Our latest insight paper sets out the agenda for an efficient GB electricity market that increases low-carbon investment and delivers consumer value.
The Review of Electricity Market Arrangements (REMA) has stimulated a vigorous debate around whether or not the GB electricity market is fundamentally ‘broken’.
Our view – and that of our members and the majority of industry stakeholders – is that it is not. However, while we oppose the more radical market reform options, which would significantly hinder private sector investment in renewables, we do believe a programme of reform is required.
Today we launch detailed proposals for a progressive market reform package that would accelerate low-carbon investment and incentivise greater use of flexibility to provide resilience, support efficient system operation and deliver consumer value, while also reducing investment and implementation risk.
Progressive Market Reform for a Clean Power System also calls for the scope of REMA to be widened from simply reducing consumer bills to delivering wider socio-economic benefits including addressing fuel poverty, ensuring a just transition and supporting local energy and economic growth.
The paper’s author, Regen director Johnny Gowdy, said: “Progressive market reform is not about protecting the status quo – far from it. It’s far-reaching and will have big impact, delivering the same, if not better, benefits with less investment and implementation risk.
“We welcomed the decision in the second consultation to drop the split market and nodal pricing options, but we’re now asking the new government to drop zonal pricing and instead focus resources and time on the development of the energy strategy, implementation of alternative progressive reform options and the urgent task of securing low-carbon investment.”
Based on a national market model with decentralised dispatch and bilateral trading, the underpinning principles of progressive market reform are that it must:
- Respond to the urgency of the UK energy transition and the new government’s clean power mission, recognising the benefits that decarbonisation will bring to consumers, wider society, industry and economy.
- Aim to both create an agile and dynamic market and enable efficient system operation.
- Avoid creating a hiatus in the energy transition by balancing the need to make impactful change with the need to maintain momentum within existing reform programmes and investor confidence in the wider market.
- Recognise the reality that market reforms will be difficult to implement at a time when the energy sector is in full-blown transition, and can only be achieved with broad support from across the industry, investors and consumer stakeholders.
- Ensure that wholesale market reform is considered in the wider context of allied reforms in retail markets, strategic planning, cross-border integration, consumer protection, grid investment and network charging.
- Support the principle that risk is best placed where it can be managed.
- Ensure that locational signals and markets are aligned with, and do not undermine, the overall Strategic Spatial Energy Plan.
- Embrace the opportunities provided by open data, digitalisation, IT integration, automation and AI to enhance markets and system operations.
- Place due emphasis on fairness, based on the principle that the consumer should be enabled to become an active participant in the energy market, but should not be unfairly exploited to fix system issues, or exposed to energy system price signals to which they may be unable to respond.
- Recognise that the GB electricity market is not fundamentally broken and provides successful principles of a national electricity market, with a rich ecosystem of bilateral trading, but needs significant enhancement to work efficiently in a high renewable generation context.
You can read the full report here. For more information on this area of our work, reach out to Johnny Gowdy.