The second round of the Review of Electricity Market Arrangements (REMA) wrapped up in May. Sweeping reforms were on the table, sparking “heated and intense” conversation across the industry, said Ellie Brundrett, net zero project manager for REGEN.
On a panel hosted by PV Tech’s Will Norman during day one of the UK Solar Summit, Brundrett said that although this was the second round of REMA, plans remain broad and there are lots of questions to be answered.
Adam Berman, deputy director, advocacy, at Energy UK, said that REMA is heading “broadly in the right direction”, but that it is too lengthy a process to make notable difference to the current market. The right time would have been five years ago or could even be in the future: “It’s hard to reinvent the wheel as we’re driving the car.”
When DESNZ announced the second consultation it confirmed that, as had been speculated, it was looking to move away from a uniform price across markets towards stronger locational signals in Britain’s wholesale market. Zonal pricing incentivises regional development and stands to benefit investment efficiency and operational efficiency.
For Berman, the “main predicament” is the issue of constraint costs. Steep increases are forecast for the next decade and the outlook is “pretty sobering”. Returning to his earlier point, he said that zonal pricing is “probably fine” but, again, will take a lot of time that the market does not have.
Berman argued that when the next government is elected, it will have to run with key aspects of REMA to implement quick change.
“Locational signals are going to be important; it’s just the question of whether this thing is going to be right. If there is another solution to that problem, I’m suspicious the next government would drop it.”
Brundrett agreed, adding that wholesale market structures are just one set of locational investment scale signals—much more could be done to ensure they’re all pulling in the same direction.
Indeed, “there are a lot of different flavours of zonal pricing that could be implemented”.
Contracts for Difference will change – but not because of REMA
REMA addresses the operational impacts of Contracts for Difference (CfD). There are two areas of reform to CfD at the moment: the structuring of the auctions and moving away from the current level of competition.
Brundrett mentioned that liquidity is one of the fundamentals REMA is trying to address. “The challenge [with CfD] is always going to be how much the government wants to be intervening in the wholesale market.”
Substantial change to CfD will occur in the next few months. Berman returned to the fact that current market mechanisms—CfD included—do not solve “today’s problem”.
As Brundrett asked: “How do we retain pressure so we see the changes that we need?”