Energy UK Explains: The Review of Electricity Market Arrangements

Key points

The Government has published a major update on its Review of Electricity Market Arrangements (REMA), concluding that it will reform the energy system under national pricing with a package of measures, rather than by implementing zonal pricing.
This announcement outlines a set of significant reforms which will modernise the way Great Britain’s electricity markets work as the nation moves to clean power.
REMA looked at many ideas to update the electricity system, including the way electricity is priced across the country.
This was arguably the most debated part of the process; whether to pursue a ‘Reformed National Pricing’ – an evolution of the current pricing structure for the electricity market or to move to a different system known as ‘zonal pricing’.
As part of the REMA process, it has been decided to pursue Reformed National Pricing. This is explained in more detail below.
The priority now is to ensure a reformed national market delivers an efficient and investible energy system that can provide best value to customers.

What is the Review of Electricity Market Arrangements (REMA)?

The Review of Electricity Market Arrangements (REMA) was launched in 2022 to ensure that the UK’s electricity market could deliver a decarbonised, secure and reliable power system.

The UK’s electricity market, which underpins our energy system, is not a single entity but rather a web of interdependent markets and mechanisms. Together, these markets incentivise investment in power generation and storage, ensuring electricity is delivered to homes and businesses, and help to maintain grid stability. Key examples include the wholesale market, ancillary services, the Balancing Mechanism, the Capacity Market, and Contracts for Difference.

Electricity market arrangements are rarely static. Our energy system is constantly evolving as we shift from high-emitting infrastructure to cleaner, more efficient alternatives. In recent years, there have been substantial reforms to some of these key mechanisms, but these changes have not always been guided by a clear, strategic vision for the sector’s long-term future. REMA aims to address that by harmonising market reform with the objectives of creating a clean power system.

Over the past three years, REMA has explored a broad range of potential reforms, shaped by regular engagement with industry and two major public consultations.¹ Some options have since been discounted, and others paused, to prioritise areas like wholesale market reform, which has remained a core focus of the debate since REMA began.

What did the Government announce?

The Government has published a major update on the REMA programme, concluding that reforming the system while retaining a single national wholesale price is the right way to deliver a fair, affordable, secure, and efficient clean power system, rather than by implementing zonal pricing. This decision ends a three-year-long review of how electricity should be priced in the wholesale market.

The Government will deliver a package of reforms across the energy system to improve the effectiveness of the national pricing model. More details on how this will be delivered and implemented will be set out later this year in a ‘Reformed National Pricing delivery plan’, alongside the final REMA cost benefit analysis.

What is the wholesale market?

In Great Britain, electricity is traded between generators and suppliers on the wholesale market under a single national price. REMA explored whether the wholesale market should be split into smaller geographical zones by implementing locational or ‘zonal pricing’, in which different zones have different prices based on their location.

As well as zonal pricing, REMA also considered how market arrangements could be reformed while retaining national pricing. These two options were explored as solutions to challenges created by the misalignment between where electricity is produced and the availability of the transmission network to get it where it is consumed. The Government has decided on the latter option.

What were the deciding factors to go for Reformed National Pricing?

The Government explained that the decision to reform the existing market arrangements while retaining national pricing was based on fairness, protecting consumers, and the wider impacts of electricity market reform on the economy. The Government’s announcement noted the following:

Fairness: Zonal pricing would have different impacts on different consumers, depending on where they live and how they consume and buy energy. Some people would be disadvantaged under zonal pricing because of where they live or where their business operates.
Protecting consumers: Zonal pricing would be complex and lengthy to deliver. The disruption would create uncertainty, which would risk deterring the investment needed for a clean power system or increasing the cost of this investment, which would impact consumer bills.
Investment and growth: Reformed National Pricing provides certainty for businesses across the economy, helping to drive investment and jobs.
Certainty: The package of measures under Reformed National Pricing will provide a more stable and predictable investment signal than zonal pricing. This is especially important for meeting our ambitious clean power targets.

How will this decision help the delivery of clean electricity?

