top of page

'Unprecedented opportunity': Government Pressed to Accelerate Overhaul of Power Sector Dynamics

Today, a clarion call for swift, groundbreaking changes to the UK's electricity market reverberates through government corridors. Industry analysts are raising the alarm: delays or ambiguities in implementing the Review of Electricity Market Arrangements (REMA) could inadvertently stymie investment across the power sector. Why is this a big deal? Well, it threatens to derail the nation's ambitious 2035 target for achieving a net-zero emissions power grid—particularly after a recent clean power auction that didn't attract new capacities from offshore wind enterprises.

Let's cut to the chase. Cornwall Insight, a leading analyst firm, has unfurled an incisive report backed by the MCS Foundation. The report hammers home a crucial message: The government's wavering on REMA could bring an unintended chilling effect on sectoral investment. We're talking about developers, ever the cautious breed, hanging back until the fog of regulatory uncertainty clears.

So, what's REMA all about? Ah, where to start? It's an intricate web of policy measures aimed at doing a couple of big things. First, trimming down the energy bills that consumers—individuals and businesses—are grappling with. Second, it's a mechanism to grease the wheels for more investment in green energy initiatives and intelligent grid enhancements.

Now, here comes the intriguing part. Government authorities are mulling over the idea of Locational Marginal Pricing. What's that, you ask? It's a pricing model where—if you're lucky enough to live closer to significant power production sites—you could end up with lighter electricity bills. Additionally, there's talk of bifurcating the electricity market: one for your run-of-the-mill fossil-fuel-generated electricity and the other for its cheaper, greener counterpart.

But not so fast! The industry opinion on Locational Marginal Pricing is, let's just say, not monolithic. Experts are in one corner, championing it as a radical game-changer that would optimize surplus renewable power and negate the need for expensive new transmission lines. In the other corner, skeptics warn that such a shift could bring unnecessary disruption.

Yet, everyone agrees on this: It's high time to uncouple wholesale electricity prices from gas prices. Doing so could usher in a new era of affordability and stimulate transitions to greener heating solutions like heat pumps. But—oh yes, there's always a 'but'—how exactly to pull off this market overhaul remains a subject of, shall we say, 'energetic' debate.

In summary, the stakes are towering. The REMA could either be a catalyst for propelling the UK into an era of sustainable, affordable energy or become an unfortunate stumbling block. Government, analysts urge, must act post-haste. Today's report warns that in the wake of the government's controversial move to scrap or delay a series of critical decarbonization policies, there is an urgent need for Ministers to provide "decisive, clear and consistent policy on electricity pricing in order to give investors confidence."

"Delays to policy action could result in a pause in investment, as investors wait for any changes to be announced and implemented," it warned. "This could raise the cost of capital and ultimately feed through to consumer bills."

David Cowdrey, director of external affairs at the MCS Foundation, said the current electricity system "was fit for the fossil fuel-powered 20th Century, but not for the renewables-powered 21st".

"We need rapid action from the government to implement reforms that will help unlock renewable generation capacity, get energy to homes and businesses in an effective way, and bring down bills permanently," he added. "This report from Cornwall Insight sets out the options available to the government and makes clear the need for urgent action."

Kate Mulvany, principal consultant at Cornwall Insight, said: "The government has been looking to reform the electricity market for some time, but plans are progressing slowly. We must take advantage of this unprecedented opportunity to build an electricity market which embraces renewable generation, encourages investment, and will help stabilize electricity bills for households and businesses alike.

"We cannot turn the clock back to a pre-energy crisis world, but there are a number of options available to build a renewables-based energy system which embraces the changes we have seen. By taking proactive steps to reshape electricity policy, we can build a system that delivers security of supply and value for money for generations to come."

Simon Francis, coordinator of the End Fuel Poverty Coalition, echoed her comments and argued that some of the proposed reforms could lead directly to lower household bills. "Reform of electricity pricing is the missing piece of the jigsaw when it comes to creating a clean, secure energy supply for the future," he said. "While there is no doubt that it is a complicated issue, the goal must be to pass through the cheaper cost of renewables to customers as quickly as possible in order to bring electricity bills down. Once we have this breakthrough, we will then be ready to see an explosion in demand for heat pumps which will not only clean up our energy system but also break our dependence on imported fossil fuels."

The report comes on the same day OVO Energy launched a new heat pump and dedicated tariff, which it said would allow heat pumps to undercut fossil gas boilers. However, the company also stressed that demand could be significantly boosted if the government pushed through reforms that moved policy costs off electricity bills and onto gas bills.


bottom of page