Major review of the UK’s electricity sector begins – have your say on reforms.
8 August 2022 | 5 minutes
Here’s what we know about REMA so far including a headline summary of the key points for consideration for business energy users.
The Department for Business, Energy and Industrial Strategy (BEIS) launched its Review of Electricity Market Arrangements (REMA) consultation on 18th July 2022 with the aim of identifying reforms needed to transition to a decarbonised, cost effective and secure electricity system by 2035.
REMA – the opportunities and objectives
This consultation is being undertaken to engage with the energy sector and seek views that will help shape the design of the future electricity market.
The consultation states the proposed objectives of any future market arrangements and will:
Deliver a step change in the rate of deployment of low carbon technologies, and reduce our dependence on fossil fuelled generation
Provide the right signals for flexibility across the system
Facilitate consumers to take greater control of their electricity use by rewarding them through improved price signals, whilst ensuring fair outcomes
Optimise assets operating at local, regional, and national levels
Ensure that the security of the system can be maintained at all times
REMA is incredibly significant, being the first review of the UK’s electricity market in over 20 years and provides a great opportunity to consider how we value energy commodities.
In fact, on launching the consultation, Secretary of State for Business, Energy & Industrial Strategy Kwasi Kwarteng said: "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”.
The stated scope of this review is all electricity-related (non-retail) markets and all technologies to the extent that they currently do, or potentially could, participate in electricity markets.
We encourage all large energy consumers to read the full 130-page consultation document which describes in detail the wide-ranging proposals including what BEIS sees as potentially feasible options. The consultation proposes a series of questions which seek views from all interested parties. Stakeholders within the energy sector can help to shape the future electricity market by responding to the consultation.
3 key points for consideration
1. Ambitious Timeline for Reform
The government’s proposed objectives for the future of the electricity market are set against an ambitious timeline:
Phase 1: Scoping - (2022) Setting out a clear statement of the case for reform (this consultation)
Phase 2: Development – (2022 - 2023) Developing and determining what reforms are needed through extensive engagement with energy sector
Phase 3: Implementation – (mid 2020s - 2035) Establishing a full delivery plan and overseeing implementation
2. Potential for locational pricing
A key element of the consultation is pricing and the potential shift from national pricing to locational pricing. Under the current national pricing model there is one wholesale price for electricity for both demand and supply throughout the UK, regardless of location on the power network. REMA is seeking views on the proposed alternative locational models of nodal and zonal pricing.
Nodal pricing, also known as locational marginal pricing (LMP), would see the network split into nodes, all of which would have their own wholesale electricity price reflecting the cost of supply at individual locations. To help put this into context, for the UK this could mean moving from one single market to up to circa 750 pricing markets.
Zonal pricing would see a division of the network into different zones, for example, a north/south split, with each zone having its own single wholesale price for electricity and its boundaries reflecting major transmission constraints.
3. Capacity Market (CM) and Contracts for Difference (CfD) schemes
The CM and CfD schemes were introduced to encourage investment in renewable generation assets. Both of these incentive mechanisms are considered within the remit of REMA and will continue in their current form whilst the programme runs.
The consultation looks to identify the optimal balance of increased system flexibility and maintaining investor confidence. To this end, options of how to potentially de-risk long-term investment that will drive decarbonised generation build at scale are raised for consideration.
REMA timeframe and next steps
The consultation opened on 18th July this year and BEIS will continue to engage with stakeholders throughout the energy sector, welcoming responses until the consultation closes on 10th October 2022. The planned change of prime minister and potential for a general election (before 2025) have the potential to impact this review, however, BEIS has stated focus in meeting the challenging deadline of establishing a road map by the time of the election.
Shell Energy UK’s approach to REMA
Shell Energy intends to respond to this consultation in detail and we are currently working through the proposals to understand any impact for our customers and our business. We welcome views or concerns from our customers or other key industry stakeholders. We will respond to the consultation after meeting with sector key stakeholders and following communication with customers about your thoughts and concerns, and what you see as risks and opportunities.
Shell has committed to supporting the UK’s energy market and aims to invest up to £25 billion into the network and renewable energy infrastructure within the next decade, subject to Board approval.
We’re looking forward to contributing to the future decarbonised electricity market and supporting our customers through the transition. Our energy solutions team is ready to guide and support you with current or planned energy solutions projects and we will keep you informed as developments with REMA progress.
We’re ready to help. Get in touch today.
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