Source · Select Committees · Business and Trade Committee
Recommendation 58
58
Accepted
Paragraph: 237
Ensure wholesale electricity market reforms avoid an investment hiatus, protecting the 2035 target.
Recommendation
We agree that the wholesale electricity market arrangements need reform to help decarbonise power in a way that secures supply and ensures the system can function efficiently, including more locational signals. In principle, we find the argument for locational pricing appealing, but we are concerned about its deliverability and its potential impact on investor confidence. The Government must satisfy itself that any reforms it does pursue do not create an investment hiatus, which would put the 2035 target at risk.
Government Response Summary
The government confirms it is actively reviewing electricity market arrangements (REMA), with a second consultation due in Autumn 2023. It has updated its assessment criteria to include "Investor Confidence" and explicitly commits to ensuring that renewable generation investment is not unduly affected by any reforms.
Paragraph Reference:
237
Government Response
Accepted
HM Government
Accepted
144. The Government published its first consultation on the Review of Electricity Market Arrangements in 2022, and published the summary of responses in March 2023. The Government has outlined options for reform it will explore, which includes reforms to wholesale market arrangements (e.g. shortening settlement periods and ways to introduce more locational signals), mechanisms for ensuring security of supply (including a range of modifications to the existing Capacity Market and potential complementary mechanisms), and mechanisms to support deployment of low-carbon and flexible generation at scale. 145. The Government aims to publish a second 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. 146. Government’s 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 Government aims to significantly narrow the options - identifying lead options where achievable, shifting the debate to focus on a handful of foundational policy areas and their interactions. The Government will engage extensively with stakeholders throughout this period and will assess policy options against five assessment criteria, which have been updated following stakeholder feedback to the initial consultation. These are Deliverability, Investor Confidence, Whole-System Flexibility and Adaptability, as previously set out, and Value for Money (previously “least cost”). 147. The department continues to explore and develop a range of options for sending more efficient locational signals to incentivise generation and demand to locate in more suitable parts of the network and operate more efficiently to lower system costs, and ultimately costs for consumers. These options include but are not limited to locational marginal pricing. The department recognises that some kinds of generation, particularly renewables, can only locate in certain places (e.g. where it is windy or sunny), and it will ensure that the case for investing in these kinds of generation is not unduly affected by any options it takes forward.