The exposure UK consumers to volatile global gas markets and energy costs could be radically reduced in the long term, thanks to a transformational review into Britain’s electricity market design, launched today by the UK government.
The Review of Electricity Market Arrangements 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 boost energy security, and move the UK to a cleaner energy system.
Some of the changes being consulted on include:
- introducing incentives for consumers to draw energy from the grid at cheaper rates when demand is low or it’s particularly sunny and windy, saving households money with cheaper rates
- reforming the capacity market so that it increases the participation of low carbon flexibility technologies, such as electricity storage, that enable a cleaner, lower cost system
- de-coupling costly global fossil fuel prices from electricity produced by cheaper renewables, a step to help ensure consumers are seeing cheaper prices as a result of lower-cost clean energy sources
Under the current system, gas prices often end up setting the wholesale electricity price, because it is often the last source of supply to meet demand. The ever-increasing participation of renewables in the system means over time, cheaper electricity produced by renewables energy will determine the price more often. This consultation will explore ways of updating this pricing system to further reflect the rise in cheaper renewable electricity – something that could have a direct impact on reducing energy costs, ensuring consumers reap the full benefits of the UK’s world-leading and abundant supply of cheaper, cleaner energy.
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.”
With electricity demand set to at least double over the next 13 years, REMA will focus on establishing a fit-for-purpose market design, identifying and implementing the reforms needed to GB electricity markets that work for businesses, industry, and households.
This includes consulting on both the continued evolution and expansion of existing schemes, such as the Capacity Market and Contracts for Difference, and the introduction of more fundamental change where needed to guarantee uninterrupted supply during periods of no wind or sun at the lowest cost possible for consumers.
