We do not know exactly what the energy system of 2050 will look like. Nonetheless, we are clear that there will be a need for the energy system and energy markets to operate on a much more flexible and dynamic basis than they have done in the past.

The challenge 

Current electricity market arrangements are complex, and market mechanisms do not fully reflect the value of different technologies in terms of how they impact on overall system costs or reduce carbon emissions. They make it difficult to promote a balance of investment across different times, locations and solutions or to encourage long-term investment choices and innovation. The right electricity market reforms and mechanisms will bring forward innovation and investment in a more efficient mix of low carbon generation, network enhancements and flexibility.

The innovation

Starting with the Smart Systems and Heat programme in 2017, the Catapult has consistently prioritised electricity market reform as a cornerstone of its policy and regulatory thought leadership. Through its flagship Rethinking Electricity Markets report, published in March 2021, and subsequent analysis and advocacy, the Catapult has developed detailed proposals for reform.

The solution

The Catapult considered the steps needed to effect change were:

• Development of alternative proposals for electricity market reform. The Catapult directly developed alternative proposals, but also hoped to see an increase in the number of other stakeholders developing ideas on alternative electricity market arrangements, as well as investment in growing the evidence base for alternative electricity market arrangements.
• Building consensus among stakeholders on the proposals for reform. The Catapult wanted to help innovators consider and explore the potential impact of alternative electricity market arrangements. The outcome of this would be seeing recognition amongst a broad range of stakeholders for the need for electricity market reform, and particularly around the need for more accurate time and locational signals and the need to improve market signals to develop flexibility.

Impact

In our peer-reviewed evaluation report, we found that:

• The Catapult’s thought leadership – particularly through the Rethinking Electricity Markets report and associated content – contributed to a recognition of the need for significant reform of electricity market arrangements.
• The Catapult’s thought leadership, alongside the work of other key players, led to an increase in consideration of policy proposals to introduce greater locational signals in the wholesale market.

While the Catapult would have liked to have seen evidence of our influence on changes to centralised contracting for renewable energy, we had to conclude that at this time there was limited evidence available to support this claim.

We hope that, over time, recognition of the need for significant reform of, and the consideration of greater locational signals in the wholesale market, will come to fruition in changes to electricity markets, that bring forward innovation and investment in a more efficient mix of low carbon generation, network enhancements and flexibility.

Next steps

The Catapult is continuing its work in influencing this area, most recently in its October 2024 report, Transitional Arrangements for Electricity Market Reform.

In addition, the Catapult hopes to perform further evaluation of its impact in this area, following the conclusion and implementation of the ongoing REMA process.