EMR2.0: a new phase of innovation-friendly and consumer-focused electricity market design reform

This paper sets out Energy Systems Catapult proposed reforms for GB power market design, including:

• Five key challenges for a Net Zero electricity system.
• Six key reforms for a Net Zero electricity system.

Review of Energy Market Arrangements (REMA): first consultation response

Key Recommendations:

• REMA must be developed in concert with retail market reform – without clarity on what the REMA reforms would mean to different consumers, there is a risk of pursuing ineffective policies.
• Improving the accuracy of locational and temporal value is a top priority – with the greatest net benefits achieved through locational marginal pricing.
• Moving to an outcome-based framework – measures such as a clean electricity standard for suppliers would provide stronger incentives for upstream contracting with low carbon generators and innovation in flexibility.

Letter to Minister on the Review of Electricity Market Arrangements

The government must take this opportunity to address some fundamental challenges to the energy system to ensure it can meet our ambitious Net Zero goals by:

• Driving investment in renewables and other low-carbon technology
• Efficiently building and operating a high renewables power system
• Making the most of renewables by empowering all consumers to participate in, and benefit from, flexibility.

INSIGHT: The turning point: zonal pricing as the foundation for a clean energy revolution

The government has a bold ambition to make Britian a clean energy superpower and at the centre of its plan is a clean electricity system by 2030. Zonal pricing is the only option currently on the table that can efficiently integrate renewables onto the grid, to build the foundation for Net Zero.

INSIGHT: Uber-good: making electricity markets fit for Net Zero 

The Review of Electricity Market Arrangements (REMA for short) turned one on 18^th July 2023. A year on from the launch of REMA, we’re still waiting on the direction of travel from government. But a picture is starting to form: National Grid ESO is recommending a market design founded on LMP, and FTI Consulting found that LMP could deliver large savings for energy consumers – as much as £50 billion over 15 years.

INSIGHT: Locational Pricing Puts Consumers in the Driving Seat

Citizens Advice have made a welcome contribution to the debate on locational pricing with their latest report, It’s all about location – Will changing the way we price electricity deliver for consumers?

The report delves into how reforms to the electricity market can deliver on sustainability and affordability for end-consumers and highlights the benefits that locational marginal pricing (also known as ‘nodal pricing’) can deliver.

REPORT: International Learnings on Investment Support for Clean Electricity

This study reviewed the evidence from markets across the United States of America and in New Zealand that use locational marginal pricing, as well as European markets that use zonal pricing. While no electricity system can be said to have fully solved the challenge of how to integrate high volumes of intermittent renewables, we make general observations that are relevant to the GB debate.

REPORT: Location, location, location: Reforming wholesale electricity markets to meet Net Zero

This study commissioned by Octopus Energy shows that reforms to make wholesale electricity markets reflect local conditions could save around £3bn per annum on average (circa £30bn in total) by 2035, as the UK transitions to a Net Zero grid.

REPORT: Locational energy pricing in the GB power market 

Two reports exploring the role that locational price signals can play in minimising the cost of the future energy system and the case for nodal pricing.

Conversation with…Electron

We spoke with Jo-Jo Hubbard (CEO) and Nick Huntbatch (Head of Product) to hear more about their views on locational pricing.

Conversation with…Solea Energy

We spoke with David Kozak, VP of Research, to hear his views on why he thinks implementation of locational marginal pricing works in other jurisdictions and why it is crucial for future GB markets.

Conversation with…Amp X 

We spoke with John Prime, Head of External & Regulatory Affairs at Amp X, to hear more about the importance of stronger locational pricing signals for the future of flexible consumer propositions.

Conversation with…ZUoS

We spoke with Alex Schlicke, Chief Executive Officer, to find out more about why greater locational pricing is so important.

Conversation with…Octopus Energy

We spoke with Madelaine Brooks, Energy Markets and Regulation Lead at Octopus Energy, to find out more about locational pricing and its importance in future innovation.

