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The Government is set to publish a long-awaited consultation paper on proposals to reform the UK’s electricity pricing system to help meet climate change targets and reduce costs for businesses and households.
Energy Security and Net Zero Strategy Claire Coutinho Coutinho will speak in central London later today to highlight a range of proposals set out in the government’s second round of consultations on the Review of Electricity Market Agreements (REMA).
The report is expected to be confirmed after extensive consultation, with ministers hoping to establish a regional pricing system with wholesale prices varying across the country based on local energy supply and demand levels.
Currently, the UK energy market operates on a marginal pricing system, meaning that all generators receive the same price for the electricity they sell at any given time. The spot price, or “marginal” price, is set by the cost of the most expensive megawatt to be procured. This has been set by fossil gas plants for years as the costs of solar and wind projects have plummeted.
The regional pricing system proposed by the government today is designed to encourage the development of renewable energy projects in more optimal locations across the country, reducing the need for costly and controversial pylon projects. , it is possible to minimize the payment of a restriction fee that is payable if a renewable energy power generation company does not export electricity during the period. when supply exceeds demand.
The Department of Energy Security and Net Zero (DESNZ) said REMA reforms could reduce the average annual energy bill for households by £45 by better matching local energy supply and demand. The reform will also encourage further development of renewable energy in the South East, where demand is highest, and bring more energy consumers such as factories and data centers to Scotland or the South West, where surplus renewable power and energy is available. It is also expected to encourage the establishment of Therefore, the cost is lower.
In a speech at think tank Chatham House, Coutinho is expected to extol the importance of Britain gaining greater domestic control over electricity prices at a time when energy supplies are being weaponized by foreign governments.
“If we cannot maintain control over energy prices and protect our families and businesses from the threat of future shocks, then we are not truly safe,” Coutinho is expected to say. “So we have to think hard about the future of our energy system. We have to put national interests ahead of ideology.”
Octopus Energy founder and CEO Greg Jackson welcomed plans to move the UK to a regional pricing system. He said: “Regional pricing can save customers hundreds of pounds a year on their bills, with some parts of the UK now having the lowest electricity prices in Europe, attracting new industry and reducing the need for new towers. “There will be less sex,” he said. “The government is right to move forward with regional pricing, which will help the energy sector attract new industries from data centers to manufacturing and help customers quickly benefit from cheaper electricity. We need to work together to do this quickly.”
The proposal was also welcomed by Kisha Couchman, deputy director of trade body Energy UK. “Energy systems have continued to undergo major changes in recent years, with increased electricity generated by diverse clean energy sources and the increasing role of flexibility,” she said. “We welcome the Government’s drive to ensure the electricity market is fit for the future and attracts the billions of pounds of investment needed in generation, storage and network infrastructure.
Energy Systems Catapult CEO Guy Newey said improved location signals would bring “huge benefits” to ratepayers and businesses driving the energy transition.
“It is becoming increasingly clear that the only way to reach a net-zero electricity system in time, without raising prices, is to move to a market that reflects local supply and demand,” he said. Stated. “Through zonal pricing and a strong push for smarter energy systems, it is an important step forward for the government to propose stronger location signals in wholesale markets. It is unfortunate that nodal pricing will be excluded. , Improving location signals will result in significant benefits for businesses.” Opportunities for consumers and innovators. ”
However, some renewable energy developers say the proposed reforms will discourage investment in new projects, as wind and solar power developers may face more volatile prices. It warns that there is a possibility of inadvertent damage.
Anna Moussat, executive director of policy and engagement at RenewableUK, told ministers: “We need to understand how the introduction of location signals will impact on investor confidence and how it may interact with other policy constraints. He urged them to consider it.
He said: “At a point when around 10GW of renewable energy needs to be installed each year until 2035, a move away from national pricing could discourage investment, raising the cost of capital and reducing the overall attractiveness of the UK market. There is a possibility that it will decline.” “Furthermore, the effectiveness of location signals will be significantly limited by resource availability and planning constraints. For example, under the regional system, developers will be able to create onshore wind farms around London and the South East. onshore wind power continues to be introduced in the UK. It should be a priority.”
REMA reforms will also include a number of provisions aimed at securing investment in new fossil gas plants as the grid becomes increasingly renewable-based.
Commenting on the plans, Chancellor Rishi Sunak said: “Our record on net zero speaks for itself. The latest figures show that greenhouse gas emissions are 50 per cent down since 1990 and we are already on target. “We’re halfway there. But we need to get there.” We will achieve our 2035 goals in a sustainable way that does not leave people depleted of energy even on cloudy, windless days. ”
DESNZ says the reforms will help ensure the delivery of new fossil gas power plants, but that their construction will be “net zero ready”, meaning that they will not be able to incorporate carbon capture technology or run on hydrogen in the future. He said it will be constructed in such a way that it can be converted and converted.
In his speech, Coutinho is expected to emphasize the importance of fossil gas to the power grid over the next decade. “Without gas to back up renewable energy, we face the possibility of serious blackouts,” she is expected to say. “Other countries have been so threatened by supply constraints in recent years that they have been forced to return to coal.
“There are no easy solutions when it comes to energy, only trade-offs. If countries were forced to choose between clean energy and keeping their people safe and warm, we believe they would choose to keep the lights on. please.”
However, Jess Ralston of the ECIU think tank questioned the government’s decision to frame the construction of new gas plants as an energy security measure, given that fossil gas prices are set internationally. did.
“It’s really ironic that the Secretary of State is announcing the construction of a new gas power plant, yet suggesting that we won’t be safe as a country unless we can control energy prices,” she said. “Anyone who has paid their energy bills over the past two years knows that the UK does not control the gas prices we pay, the international market determines them.”
Mr Ralston said the government was currently missing out on many opportunities to strengthen the UK’s energy security by reducing exposure to fossil gases. “Unless demand is reduced, the North Sea will continue its inevitable decline, with or without new licenses. We will become increasingly dependent on foreign gas,” she said. . “The UK is taking a step back on energy security because the government has fumbled the latest bid for UK offshore wind farms, bungled home insulation schemes and fumbled with heat pumps.”
Juliet Phillips, head of the UK energy program at think tank E3G, said: ‘The UK continues to experience rapid growth in renewable energy and is on track to become a leader in clean power by 2030. Policy failures in Congress have led the government to miss opportunities such as building a complete offshore wind pipeline, improving energy efficiency, and addressing connectivity time inconveniences, all of which are new today. It means the announcement of a gas plant, with future deployments of green hydrogen and CCS to maintain the UK’s clean power leadership. Permanently halting imports of volatile fossil gases requires more political focus on often overlooked power solutions such as long-term storage and demand-side flexibility.”
The reforms also come after last week’s Budget did not provide clarity on when support for expanded pipelines of carbon capture and storage (CCS) projects would be completed. This came days after he expressed his disappointment.
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