Source · Select Committees · Business and Trade Committee
Recommendation 59
59
Accepted
Provide a clear pathway on wholesale market arrangements evolution by Government before end 2023.
Recommendation
We recommend that the Government provides before the end of 2023 a clear pathway on how wholesale market arrangements will evolve following its consultation. There are a number of constructive steps that the Government could make to the existing market structure in the near term, which would help it to provide more effective signals on the type of low-carbon technologies and services the UK needs to decarbonise power. The optimal degree of locational granularity should weigh the benefits against the level of market disruption, and whether other mechanisms can achieve similar outcomes, within investment timeframes. Comprehensive impact assessments should be published in due course. (Paragraph 238) The role of institutions
Government Response Summary
The government aims to publish a second consultation on the Review of Electricity Market Arrangements (REMA) in Autumn 2023. This consultation will set out a direction of travel and next steps for the evolution of wholesale market arrangements.
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.