The REA (Association for Renewable Energy and Clean Technology) has said in a new report that Contracts for Difference and the Capacity Market mechanism could be adapted to better reward flexibility.
The representative body said being able to respond to changes in demand and generation from low carbon renewables and offering firm contracts to guarantee a certain quantity of electricity supply at a fixed price for a defined period would improve the market mechanisms.
By doing so, UK suppliers will be able to contract lower renewable generation prices for consumers, remove dependence on fossil fuel imports and accelerate the energy transition, it said.
The REA said in its Review of Electricity Market Arrangements (REMA) Report; Enabling a secure, flexible, and decarbonised electricity market fit for the future that the proposed reforms could be introduced relatively quickly.
This will help maintain investor and developer confidence, speeding up deployment of low carbon generation and energy storage assets, it argued.
This is now critical given the Climate Change Committee’s severe warning to government, issued this week, that progress to decarbonisation is far too slow and the policy gaps remain substantial, the REA added.
The report feeds into the government’s ongoing REMA workstream that is looking to set out the future design of the wholesale electricity market.
This will determine how and at what price electricity is traded in the UK, how different forms of generation are rewarded and ultimately the electricity price consumers pay in their bills.
The REA has worked alongside its members and academic Dr Chris Harris (University of Bath), who authored the report, to set out an industry approach to REMA.
Harris said: “The government’s Review of Electricity Market Arrangements needs to develop a wholesale market that both promotes the use of low carbon affordable domestic generation and ensures high levels of grid security.
“To do this, the future wholesale market needs to better reward both flexibility and firmness.
“This means that energy market stakeholders are rewarded for their abilities to quickly respond to changes in variable renewable generation or electricity demand, while generators are also rewarded for being able to commit to contracts that guarantee energy in a defined period at a secure price, to lower energy bills.
“This is best done by evolving our existing market arrangements, including the Contracts for Difference and Capacity Market Mechanisms, building on what developers and investors already trust, rather than trying to completely redesign the market at a time when the UK needs to be rapidly speeding ahead with its energy transition.”
Chief executive of the REA Nina Skorupska (pictured) added: “The government’s REMA is an essential piece of work that must quickly deliver a wholesale market fit for the future.
“That means one that ensures UK lights stay on, returns energy bills to low prices and is fully decarbonised.
“This requires rethinking how our electricity markets operate today.
“However, this week the Climate Change Committee sent a stark warning to government that the energy transition must be sped up.
“As such, we cannot afford for delivery of new market arrangements to delay deployment of low carbon generation and energy storage assets.
“By its nature, the REMA process has already created uncertainty in the market as investors are left unsure how any changes might impact both their existing projects and future pipeline.
“As such, the REMA process must both be delivered in a timely manner and create renewed confidence by evolving our existing market, rather than trying to re-write the rules.
“The industry is speeding ahead with the energy transition and delivery of a fit for purpose wholesale market must keep up.”