The UK embarks on the biggest electricity market reform in a generation

  • UK Government launches major review of UK electricity market design to radically improve energy security and lower long-term electricity bills for consumers
  • Suggestions for the first consultation include examining changes in the wholesale electricity market that would prevent volatile gas prices from setting the price of electricity produced by much cheaper renewable energy
  • Coupled with emergency measures to support those facing higher energy bills this year, the Government remains on the side of UK energy consumers in the short and long term

The UK’s long-term exposure to volatile global gas markets and energy costs for consumers could be radically reduced thanks to a fundamental review of UK electricity market design launched by the UK government today (Monday 18 July).

The review of the electricity market regulations (REMA) will seek views on a wide range of options to address the combined challenges of responding to higher global energy costs, the need to further improve energy security and moving the UK towards a cleaner energy system.

Some of the changes consulted include:

  • Introducing incentives for consumers to buy energy from the grid at cheaper tariffs when demand is low or when it’s particularly sunny and windy, saving households money through cheaper tariffs
  • Capacity market reform to increase the participation of low-carbon flexibility technologies such as electricity storage, enabling a cleaner and more cost-effective system
  • Decoupling costly global fossil fuel prices from cheaper renewable electricity, a move to ensure consumers see cheaper prices due to cheaper clean energy sources

Under the current system, gas prices often determine the wholesale price for electricity as it is often the last source of supply to meet demand. The ever-increasing participation of renewables in the system means that, over time, cheaper electricity from renewable energies will increasingly determine the price. This consultation will explore ways to update this pricing system to better reflect the rise of cheaper renewable electricity – something that could have a direct impact on reducing energy bills to ensure consumers take advantage of the world’s leading and abundant supply of cheaper , cleaner energy.

Economy and Energy Minister Kwasi Kwarteng said:

We’ve just seen the price of offshore wind energy in the UK fall to an all-time low and gas is a shrinking part of our power generation mix so we need to look at ways to ensure the electricity market adapts with the times.

This includes ensuring that the cost benefits of our increasing supply of cheap energy trickle down to consumers, but also that our system is future-proof – particularly as electricity demand doubles by 2035.

With what may be the biggest shock to the electricity market in decades, I am confident that this review will significantly improve the UK’s energy security and security for generations to come.

Today’s launch of the consultation is part of the government’s comprehensive review of the electricity market, which was launched in the British Energy Security Strategy (BESS). That BESS significantly increased ambitions to build low-carbon and lower-cost technologies such as offshore wind, solar and nuclear as part of Britain’s plans to create a clean and secure electricity system by 2035.

The UK is already making great strides in accelerating the delivery of cheaper, indigenous renewable energy. Earlier this month, the UK secured record capacity of nearly 11GW of clean energy at record prices through the government’s flagship renewable energy scheme – almost double the previous round and enough to power around 12 million UK homes.

Since the demand for electricity is expected to at least double in the next 13 years, REMA will focus on establishing fit for purpose market design and identifying and implementing the reforms needed for UK electricity markets to work for business, industry and households.

This includes advising on both the further development and expansion of existing systems such as the capacity market and contracts for difference, as well as the introduction of more fundamental changes where necessary to ensure uninterrupted supply in periods without wind or sun at the lowest possible cost to consumers.

Energy Secretary Greg Hands said:

Today’s start of REMA is an important step towards a secure energy future for the UK, by creating the power market design we need to make the most of our world-leading variety of power sources while offering consumers better value for money.

Today marks the first major consultation phase within REMAcomprehensive work program. Through this initial consultation, the UK Government will work extensively with the sector to develop and assess reform options, with a response expected to be published this winter. Following this consultation, the department will further develop, refine and refine reform options in the period 2022-2023 before proposing reforms.

A spokesman for National Grid ESO said:

We applaud the breadth and depth of BY S‘ Review of the electricity market regulations. Wholesale markets need to be reformed to reach net zero and better outcomes for consumers across the UK. REMA is the right forum for stakeholders to align on what is needed.

A Ofgem speaker said:

Protecting consumers is our top priority, which is why we are supporting the government in this comprehensive review of electricity market agreements. A fair energy market that protects consumer interests will only work if we can make the most of the UK’s cheap, abundant renewable resources and invest in ways that deliver a cost-effective, net-zero power system using our domestic energy.

We now look forward to working closely with the Government and all participants in this timely review to ensure our energy market agreements are in the interests of consumers and help make bills better.

Energy UK Deputy Director Adam Berman said:

The energy industry stands ready to help create an affordable, clean energy system that meets both our net-zero and energy security goals. REMA will help ensure that the energy market can channel private investment to meet the government’s ambitious goals of providing clean, low-cost, domestically generated electricity.

With energy costs reaching unprecedented levels, it is right and timely for the government to examine how to deploy the most efficient market arrangements to support decarbonization to lower bills in the long term.

RenewableUK’s Future Electricity Systems Director Barnaby Wharton said:

The power system will undergo a profound transformation over the next decade as we continue to expand our renewable energy capacity. It is vital that we have a market that supports investment in new projects and infrastructure, and allows consumers to reap the full benefits of a low-cost, low-carbon system.

This consultation is an important step in that process and industry will continue to work closely with Government to build the clean energy system the UK needs to reach net zero as quickly as possible.

Notes for editors

The government conducts a comprehensive review of electricity market agreements (REMA), as announced in the UK Energy Security Strategy, to help meet our world-leading climate targets while reducing exposure to volatile international gas markets, resulting in significant energy security and cost benefits

Read the Consultation on the Review of Electricity Market Rules, open until October 10, 2022.

The consultation sets out why we believe that reform is needed in our case to bring about changes on which we seek opinions.

Where this proves necessary, the British government will introduce reforms.

REMA will consider a range of options for reforming electricity markets and policies that can provide signals for investing in and operating facilities that produce or consume electricity. It will cover the wholesale markets, the balancing mechanism and the provision of ancillary services; and all policies affecting them, including the Capacity Market and Contracts for Difference.

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