Following months of delay and speculation, the Government last week finally published the second consultation in its Review of Electricity Market Arrangements (REMA).
The next phase of reshaping the UK’s electricity markets to support both the delivery and operation of a renewables-based power system marks a pivotal moment. However, while political manoeuvering is only to be expected in an election year, it was still disappointing to see its presentation divert attention away from REMA’s central focus. Warnings of impending blackouts – and new gas plants to ward these off – might make for better headlines they but fall short in fostering a constructive dialogue around the best routes to support decarbonisation, which is REMA’s primary objective.
So the emphasis on gas in the press release and elsewhere was puzzling not least because it’s long been widely acknowledged in the energy sector that it will continue to have an important role during the energy transition. Even in a decarbonised power sector, we will still need to have limited amounts of unabated gas as a backup for energy security, and this is supported by the Climate Change Committee (CCC) and the UK’s Carbon Budgets.
It’s very evident that Net Zero will be a major and potentially contentious issue in an election campaign that’s arguably been [unofficially] running for some time now. We’re not naïve enough to be surprised by politicians playing politics – but all parties need to be careful about undermining public trust, investor certainty and creating confusion for short-term expedience. Our collective future is far too important to play games with. We need clarity, facts and reasoned public debate so that the energy system of the future can help fulfil its potential to improve our lives, our health, our economy and our environment – and so that we can make this journey with the support of our population.
Beyond the politics however, the debate on market reform has clearly moved forward and the Government has ruled out several options for reform. These include the green power pool and split market, the more extreme CfD reforms, and the most contentious proposal – nodal pricing. The Government has listened and taken on board the concerns of industry and stakeholders. There is now a clear focus on an evolutionary approach to decoupling the price of electricity from gas and improving the existing mechanisms – all of which will create far less uncertainty for investors.
The focus of this second phase of work will be on changes to the Contracts for Difference Scheme, the Capacity Market, and the Balancing Mechanism. These enhanced frameworks will help to support the rollout of renewables, and other low-carbon alternatives to gas, to ensure the system operates more efficiently and cost-effectively. Alongside that there is still a significant amount of work to be done on developing the frameworks for new technologies, and additional effort will be needed to explore the remaining options, including zonal pricing and central dispatch where a compelling case for benefits must be established.
So there’s plenty left for REMA to tackle and we look forward to continuing to work closely with the Government and wider stakeholders to future-proof our energy markets, attract sustained investment in low-carbon generation and flexibility, and establish clear decarbonisation pathways for fossil fuels.