Under Reformed National Pricing, the Government will implement a package of measures to deliver a more efficient electricity market. This, it is predicted, will help to attract the significant amount of capital needed for the energy transition as well as ensure the operational efficiency of a renewables-based power system. This includes:

Measures for the efficient siting of new assets: Market arrangements under Reformed National Pricing will mean there is a stronger incentive for investors about where to build new projects, helping incentivise developers to put energy infrastructure and electricity demand in places that make best use of the grid to reduce overall costs of the energy system.

Strategic Spatial Energy Planning (SSEP), which will be published in 2026, is the cornerstone of the Government’s package of measures to ensure that system design will meet future needs. The SSEP will be developed alongside other reforms to planning, network charging, grid connections,² as well as new network buildout and seabed leasing.
Measures to improve operational efficiency: Market arrangements under Reformed National Pricing will improve how energy assets are used and operated once they are online, boosting the efficiency of the whole system.

The Government will work with the National Energy System Operator (NESO) on improving balancing and settlement arrangements, such as reforming the Balancing Mechanism and using constraint management solutions more widely. This will help NESO to balance the system in a more cost-efficient way.

How does this decision impact the energy sector?

After three years of deliberation, it is positive that the Government has made a clear decision on the future of wholesale pricing. Policy uncertainty creates additional risk for major infrastructure projects,³ which can increase the cost of investment, and those higher costs end up on consumers’ energy bills.

The timing is also significant. The decision came just ahead of the Contract for Difference auction for 2025, Allocation Round 7 (AR7),⁴which is due to open in August 2025 at the time of writing. This round is a critical milestone for the successful delivery of the Government’s clean power objectives.

Reformed National Pricing will reform and enhance existing, well-known frameworks, providing predictability and stability in electricity market arrangements. This continuity is important for attracting the investment required for the transition to a clean power system. Predictability also helps to reduce the cost of capital, which is a key determinant of the overall price for low-carbon projects and is sensitive to uncertainty and disruption.

How will the Government’s decision impact energy bills?

The Government’s decision to retain a reformed version of national pricing means the wholesale cost of electricity will continue to be the same for households and businesses across the entire country.

Wholesale costs are just one part of energy bills.⁵ Other charges, such as network costs (shown on the bill as part of the ‘standing charge’), can be locational, meaning that they vary by region. This leads to households and businesses paying different overall prices, depending on where they are located. If the Government had chosen to implement zonal pricing, it could have led to regional variation in wholesale prices, and therefore a greater difference on the whole bill based on location, if this was passed through to households and businesses.

The package of measures that will be implemented under Reformed National Pricing should help to mitigate rising constraint and balancing costs by making the current system more efficient and reducing the cost of running the electricity network, which will help deliver savings to consumers.

There remains an affordability crisis in the energy retail sector, and UK electricity bills remain too high for most households and businesses. There are steps the Government can take today to introduce improved support for vulnerable households and address issues of growing debt in the sector, which has most recently reached £4.15bn.⁶

In our report ‘How to cut bills’, Energy UK sets out a number of ways the Government and Ofgem can bring costs down for consumers. We also explore in greater detail the possibilities for removing policy costs from electricity bills in our report ‘Clean Heat: Balancing the bill’ and options to reduce non-domestic electricity bills in our report ‘Reducing non-domestic electricity prices to drive economic growth’.

What comes next?

The Reformed National Pricing delivery plan, which the Government intends to publish later this year, will include a vision of the future state of operations for the electricity market, a delivery timeline with key activities for implementing Reformed National Pricing, and an overview of the legislation required to deliver the package of measures.

The Government’s priority must now be to ensure a reformed national market delivers an efficient and investable energy system that can provide the best value to customers.

It will also be important for the Reformed National Pricing delivery plan to provide clarity on other areas of reform that REMA previously explored but were not included in the July update, such as potential design changes to Contracts for Difference and the Capacity Market.

For more information on this briefing, contact: sophie.lethier@energy-uk.org.uk