Source · Select Committees · Public Accounts Committee
Recommendation 6
6
Accepted
Set out timeline for REMA and plan to enhance electricity sector resilience against price shocks.
Recommendation
We are very concerned about the Department’s lack of urgency in addressing the energy market failures that are leading to high energy bills for consumers. During 2022–23, the UK experienced record-high wholesale gas prices. Since 2019, Ofgem has set a price cap that energy suppliers can charge households. The level of the cap increased by 80% in winter 2022–23 to £3,549 compared to summer 2022– 23, mainly because of increasing wholesale prices. This is because the UK electricity market operates on a marginal pricing system, which means that electricity generator companies are paid a fixed price per unit of electricity, which is determined by the cost of the most expensive generating technology needed at the time. This is usually gas-fired power stations that are more expensive than other sources of energy, such as renewables like wind power. The government plans to reform the electricity 8 Energy bills support market through the Review of Electricity Market Arrangements (REMA), which could result in arrangements that enable consumers to benefit more from the cheaper running costs of renewables. The Department issued its public consultation for the REMA in July 2022 stating that it expects to implement changes from mid- 2020’s but has not yet made available any further details of the timeframe for the review. The previous reform, the Electricity Market Reform, took three years. In the meantime, if gas prices increase again, consumers and taxpayers will be subject to significant costs again. Recommendation 6: The Department should set out, as part of its Treasury Minute response, the timeline for its review, and how the REMA will ensure that the electricity sector has more resilience against future unexpected events, such as high gas prices. Energy bills support 9 1 The design and performance of the schemes
Government Response Summary
The government plans a second REMA consultation in Autumn 2023, with overall timescales varying by reform complexity. It explains REMA will consider options to shield consumers from price spikes and notes the Contracts for Difference (CfD) scheme already provides insulation.
Government Response
Accepted
HM Government
Accepted
The government agrees with the Committee’s recommendation. (REMA) consultation in Autumn 2023 and will take decisions on shorter-term reforms more quickly where it is viable to do so throughout the REMA programme. REMA’s overall timescale will depend on the extent of reform found to be necessary and could range from those that could be taken relatively quickly, to reforms that could take a number of years to implement – depending on the nature and complexity of reform. The aim for the second consultation is to set out a direction of travel, next steps and support a smooth transition to any new arrangements over time. The REMA programme will consider a range of potential options to shield consumers from the impacts of potential future commodity price spikes and to ensure they benefit from lower cost renewables, including more transformative options, as well as whether an evolution of the current approach represents the best balance of consumer protection, investor confidence and overall system efficiency. The Contracts for Difference (CfD) scheme already insulates consumers against electricity price spikes, as all revenues generated from renewables with CfD contracts above a pre-agreed ‘strike price’ are paid back to consumers. The scheme is driving renewable deployment at scale, and over time will significantly reduce dependence on fossil fuelled power generation, lowering consumer exposure to gas prices.