Political support for energy market reform comes from across the spectrum

There is very little argument that the current UK energy supply sector is not functioning appropriately. Politicians from within the government and those outside all recognise that to address rising energy prices; meaningful policy decisions will have to be made to reform electricity supply. As early as July, the government launched a comprehensive review of the structure of the British electricity market with the goal of drastically improving energy security and permanently lowering consumer electricity rates.  Electricity market design is among the most crucial factors in the security and decarbonisation of the energy market. The UK's achievement of a 68% decrease in energy sector emissions since 2010 has been largely attributed to the modifications made as part of the Electricity Market Reform (EMR) in 2013.[i] At the time, the main goal was to lower the risk and, consequently, the cost of investing in renewables, providing the UK with the funding it needed to replace fossil fuels while ensuring that the fossil fuel generation, which remained essential to supply security, would remain an attractive investment.[ii]

The project puts forward the following proposals for review from the public:

• Introducing incentives for consumers to draw energy from the grid at cheaper rates when demand is low, or it’s particularly sunny and windy, saving households money with cheaper rates.
• Reforming the capacity market so that it increases the participation of low carbon flexibility technologies, such as electricity storage, that enable a cleaner, lower-cost system.
• De-coupling costly global fossil fuel prices from electricity produced by cheaper renewables, a step to help ensure consumers see cheaper prices as a result of lower-cost clean energy sources.[iii]

The consultation on these policies closed on the 10^th of October.

The opposition have also demonstrated their intentions to reform the energy market; in a press release, the Labour Party described what they believed was ‘delay and poor planning on Britain’s energy sector’ was to blame for rising bills and, as such, have more recently expressed their own decarbonisation aspirations.[iv] By the end of this decade, Labour claims it will collaborate with industry to more than quadruple offshore wind power, triple solar power, and double onshore wind while also supporting nuclear, hydrogen, and tidal power. By generating between 260,000 and 300,000 indirect jobs in addition to more than 200,000 direct ones, Labour claims the plan will " reindustrialise" the UK.[v] At their party conference, Labour leader Keir Starmer said:

"Our plan for clean power by 2030 will save the British people £93bn off their energy bills and break the UK's vulnerability to Putin and his cronies,"

"It will also support our drive for higher growth and rising living standards."[vi]

Source: Liverpool Echo

So whilst the prevailing opinion of policymakers across the political spectrum demonstrates a desire to change up the UK energy market, there are differences of opinion on how that should look, as such the CCC (Climate Change Committee) have independently produced their own Net Zero Electricity Market Design report. The report is within their brief as it simply describes the measures needed to ensure that reform remains in line with the UK’s wider net zero objectives; it makes no comment on the validity of the separate political party stances.

The CCC’s recommendations for energy market reform

The CCC’s expert group behind the report outlined four key challenges facing the energy market so that they could design their concluding solutions.

Incentivising low-carbon investment: Creating reliable, predictable, and timely signals for investors that advance the spectrum of necessary technologies and suitably distribute risks will encourage low-carbon investment.

Security of supply and reliability: Providing a business plan for necessary facilities even while running at low load factors, ensuring the system functions and balances in a dependable way, and guaranteeing sufficient low-carbon capacity for security of supply (even periods of low wind).

Whole system coordination and locational signals: Providing precise signals for coordination across the system as a whole, including networks, asset locations, and interactions with hydrogen production.

Customers and affordability: Market design must be cost-effective, function for consumers, and encourage effective dispatch decisions over the long term and during the transition.[vii]

The experts at the CCC that developed the recommendations for energy market reform began to identify these challenges in April and met twice again in June, having developed solutions. By the end of June, they had generated their final recommendations, which were released in a September report.

Their recommendations are as follows:

Incentivising low-carbon investment: Contracts for Difference should be kept but modified to lessen dispatch distortions to encourage low-carbon investment.

Supply security: To address the problem of energy duration rather than merely peak capacity adequacy and to phase out non-low carbon solutions, changes to the capacity market will be required.

Operating a low-carbon electricity system: It is necessary to solve the energy mismatch (longer deficits in certain periods, excess supply in others) and implement more precise market signals for curtailment.

Locational signals: To increase dispatch efficiency and possibly reinforce investment signals, there is a justification for greater locational signals in the wholesale market.

Whole-system coordination: Any modifications to the wholesale market must consider emerging markets at the local level and future changes in governance structures for the distribution system

Customers and affordability: Through efficient consumer engagement, market design must allow small-scale assets to become more flexible. Any market reform should work to increase affordability by maximising competition, improving openness, and sending effective signals.

In their report on market reform released in May, the national grid highlighted that whilst long-term goals to increase sustainability and resilience are welcome, short-term gains cannot be overlooked.[viii] Alongside this, they make clear that the energy market cannot be considered in isolation of other net zero market streams.

Source: National Grid

References

[i] UK Government- Final UK greenhouse gas emissions national statistics: 1990 to 2020

[ii] UK Government- BEIS: Review of Electricity Market Arrangements

[iii] UK Government- UK launches biggest electricity market reform in a generation

[iv] Labour- Labour slams decade of failure on British energy

[v] BBC- Labour conference: Starmer ambition to get off fossil fuels by 2030

[vi] Ibid

[vii] CCC- Net Zero Electricity Market Design Expert Group report

[viii] National Grid- Net Zero Market Reform

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