New Power Generation

Energy UK has published a report setting out the challenges – and potential reforms – that should be considered by a forthcoming Government review of the electricity market.

With the electricity sector undergoing a fundamental transformation, the Government’s Review of Electricity Market Arrangements (REMA) will consider whether reform is needed in order to help the country reach its domestic energy security and climate change targets.

“The Future of the UK Power Market” report, published today, stresses that significant increases in the demand for clean power over the coming decades will also require a stable environment to attract the necessary investment in infrastructure.

The paper drawn up by Energy UK, following close consultation with its members, presents a cross-industry overview of what the future power market must deliver – as well as possible reforms for further analysis. It adds that the nature of the energy market means that any reform will be complex and must be based on clear objectives as well as detailed analysis and evidence on the benefits, impacts and challenges associated with any changes.

In particular, the future power market must deliver

A rapid expansion in generation capacity: This includes a continuing role for the Contracts for Difference and Capacity Market mechanisms but with evolutionary changes to ensure they remain fit for purpose.

A dynamic energy system that incentivises flexible technologies: These will be crucial to ensuring the country makes the most efficient and cost-effective use of its generation but the current framework does not incentivise sufficient investment in – and development of – these technologies.

Reducing future system costs: Reform of the wholesale market could improve efficiency and minimise system costs. This could first be achieved by incremental changes, such as to charging, while carefully assessing the evidence for longer-term reform such as locational pricing.

Adam Berman, Deputy Director said:

“The electricity sector is in a period of profound change. The rapid expansion of low-cost renewables has created massive opportunities for decarbonising the sector whilst bringing with it the challenges of managing variability. Without sensible reforms to the power market, the UK will risk not achieving its climate and energy security targets.

“We need to ensure that the design of the power market is fit for a future where we need to meet a huge increase in the demand for electricity, reach ambitious energy security and climate change targets, and have the flexibility to get the maximum benefit from our low-cost renewable generation.

“Crucially, any reforms need to ensure that the planned £100 billion of industry investment this decade isn’t called into question. Reforms which lead to increases in the cost of investment, or investment delays, will make it harder to reach the Government’s ambitious targets.

“These are all challenges the forthcoming Government review needs to address so we’ve worked to set out some initial priorities and proposals. While clearly required, reform – and particularly fundamental long-term reform – will need to be meticulously analysed and considered to ensure it delivers what it is required.”