Unpacking the Review of Electricity Market Arrangements

In the Net Zero Strategy, the UK government committed to assessing whether broader reforms to electricity market and policies were required to deliver the decarbonisation and expansion of the electricity sector to enable us to meet our net zero commitment.

The Department for Business, Energy and Industrial Strategy (BEIS) has since set out five key future system challenges out to 2035, which are: investment; flexibility; location and networks; operability; and whole system flexibility. The Review of Electricity Market Arrangements (REMA) being carried out by BEIS aims to identify and implement the reforms needed to GB electricity markets, in order to drive the necessary investment in, and efficient operation of a secure, low carbon electricity system by 2035.

In the face of energy price rises and the cost-of-living crisis, there is now an additional urgency to reform the market to maximise the consumer benefits of very low-cost renewables. Alongside supporting investment and flexibility, REMA now has an additional objective to design a market that ensures that the falling cost of renewable energy is passed through to consumers and is not retained as super-profits for generators, traders or energy supply companies.

A common theme is a move away from short-term marginal price markets, towards longer term contracts that provide a greater degree of price stability, reducing investment risk for generators, in exchange for a greater consumer share in the upside savings from low-cost renewables. There are a number of ways this could be achieved ranging from a massive expansion of the use of long term Power Purchase Agreements (PPAs), an extension of the Contracts for Difference (CfD) mechanism or a new market arrangement with a form of ‘Green Pool’ or another form of overarching green energy supply arrangement.  The role of the price-cap mechanism will also be important.

In the context of accelerating our move away from gas in the current geopolitical situation and in achieving a net zero power system by 2035, this webinar explored the questions, risks and opportunities that REMA plans to identify, whether reform of the market could form the basis of a ‘new deal’ between the energy industry and consumer to deliver net zero at lowest cost, and how policy makers can avoid any unintended consequences when considering the system as a whole.

Speakers included:

• Merlin Hyman, chief executive, Regen (Chair)
• Cathy McClay, trading and optimisation director, Sembcorp
• Johnny Gowdy, director, Regen
• Simon Gill, associate director, Regen

Following this webinar open to all, Regen and the Electricity Storage Network are running a task and finish working group on REMA for members.