The UK government has launched a “transformational” review into the nation’s electricity market, which could see sweeping reforms to electricity pricing, procurement and storage.
Opened on Monday, the Review of Electricity Market Arrangements (REMA) will seek views on a range of options to address the challenges higher global energy costs, reinforcing energy security and the UK’s transition towards to a cleaner energy system.
The consultation forms part of a review first announced in the British Energy Security Strategy (BESS) in April, which also outlined plans to expand nuclear, offshore wind and hydrogen to ensure 95% of UK electricity is low carbon by 2030.
The Department for Business, Energy and Industrial Strategy (BEIS) said potential changes could include introducing incentives for consumers to use energy at cheaper rates when demand is low or supply is particularly high – on sunny and windy, days for example – enabling users to save money with cheaper rates.
Schemes like these have already been trialled by some providers, such as Octopus Energy.
Other changes would see the capacity market and the contracts for difference (CfD) schemes reformed to increase the use of lower carbon technologies, such as electricity storage.
BEIS also hoped to de-couple fossil fuel prices from electricity produced by renewables, which at present tend to be cheaper.
Under the current system, gas prices often end up setting the wholesale electricity price because of their flexibility. They can produce more or less electricity according to demand and therefore play a key role in setting the overall price of electricity from all sources.
The REMA consultation intends to explore routes for “updating” this pricing system to reflect the abundance of cheaper renewables,.
Overall, the government said some the potential measures could help reduce exposure to “volatile” gas markets and energy costs for consumers could be “radically reduced” over the long term.
NEW – today we’ve launched the biggest reform to Britain’s electricity market in decades.
Expensive gas sets the price of power we pay. With more cheap renewables connected to the grid, we’re planning to update the market to bring down bills.
— Kwasi Kwarteng (@KwasiKwarteng) July 18, 2022
Business and energy secretary Kwasi Kwarteng said: “We’ve just seen the price of offshore UK wind power fall to an all-time low and gas is a shrinking portion of our electricity generating mix, so we need to explore ways of ensuring the electricity market is adapting to the times.
“That includes ensuring the cost benefits of our increasing supply of cheaper energy trickle down to consumers, but also that our system is fit for the future – especially with electricity demand set to double by 2035.
“In what could be the biggest electricity market shake up in decades, I am confident that this review will significantly enhance GB’s energy security and supply for generations to come.”
It closely follows the announcement of the fourth round of procurement under the government’s flagship CfD regime, which saw 10.8GW of renewables capacity secured from a range of technologies, including offshore wind, solar, onshore wind.
Energy Minister Greg Hands added: “Today’s launch of REMA is a major step in delivering a secure energy future for Britain, putting in place the electricity market design we need to allow us to make the most of our world-leading diversity of power sources while offering more value for money for consumers.”
The government said it would “engage extensively” with the sector to develop and assess options for reforms, and expects to publish a formal response this winter.
Following this consultation, BEIS will further refine options during 2022-2023 before delivering any proposed reforms.