On 7th March the government published the summary of responses received from its Review of Electricity Market Arrangements (REMA) consultation. The responses received showed the industry has expressed strong support (92% agreement) for energy market reform that prioritises decarbonisation, security of supply, and cost-effectiveness.
Respondents also agreed that the current market arrangements are not fit for purpose (80% agreement), most who disagreed felt that REMA’s objectives could be met with incremental changes to existing market arrangements.
A second consultation will be published in 2023 with decisions on shorter-term reforms to be taken forward where it is feasible to do so.
While the publication of the long-awaited consultation summary may still leave many questions unanswered, it is a significant step forward in laying out the core objectives for the energy industry. Not least the aims to secure up our energy supply, focus on decarbonisation and ensure the cost-effectiveness of the system, objectives that can complement each other in their implementation.
This first step in the REMA process has demonstrated what many in the energy industry have been saying all along, energy market reform cannot be met with small changes, there must be structural transformation to existing market arrangements.
If we look deeper into the response, the way forward becomes a little less clear, with varying views across the industry. The verdict on nodal and zonal wholesale pricing was inconclusive, and there will need to be further consultation to determine whether to focus solely on zonal or consider both options. The topic of locational pricing remained a cause for concern among many respondents, and the government will need to review if the drawbacks to market investment constitute a warning sign.
As we consider the path forward towards achieving our energy goals, it’s not enough to simply state the objectives or list the concerns; we must also provide viable solutions. There are many thoughts to explore, from using Power Purchase Agreements (PPAs) to deploy mass low-carbon power, to the government continuing to assess the feasibility of green power pools. However, the implementation details require further consideration.
There is also flexibility markets to consider, with the government opting not to pursue a supplier obligation. The discussion surrounding flexibility market reform will now include looking at the role of suppliers in supporting demand-side flexibility, along with any additional requirements that may be necessary. – By no means a small task.
We look forward to the publication of the second consultation and remain hopeful we will see more progress towards a green, secure and sustainable future for both the energy industry and its consumers.