services – either by weighting the CM (via attributes), or establishing split auctions for different technology features/types.
- New support mechanisms to support long duration storage and dispatchable generation including hydrogen generation and CCUS
- Measures to support the greater use of long term PPAs including corporate PPAs and local supply agreements and “green pools”, which enable consumers trade with generators directly or via an electricity supplier.
5. Invest and upgrade system operations to support this more dynamic market including balancing, dispatch and operability functions within the new Future System Operator and integration with transmission and distribution networks.
- Reform of network charging (transmission and distribution) to send appropriate long term locational signals for generators, demand and flexibility providers
- The expansion and reform of the Balancing Mechanism to make far greater use of flexibility and more responsive assets – reducing the dependency on large CCGT plants
- Upgrade and investment in the Control Room and dispatch functions through process redesign, IT investment, automation, digitalisation and greater use of smart system technology
- Creation, where appropriate, of new and extended flexibility markets, for example, development of local constraint management markets
- Review the role and performance of interconnectors within the energy system as a key area of focus for the 2nd consultation
- Support for the ongoing development of the Future System Operator role, working with regional system planners and the development of Distribution System Operators functions.
In the letter, Regen also expresses the desire that REMA continues as an integrated and coordinated programme of reform, which will require the establishment of solid governance arrangements between government and other bodies like the ESO and Ofgem, networks, generators, market participants, consumer groups and wider stakeholders including devolved and local government.
The REMA team is expected to publish its response to the first phase of consultation and minded-to recommendations for the next phase of REMA work in November. Regen will continue to engage with our industry partners and work with the REMA team going forward.
For more information on Regen’s views on REMA, please contact Eleanor Brundrett, Net Zero Project Manager and REMA Lead, at ebrundrett@regen.co.uk.