UK Commences Electricity Market Review to Achieve Lower-Cost, Cleaner System

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The government of the United Kingdom has launched a review into Britain’s electricity market design intended to reduce exposure to volatile gas prices and ensure that consumers benefit from cheaper renewables.

Proposals include introducing incentives for consumers to maximise energy use at times when is cheap and abundant, instead of at times of high demand on the electricity grid when costs are high and is more likely to be generated from coal and gas with higher cost and high carbon impact.

Other suggestions include varying prices according to households’ proximity to where the is being generated. Such an idea could mean homes and factories being built in Scotland or coastal parts of the North where offshore wind proliferates benefit from cheaper electricity.

It may also incentivise communities to approve energy schemes. The reform is also seeking ways to reform the UK capacity market to spur the rollout of low-carbon flexible technologies, such as electricity storage systems, that promote a cleaner and lower-cost national grid.

It follows energy bills for the average household jumping by 54% to a record £1,971 in April as natural gas prices surge following the invasion of Ukraine by Russia.

Prices are set to rise further this year, with experts at Cornwall Insight predicting this month that average bills could leap to £3,245 in October and then further to £3,364 at the start of next year.

Until October 10, the Review of Electricity Market Arrangements (REMA) is seeking views on a breadth of options to meet the challenges of higher global energy costs, the improved energy security and the transition to a decarbonised energy system.

UK business and energy secretary, Kwasi Kwarteng, was quoted saying this could be the biggest electricity market shake-up in decades.

“We’ve just seen the price of offshore UK wind fall to an all-time low and gas is a shrinking portion of our electricity generating mix, so we need to explore ways of ensuring the electricity market is adapting to the times,” he explained.

“That includes ensuring the cost benefits of our increasing supply of cheaper energy trickle down to consumers, but also that our system is fit for the future – especially with electricity demand set to double by 2035,” Kwarteng further said.

The government’s suggestions include changes to the wholesale electricity market to ensure that the increasing share of cheaper electricity from will determine the price more often instead of volatile gas prices; incentives for consumers to use grid when demand is low or it is very sunny and windy; and reforming the capacity market to increase the participation of low-carbon flexibility technologies such as electricity storage.

The consultation will include the evolution and expansion of existing schemes such as the Capacity Market and Contracts for Difference.

The Department for Business, Energy & Industrial Strategy (BEIS) will use the consultation to further develop options during 2022-2023 before coming up with proposed reforms.

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