Feedback from the energy sector regarding the review of energy market arrangements (REMA) consultation summary has been largely positive but the UK’s future market framework remains obscure.
Published by the Department of Energy Security and Net Zero (DESNZ) earlier this week (8 March), the REMA consultation summary reviewed prevalent themes within the 225 responses and detailed the reform’s next steps.
Some potential market frameworks were discounted but the majority remain under review, to be further consulted as the process moves into its next stage – publishing a second consultation this year to consider the feasibility of these options.
Recognising the challenge of the path ahead, participants in the energy sector have called for speed and clarity in the review’s decisions, but the need for radical change remains under debate.
Is radical reform necessary?
Although 80% of respondents agreed that the current energy market arrangements were not fit for purpose, one of the biggest divides noted in the paper was around the necessity of a radical reform.
This split was echoed within the responses from the industry.
Tom Faulkner, head of assets & infrastructure and networks at Cornwall Insight, said: “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.”
Senior advisor (electricity markets & policy) at Energy Systems Catapult, Tom Luff, also noted the need for a more drastic energy market reform.
“REMA demonstrates that there is an overwhelming consensus that current energy market arrangements will not deliver the change necessary to achieve decarbonisation by 2035. Greater system flexibility is needed to complement a continued expansion of renewable generation,” Luff told Current±.
“This won’t happen without a radical and holistic package of modernisation to upgrade the market framework, overhaul of the planning consents process, and the creation of retail offerings built around consumer needs.”
Madeline Brooks, policy and regulation researcher at Octopus Energy, added via LinkedIn: “What’s interesting is that out of the reform options proposed across the wholesale market, investment support mechanisms and capacity adequacy mechanisms, the business-as-usual option (BAU) or a slightly refined version of BAU (BAU+) came out on top in all cases.”
“I do wonder how far the BAU or BAU+ proposals within REMA can really go to address these challenges. As an industry, it seems we are more than happy to point out what’s not working, but far less willing to consider any proposals that stray too far from the status quo.”
But not all participants in the energy sector felt the need for a radical market reform. Johnny Gowdy, director of Regen, the independent energy expertise centre, queried the amount of evidence in favour of such a drastic reform:
“If anything, the consensus based on the summary responses seems to be weighed against radical market design options – e.g. nodal pricing or splitting the market – and towards more incremental reforms,” wrote Gowdy.
“There are lots of opportunities for reform and enhancement of the current market, some of these are themselves radical and far-reaching (radical incrementalism), but the case for a fundamental market re-design is less clear.”
“This could be industry intransigence, but it may also reflect a conclusion that the market design isn’t the main barrier to net zero, or at least there isn’t a magic market solution that will get us there. Having a plan, maintaining investment momentum, accelerating the building of infrastructure, political commitment and ensuring affordability are perhaps more important.”
Deciding the extent of the reform is a decision that needs to be made from a holistic standpoint. Discussing the feasibility of all options in the second consultation is hoped to result in a clearer vision for the extend of the energy market reform.
Ensuring pace and maintaining transparency
What was widely agreed within the energy sector was that the review must maintain a strong momentum so that both consumers and suppliers can enjoy the benefits of a fit-for-purpose market as soon as possible.
Luff added: “There is no room for complacency. Unless we move fast, we risk lock-in to a high-cost power system and a public backlash against Net Zero. The last 18 months have demonstrated what happens if we lose control of energy prices. REMA is too important to be kicked into the long grass.”
Members of the energy sector also urged DESNZ to continue providing transparency during the review to ensure the right decision is made. In fact, the paper reported that many respondents called for the scope of input to be widened to consumers. In response to these comments, the government promised to establish a new end-user forum to invite input from consumers and consumer groups on the market reform.
Kate Mulvany, senior consultant at Cornwall Insight, wrote on LinkedIn: “UK businesses are still dealing with the energy price crisis and high inflationary pressures. Those organisations in a position to expand may be held back because of network connection issues – heavily cited in the consultation responses.”
“While key decisions are unmade – LMP in particular – some investment decisions will stall. Maintaining pace and transparency will be essential in this next phase, and REMA is an immensely complex programme for DESNZ to shepherd.”
The long road ahead
The sector almost unanimously agreed the road towards not only deciding on suitable market arrangements, but implementing them, will be long and challenging.
“This is very much an interim report from the REMA team, and although a few design options have been jettisoned, almost all the main options are still ‘on the table’,” added Gowdy.
“Most options remain on the table but, judging from recent REMA workshops, the process of distillation to what is really needed, is about to get a lot tougher.”
Describing the REMA consultation summary as a “significant step forward”, Faulkner continued: “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.”
Perhaps summarising many sentiments within the energy sector, Brooks concluded her post on LinkedIn saying: “I don’t envy the job of the REMA team at DESNZ, some difficult decisions are to be made!”