Source · Select Committees · Public Accounts Committee
Recommendation 27
27
Accepted
Review of Electricity Market Arrangements lacks clear timeframe, risking future consumer energy costs.
Conclusion
We asked witnesses about the effectiveness of the marginal pricing system and whether what customers were being charged reflected the cost of producing the energy they used. The Department told us that it was looking into this issue through its Review of Electricity Market Arrangements (REMA).68 The REMA is a major electricity market reform the Department announced in July 2022, to support full decarbonisation of the electricity system by 2035 ensuring security of supply and cost effectiveness for consumers. It consulted on its review during summer 2022 and published the summary responses to the consultation on 7 March 2023. In the consultation, the Department stated that it will explore reforms that move away from marginal pricing. One alternative option is a pay- as-bid system, where participants receive the price of their bids/ offers rather than the bid of the highest priced supplier selected to provide supply. However, generators are likely to bid strategically, and be incentivised to bid at the price of the most expensive offer accepted. Of the 124 responses, respondents to the consultation were split over whether they supported this alternative. In its consultation document, the Department set out that it planned to determine the reforms needed during 2022–23 and establish a full delivery plan and oversee its implementation from the mid-2020’s in time to meet its target to decarbonise the UK power system by 2035. However, it has not yet made available any further details of the timeframe of the review.69 In the meantime, if gas prices increase again, consumers and taxpayers will be subject to significant costs again. The previous reform, the Electricity Market Reform, took two and a half years.70 The Department told us that one of the lessons it had learnt from the last 18 months had been to strengthen the case for more renewables and nuclear energy, and to make sure that the benefits are passed on to consumers, which it planned to achieve through the REMA.71
Government Response Summary
The government states it agrees with the committee's implied recommendation and commits to publishing a second REMA consultation in Autumn 2023, with a target implementation date for this step by Autumn 2023. It will also take quicker decisions on shorter-term reforms, while acknowledging that the overall REMA timescale depends on reform complexity.
Government Response
Accepted
HM Government
Accepted
6.1 The government agrees with the Committee’s recommendation. Target implementation date: Autumn 2023 6.2 The department aims to publish a second review of electricity market arrangements (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. 6.3 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.