REMA: electricity market design choices

Electricity markets will serve as the foundation for the future GB energy system.  This article examines some of the market design decisions that will be considered by the Review of Electricity Market Arrangements (REMA).

Market design goals

At its most simple, a well-functioning market will attract enough potential “buyers” and “sellers” to produce satisfactory results for both. Good market design will include mechanisms that allow participants to make decisions with confidence.

BEIS identified requirements for the transformation of the GB energy system by 2035.

  • High investor confidence in low-carbon technologies
  • System flexibility optimised for intermittent renewables and adaptable to emerging technologies
  • On-time delivery with unintended minimal disruption, despite the complexity of the existing energy system
  • All delivered at the lowest possible cost to consumers

The consultation published on 18 July 2022 describes a “whole-system approach” to reform. REMA will focus on the longer-term market arrangements needed to ensure supply security, cost-effectiveness, and decarbonisation.

The scope of REMA

The wholesale market, balancing mechanism, ancillary services, the current Contracts for Difference scheme, and the Capacity Market are all included in REMA. Non-electricity markets (such as hydrogen, gas, and carbon), retail markets, incentives for new technologies, interconnectors, and large-scale nuclear investment will generally be excluded from REMA’s focus.

Market design options

REMA is still in its early stages. The initial consultation period runs until 10 October 2022. Proposals are illustrative rather than exhaustive. Some concepts are still theoretical, or might not have been used in a system with GB’s features.

Here is a selection of options from the consultation.

  • Splitting the wholesale market – moving from a single national wholesale price, to twin wholesale prices, splitting intermittent renewables from other generation types. This could reduce the impact of high marginal prices set by gas fuelled generation assets, with an intermittent renewables market treated like the historical “pool” perhaps managed by the Electricity System Operator (ESO).
  • Move to pay as bid – an approach that could decouple prices from those that currently set the marginal price, typically gas fired stations. A “pay as clear” approach could limit the price that generator’s offer power into the market by basing it on their costs and not the marginal price.
  • Introducing locational pricing – a single national wholesale price won’t incentivise sites to be developed where the electricity network can best support them. Introducing a more granular set of prices, each better reflecting the capacity and losses of the network at the point they apply, could act as an incentive when choosing locations for generator or consumer developments. Nodal pricing (locational marginal pricing, LMP) could introduce hundreds of pricing “nodes” across the country. Zonal pricing is somewhat a halfway house, removing some complexity by having a single price for regional zones, but which allows pricing of electricity flowing between zones to reflect the relative network constraints.
  • Creating a new market for long-term response – existing wholesale and balancing markets reward frequent storage charging and discharging, and do not necessarily reward the system value of sustained response. New markets may be required to support long duration storage.
  • Improved temporal pricing – there is value in continuously matching demand and supply across the system. Current market arrangements financially reward balance across 30 minute periods. Dampened signals undervalue flexible assets and limit suppliers’ ability to offer tariffs that encourage consumers to be flexible.
  • Local, distribution network led markets – transmission network constraints could be reduced if suppliers were incentivised to source energy generation locally. Different options are suggested to achieve this.
  • Carbon abatement auctions – instead of conducting auctions based on energy unit strike price (Contracts for Difference), auctions are run to maximise the impact of resources on  reducing emissions.
  • Reform of existing markets – rather than building new markets, incremental change may achieve the goals. Accompanied by widespread digitalisation of system-wide signals to better facilitate a very large number of smaller assets, rather than a handful of large generators.

Future market arrangements must provide the right signals for system flexibility and managing the variability of intermittent renewables. Consumers expect value for money, and investors need to be attracted to fund the required transformation.

These are ambitious goals, as evidenced by the extensive consultation, which is just the beginning of what could be a programme of change that runs for a number of years. Cornwall Insight is well-positioned to assist you in understanding the options presented. We can identify risks and opportunities, develop strategies, and inform consultation responses. If you want to learn more, please contact Kate Mulvany at

Related thinking

Regulation and policy

One-hit wonder? Assessing the government’s business support scheme

Subsidising the unprecedented cost of energy for both households and businesses came in at the forefront of the Chancellor of the Exchequer, Kwasi Kwarteng’s “mini-budget” last Friday. Described as “one of the biggest interventions ever made”, Kwarteng confirmed a three-step plan. Firstly, as announced on 8 September, the introduction of...

Low carbon generation

MCS Charitable Foundation – Hydrogen Costs

MCS Charitable Foundation (“MCS”) in its charity goal of decarbonising homes, heat and energy has commissioned us to calculate the costs of blue and green hydrogen, based on current and projected gas prices. This report sets out our methodology for this forecast, and our findings in terms of delivered prices...

Energy storage and flexibility

Electricity network reform: where are we now?

In its Energy Security Strategy (ESS), the UK government set out ambitions for 95% of electricity to be sourced from low carbon generation by 2030 and for the UK to have a fully decarbonised electricity system by 2035. In order to accommodate this ambition, the electricity network will need to...

Business supply and services

Our initial response to the government energy announcement

We welcome the government’s objective to address the affordability of energy for both domestic and business consumers in the UK. The policy announcements made today will alleviate some of the hardship consumers have been concerned about for many months.   On the household side of the equation, industry thinking is...

Energy Market Design

How does REMA impact energy generation, flexibility and consumers?

The Review of Electricity Market Arrangements (REMA) is the largest review programme of GB electricity market arrangements for a generation. It comes at a time when European energy markets are suffering extreme turmoil. Depending on the outcome there could be significant implications for generators, flexibility providers, and, indirectly, consumers. REMA...

Low carbon generation

Head to Head: CfD vs RESS

2022 has been busy for renewable developers in Great Britain and Ireland, with both the fourth allocation round of the Contracts for Difference (CfD) scheme and the second round of the Renewable Electricity Support Scheme (RESS) concluding this summer. We compared the latest results of the CfD and RESS schemes...

Low carbon generation

Energy System Reform: Ofgem shares plans for Britain’s energy system

Against the backdrop of record high and volatile energy prices, Ofgem set out on 8 July its view on key aspects of the GB energy system where it considers significant reform is required to deliver a resilient, low cost, low carbon energy sector. Recent developments in the energy market, such...

Energy Market Design

Can we fix the wholesale energy market this winter to lower prices and should we want to? 

The Review of Electricity Market Arrangements (REMA) is intended to discuss and decide on appropriate market arrangements for 2035 in a Net Zero, low marginal cost, renewables-dominated market. It is unlikely it has the scope or capability to intervene in the market arrangements ahead of this winter. Therefore, some new interventions...