- The REA has published its REMA Report; “Enabling a secure, flexible, and decarbonised electricity market fit for the future”;
- This report feeds into the Government’s ongoing Review of Electricity Market Arrangements;
- The REA emphasises that reforming the electricity wholesale market should be evolutionary, rather than revolutionary, helping to speed up delivery of the energy transition, which the CCC this week warned was being delivered far too slowly;
- A wholesale market that is fit for the future ensures UK lights stay on, returns energy bills to low prices and is fully decarbonised.
The REA (Association for Renewable Energy and Clean Technology) have launched their Review of Electricity Market Arrangements (REMA) Report; “Enabling a secure, flexible, and decarbonised electricity market fit for the future.”
The report feeds into the Government’s ongoing REMA workstream that is looking to set out the future design of the wholesale electricity market. This will determine how and at what price electricity is traded in the UK, how different forms of generation are rewarded and ultimately the electricity price consumers pay in their bills.
The REA has worked alongside its members and academic Dr Chris Harris (University of Bath), who authored the report, to set out an industry approach to REMA. The report was launched this week at the REA’s REMA Conference, where representatives from across the renewables and clean technology sector considered current government proposals and next steps.
The report emphasises the importance of reforms taking an evolutionary, rather than revolutionary, approach. This means building on existing market mechanisms that are understood and trusted by developers and investors, rather than radically changing the market by pursuing other proposals currently on the table, such as a ‘split market’ or ‘green power pool.’
To do this, the report makes recommendations on how existing market mechanism, the Contracts for Difference and Capacity Market, could be adapted to better reward both flexibility (being able to respond to changes in demand and generation from low carbon renewables) and firm contracts (being able to guarantee a certain quantity of electricity supply at a fixed price for a defined period). By doing so, UK suppliers will be able to contract lower renewable generation prices for consumers, remove dependence on fossil fuel imports and accelerate the energy transition.
Importantly, by being an evolutionary approach, the REA believe that the proposed reforms could be introduced relatively quickly. This will help maintain investor and developer confidence, speeding up deployment of low carbon generation and energy storage assets. This is now critical given the Climate Change Committee’s severe warning to Government, issued this week, that progress to decarbonisation is far too slow and the policy gaps remain substantial.
Dr Chris Harris, Report Author and Senior Industrial Fellow in Sustainable Power Distribution at the University of Bath said:
“The Government’s Review of Electricity Market Arrangements needs to develop a wholesale market that both promotes the use of low carbon affordable domestic generation and ensures high levels of grid security. To do this, the future wholesale market needs to better reward both flexibility and firmness. This means that energy market stakeholders are rewarded for their abilities to quickly respond to changes in variable renewable generation or electricity demand, while generators are also rewarded for being able to commit to contracts that guarantee energy in a defined period at a secure price, to lower energy bills.
“This is best done by evolving our existing market arrangements, including the Contracts for Difference and Capacity Market Mechanisms, building on what developers and investors already trust, rather than trying to completely redesign the market at a time when the UK needs to be rapidly speeding ahead with its energy transition.”
Dr Nina Skorupska CBE, Chief Executive of the REA (Association for Renewable Energy and Clean Technology) said:
“The Government’s Review of Electricity Market Arrangements (REMA) is an essential piece of work that must quickly deliver a wholesale market fit for the future. That means one that ensures UK lights stay on, returns energy bills to low prices and is fully decarbonised. This requires rethinking how our electricity markets operate today.
“However, this week the Climate Change Committee sent a stark warning to Government that the energy transition must be sped up. As such, we cannot afford for delivery of new market arrangements to delay deployment of low carbon generation and energy storage assets. By its nature, the REMA process has already created uncertainty in the market as investors are left unsure how any changes might impact both their existing projects and future pipeline.
“As such, the REMA process must both be delivered in a timely manner and create renewed confidence by evolving our existing market, rather than trying to re-write the rules. The industry is speeding ahead with the energy transition and delivery of a fit for purpose wholesale market must keep up.”
Notes to editors
The REA’s REMA report, “Enabling a secure, flexible, and decarbonised electricity market fit for the future,” can be read here in full: https://www.r-e-a.net/resources/rea-rema-report/
This report explores the below options for how the CfD and Capacity Market could be evolved as part of the REMA process to deliver a future wholesale market:
- Reward firmness within the CfD contracts – this can be done as an additional non-price factor premium within the contract. This in turn will also help support flexibility and incentivise co-location with energy storage.
- Explore evolving the Market Reference Price by gradual extension of the price horizon out to 72 hours, to help firm up and encourage flexibility in the CfD.
- Incentivise the delivery of accurate long-term and granular forecasts for generation and demand. National Grid ESO will then be able to use this information to deliver clearer market signals.
- Develop a Green Premium, and wider Non-Price Factors, in the CfD which reward externalities of generation beyond just low carbon power production. This could include services such as the capture of greenhouse gasses or benefits provided in terms of supply chain investment, jobs, and skills.
- Enable CfD projects to also bid into, and benefit from, the capacity market to encourage flexibility.
- Have frequent CfD and Capacity market auctions, with a clear timetable for allocation rounds with a three-year rolling horizon and stipulated budgets.
- Consider how varying contract lengths could be provided in CfD contracts, including considering a descending clock auction mechanism.
- Develop a mechanism for using the CfD to extend the life of assets coming to the end of existing contracting arrangements, termed a ‘repowering CfD’.