The government has launched a review of the UK electricity market design, including a proposal for de-coupling global fossil fuel prices from electricity produced by renewables.
The Review of Electricity Market Arrangements (REMA) is seeking views on de-coupling as well as a wide range of other options to address the combined challenges of responding to higher global energy costs, the need to further boost energy security and move the UK to a cleaner energy system.
Other potential changes that are being consulted on are introducing incentives for consumers to draw energy from the grid at cheaper rates when demand is low or it’s particularly sunny and windy, and reforming the capacity market so that it increases the participation of low carbon flexibility technologies, such as storage.
Under the current system, gas prices often end up setting the wholesale electricity price, because it is often the last source of supply to meet demand.
The ever-increasing participation of renewables in the system means over time, cheaper electricity produced by renewables energy will determine the price more often, the government said.
The consultation will explore ways of updating this pricing system to further reflect the rise in cheaper renewable electricity.
Business and Energy Secretary Kwasi Kwarteng said: “We’ve just seen the price of offshore UK wind power fall to an all-time low and gas is a shrinking portion of our electricity generating mix, so we need to explore ways of ensuring the electricity market is adapting to the times.
“That includes ensuring the cost benefits of our increasing supply of cheaper energy trickle down to consumers, but also that our system is fit for the future – especially with electricity demand set to double by 2035.
“In what could be the biggest electricity market shake up in decades, I am confident that this review will significantly enhance GB’s energy security and supply for generations to come.”
The consultation forms part of the government’s comprehensive review of the electricity market, first announced in the British Energy Security Strategy (BESS).
The BESS raised ambitions for building low carbon and cheaper-to-run technologies such as offshore wind, solar and nuclear, as part of UK plans to deliver a clean and secure electricity system by 2035.
Energy Minister Greg Hands said: “Today’s launch of REMA is a major step in delivering a secure energy future for Britain, putting in place the electricity market design we need to allow us to make the most of our world-leading diversity of power sources while offering more value for money for consumers.”
Association for Renewable Energy and Clean Technology policy director Frank Gordon said: “The REA welcomes the publication of the REMA consultation and we look forward to working with the Government, our members and our industry on the proposals.
“We will keep pushing for the best way ahead to decarbonise our electricity markets, while keeping the lights on and delivering affordable power.
“We believe a rapid implementation of reforms, once agreed, will be vital to the target of a Net Zero electricity system by 2035, and will emphasise the need to protect existing renewables investments alongside any wider changes.
“We will now work with our members to fully analyse the proposals and their possible impacts.”
Vattenfall UK country manager Danielle Lane said: “Customers need clean, affordable power while developers of renewable energy need certainty and a market that allows them to continue investing in turning the UK into a superpower of renewable energy.
“Reviewing electricity market arrangements is an important step forward to help make sure that we can meet our climate targets while keeping costs low for customers.”