Generators and electricity industry observers have welcomed sweeping changes in Britain’s electricity markets proposed by energy ministry D-BEIS.
Closeness to wind farms, nuclear or gas power plants and power assets such as batteries could mean cheaper electricity for users, under REMA, or Review of Electricity Market Arrangements.
Generous inducements intended to secure big shifts in household and commercial use overnight or into low-demand day parts, and on levels never seen before, are a second key plank of the ministry’s proposals.
Despite the Whitehall’s dull name, D-BEIS is billing REMA’s reforms as the biggest for a generation. An associated public consultation runs until 10 October.
REMA seeks to inject sense into the outdated cost recovery benchmarks of Britain’s generation system. Currently the wholesale price of gas exerts increasingly indefensible influence on all electricity tariffs. Renewables contributing over 40% of Britain’s power, and at negligible running costs compared to gas, have discredited the old models of pricing and supply of centralised power, and of cost recovery.
That reliance on distance-independent wholesale costs of an input factor now waning in importance are at the heart, say reformers, of a market in danger of disfunction.
D-BEIS’s proposals include costing wholesale prices on a local basis, known as nodal or Locational Marginal Pricing (LMP).
REMA targets an imminent future when – in its words – “renewables will make up the majority of generation, alongside nuclear, with low carbon flexibility providing resilience in periods of low renewable output.
“Not acting today will result in higher costs in the future, as the challenge of meeting net zero will become steeper”, says the document.
A high degree of uncertainty exists, D-BEIS concedes, about the development of the electricity system, including the pace of innovation, demand levels, technical feasibility of some technologies, and investment in supporting infrastructure.
Despite approval from National Grid ESO, Locational Marginal Pricing receives only 39% backing in a survey conducted by consultants Cornwall Insight of power industry professionals. Objectors voiced fears that LMP might imperil investment, or even deter developers from constructing generating plant in specific locations.
Gareth Miller, the consultancy’s chief executive, said REMA’s expectation of a road map for reforms identified before the next election set a very ambitious deadline.
Customers’ active role in securing Net Zero, reform of Contracts for Difference & balancing services, price setting and means of despatch, would all be covered, he observed.
“As the market momentum generates its own requirements for clarity, and “pause buttons” are difficult to press, then we imagine many will be trying to build credible scenarios for packages of change, attempting to pick out the most likely combinations in the period before policymakers narrow the field,” Miller commented.
Frank Gordon, policy director at renewables advocates the REA, said:
“The REA welcomes the publication of the REMA consultation. We look forward to working with the Government, our members and our industry on the proposals. We will keep pushing for the best way ahead to decarbonise our electricity markets, while keeping the lights on and delivering affordable power.
“We believe a rapid implementation of reforms, once agreed, will be vital to the target of a Net Zero electricity system by 2035, and will emphasise the need to protect existing renewables investments alongside any wider changes.
The industry body Energy UK had issued no statement by early afternoon today.