Energy Systems Catapult proposes transitional arrangements for electricity market reform

A new report focusing on transitional arrangements for the reform of Great Britain’s electricity market has been released by Energy Systems Catapult. As the country strives to meet its Clean Power 2030 Mission commitments, current electricity market arrangements have been deemed insufficient to meet future energy demands.

The report – Transitional Arrangements for Electricity Market Reform – was commissioned by Octopus Energy and underscores the importance of adopting zonal pricing – a system that allows electricity prices to reflect actual supply and demand across different British regions. The proposal highlights that reform is critical to ensuring efficient investments, reducing reliance on gas, and cutting consumer bills.

To protect investor confidence during this transition, Energy Systems Catapult proposes a package of investment protections – including amending Contracts for Difference (CfDs), mitigating “volume risk” and exploring “locational price risk” protections – and offers tools to mitigate the risks associated with zonal pricing. The transitional measures are designed to ensure a smooth shift while maintaining consumer benefits and attracting continued investment in renewable energy projects.

“Electricity market reform is inevitable”, said Tom Luff, Practice Manager (Electricity Markets & Policy), at Energy Systems Catapult.  Tom continued, “getting investment protection right is essential to make this transition successful. This report provides a crucial piece in the jigsaw. Our proposals are designed to strike a balance between maintaining investor confidence and delivering consumer benefits.”

Rachel Fletcher, Director of Regulation at Octopus Energy, the commissioner of the report, commented:

“It’s clear that the current national pricing system is failing us, is not fit for a clean power system, and means bills are higher than they need to be. We must embrace regional pricing but we must also sustain investor confidence.  Well designed transitional arrangements are key.  The government must act decisively, take action to protect existing investments and implement this essential reform without delay”

The report will be presented to government stakeholders, with recommendations for swift implementation to meet the 2030 clean power targets.