Innovating beyond energy retail – Tom Luff

Energy retail reform has gotten bogged down in technical debates about price cap methodologies. In our new report, we argue the case for looking beyond this to unlock innovation – through experimentation and whole energy system thinking – and deliver tailored ways of saving money and carbon for consumers.

Innovating beyond retail: reaching Net Zero consumer energy

Drawing from Energy Systems Catapult’s analysis and insights, we have identified six challenges that must be addressed for an enhanced energy retail ecosystem.

Clean energy retail: the role of energy retailers in the Net Zero transition

Assesses the challenges and opportunities for how future energy retail companies can support consumers to navigate the Net Zero energy transition, focusing in particular on the period from 2025 to 2035.

Broad Model for a Capacity Remuneration Mechanism in an Energy Service Provider-led Market

Exploring alternative mechanism for approaching security of supply and sketching a model build on more decentralised responsibilities.

Towards a New Framework for Electricity

This summary report provides a framework for assessing value in electricity markets and highlighting strategic choices for market design.

BEIS Select Committee call for evidence: Decarbonisation of the Power Sector

Our major report, Rethinking Electricity Markets, sets out the case for ambitious market reforms – focusing on the importance of more dynamic and granular wholesale market signals, and a move from centralised contracting (CfDs & CM) to outcome-based policy mandates. Our proposals are based around six key reforms.

Review of Net Zero: call for evidence

The Department for Business, Energy and Industrial Strategy commissioned an independent review of the government’s approach to delivering its Net Zero target, to ensure we are delivering Net Zero in a way that is pro-business and pro-growth.

Ofgem – Open letter on next network price control review process

Energy Systems Catapult recommendations to Ofgem is to take a whole systems approach, ensure wider strategic alignment and bolster incentives for innovation.

Future of the energy retail market: call for evidence

We welcome this initiative to refresh the energy retail market strategy, with measures that are more ambitious and integrated with wholesale market reforms, and delivered at a faster pace with work to design and implement the reforms starting without delay.

Energy tariff diversity can empower consumers, lower bills, and cut carbon emissions 

The energy retail market – which was designed in the 1980s for a world in which energy needs were simpler – pushes retailers towards uniformity. The shift to Net Zero has turned this approach on its head. Energy tariffs should reflect this diversity of needs.

REMA is too important to be kicked into the long grass

REMA is too important to be kicked into the long grass and it is crucial the government maintains momentum for change. Without reform, we risk getting locked into a high-cost power system and facing public backlash against Net Zero.

New whole system metrics can improve the targeting of policy support for emerging zero carbon technologies

Policy makers need to ensure that they get value-for-money from the policy support they provide to promote innovation and early deployment of emerging (low carbon) technologies.

Can we make electricity markets work better – or is ambitious reform all just too risky to contemplate?

Our most controversial reform proposal is our Rethinking Electricity Markets project is to phase out CfDs – which many see as a huge success story for UK policy over the past decade, and vital for access to low-cost finance for the new generation we need.

Why we can’t wait for electricity market reform…

Will our current market arrangements get us there cost-effectively, meeting the huge influx of electrified transport and heating that the targets imply (while maintaining little things, like the grid stability and security that we are so used to)? That is the urgent question facing policymakers.

Can we mandate electricity markets to deliver a decarbonised grid by 2035?

The government’s Net Zero strategy includes a commitment to fully decarbonise our power system by 2035, along with other commitments around nuclear power, offshore wind and CCUS. But major questions remain about the detail of how to adapt policy and market mechanisms so that they drive the right mix of investment for a zero carbon grid. In other words, the policy framework for delivering a balanced and efficient Net Zero electricity resource mix by 2035 remains unresolved.

Active Network Management (ANM): Opportunities and risks for Smart Local Energy Systems

Local Energy Markets and Fairness: Insights for Smart Local Energy Systems

Place-based Innovation: How can Smart Local Energy Projects and Innovative Planning Support Net Zero?