Overview of the Review of Electricity Market Arrangements
The business community welcomed the publication of the British Energy Security Strategy in April 2022 which set a bold ambition for key low carbon technologies and the intention to undertake market reform to deliver a net zero electricity system by 2035.
The Review of Electricity Market Arrangements, or REMA, aims to establish enduring market arrangements that can deliver a high renewable, low carbon electricity system in a cost-efficient way.
The UK government have set a legally binding target to achieve net zero by 2050, underpinning this target is the delivery of a resilient and affordable net zero electricity system by 2035. The energy transition will require a once-in-a-generation change, a shift from a high carbon, dispatchable system to an increasingly low carbon system. Delivering a secure, cost-effective transition will require significant volumes of private investment in infrastructure at pace and scale over the next decade.
The UK has previously undertaken significant changes through the Energy Market Reform (EMR). EMR was developed with care over several years, successfully delivering mechanisms that have shaped the current energy market, including the Contract for Difference and Capacity Market. Through REMA, the UK has an opportunity to build on previous successes and carefully develop an enduring electricity market. Business welcomes the opportunity to support government throughout the REMA process and ensure that there is due consideration of the impact of changes on ongoing and future investments, as well the interactions with the wider energy system.
Why electricity market reform is important for your business
The current energy cost crisis has uncovered vulnerabilities across the energy system and increased the urgency to accelerate the energy transition. Building a resilient, secure electricity system will reduce the UK’s reliance on fossil-fuel derived generation, reducing the UK’s exposure to volatile wholesale gas prices. A low carbon system built from homegrown generation will not only be more secure but will also deliver low cost generation that will enable more affordable consumer bills in the future. Delivering the future system requires significant volumes of investment and infrastructure deployment, ensuring that this is delivered in an efficient and cost-effective way will be critical to enabling all consumers – domestic and non-domestic – to benefit from low cost generation.
Overview of the CBI’s response
Given the breadth of policy options currently under consideration in REMA, the CBI’s response provided the following recommendations to influence the next stage of the review.
Challenges for the 2035 system:
- There must be clear oversight of electricity market reforms during the lifecycle of current and future investments, this is key to securing low carbon investment.
- To ensure security of supply, the future system should incentivise investment in flexible assets, that are able to balance patterns of low carbon generation and meet peak demand.
- A future system with increased reliance on electrification should also seek to support demand reduction measures
Options under consideration:
- Whilst continuing to have an important role deploying significant volumes of emerging low carbon generation, the evolution of the Contract for Difference mechanism would help manage future investment challenges.
- Structural changes to the wholesale market should be considered in the context of the future electricity system, not as a solution to short-term challenges.
- Any consideration to changes to locational signals should be supported by clear market signals and pricing structures and assessed alongside existing market arrangements with integrated locational pricing.
- The future energy system will be increasingly integrated, therefore reforms to electricity market arrangements should ensure cross-system coordination is optimised.
See the CBI’s full response here.
Next steps on REMA
The CBI will continue to engage with government throughout the REMA process, bringing forward the cross-sector voice of business. To find out more or to get involved, contact Amie Jones