The second round of the Review of Electricity Market Arrangements (REMA) was completed in May. Major reforms were on the table, sparking “heated and intense” conversations across the sector, says Ellie Brundrett, net zero project manager for REGEN.
Speaking at a panel hosted by PV Tech’s Will Norman on the first day of the UK Solar Summit, Brundrett said that although this was the second round of REMA, the plans remain broad and many questions need to be answered.
Adam Berman, deputy director of advocacy at Energy UK, said REMA is “broadly moving in the right direction” but is too lengthy a process to make a noticeable difference to the current market. The right time would have been five years ago or even in the future: “It’s hard to reinvent the wheel while driving the car.”
When DESNZ announced the second consultation, it confirmed that, as speculated, it wanted to move away from a uniform price across all markets and towards stronger location signals in the UK wholesale market. Zonal pricing stimulates regional development and improves investment and operational efficiency.
For Berman, the “main issue” is the issue of mitigation costs. Significant increases are forecast for the next decade and the outlook is “quite sobering”. Returning to his earlier point, he said zonal pricing is “probably fine,” but again it will take a lot of time that the market doesn’t have.
Berman argued that when the next administration is elected, it will have to address key aspects of REMA to implement rapid change.
“Location signals will be important; the only question is whether this will go well. If there is another solution to that problem, I suspect the next administration would drop it.”
Brundrett agreed, adding that wholesale market structures are just one set of location-level signals for investment. Much more could be done to ensure they are all moving in the same direction.
“There are indeed many different flavors of zonal pricing that can be implemented.”
Contracts for Difference will change – but not because of REMA
REMA focuses on the operational impact of Contracts for Difference (CfD). There are currently two areas where CfD needs reform: structuring the auctions and abandoning the current level of competition.
Brundrett said liquidity is one of the fundamental issues REMA is trying to address. “The challenge [with CfD] It will always depend on the extent to which the government wants to intervene in the wholesale market.”
There will be substantial changes to the CfD in the coming months. Berman returned to the fact that current market mechanisms – including the CFD – do not solve “today’s problem”.
As Brundrett asked, “How do we keep the pressure on so that we see the changes we need?”
