Our latest insight paper sets out an agenda for an efficient GB electricity market that increases low-carbon investment and delivers consumer value.
As the new government takes office, the Review of Electricity Market Arrangements (REMA) has been running for over two years. This could herald a major programme of reform for the GB electricity markets and investment support schemes.
This paper aims to provide the incoming government, REMA team and wider industry stakeholders with a comprehensive set of reform options based on the retention of an enhanced national wholesale market, with liberalised trading arrangements, that embraces the potential opportunities of a smarter, more flexible and highly digitalised energy system to improve market and operational efficiency, and the delivery of a clean power system.
The paper argues that the current wholesale market model is not fundamentally broken and that radical reform options, including nodal or zonal pricing, will not deliver the benefits claimed, but would instead increase both investment risk and consumer costs. As an alternative, adoption of a progressive market reform agenda can deliver more certain benefits, while accelerating investment in low-carbon solutions and ensuring that the energy transition provides wider value for consumers, communities, economy and society.
It further argues that, while system operation with high renewables will require new market solutions and greater capability within the National Energy System Operator (NESO), there should be no conflict between an agile trading market and efficient system operation.
The progressive market reform agenda is framed within an overarching strategic and spatial energy plan at a national and regional/local level. It is based on greater use of low-carbon flexibility and efficient system operations enabled by:
- Enhanced balancing and flexibility markets
- Wider market access
- Improved forecasting and information visibility
- The digitalisation and automation of market processes, system dispatch and control room functions.
Interconnection efficiency will require a greater level of cross-border coordination, with stronger process and planning integration between GB and neighbouring EU markets.
The report makes a number of recommendations, with the three key ones for the new government being to:
- Adopt a programme of progressive market reform based on the building blocks of the national market, with liberalised trading, decentralised dispatch and redispatch via an enhanced Balancing Mechanism, constraint and flexibility markets.
- Drop zonal pricing as a market option. The benefit assessment that has already been made by the Department for Energy Security and Net Zero and the responses to the second REMA consultation should provide sufficient evidence that zonal pricing is not the answer.
- Restate the REMA objectives with a broader remit to address wider socio-economic and consumer benefits, a stronger steer to support the government’s ambition to accelerate net zero investment to deliver a clean power system, and support for local energy supply and regional energy and economic strategies.
To discuss this area of our work, reach out to Johnny Gowdy.