AFRY publishes report on Great Britain electricity market reform
AFRY Management Consulting has published a report summarising options for electricity market reform in Great Britain.
The report, which has been informed by a wide range of market participants, outlines a number of market design options with increasing degrees of change compared to the current market design. The work was initiated in response to the electricity transmission operator National Grid’s programme for net zero reform, and the Review of Electricity market Arrangements (REMA) process, which was launched by BEIS in July 2022.
While further analysis will be undertaken in Phase 2 of the study, evaluation of a range of potential market designs indicates that evolutionary rather than revolutionary solutions appear more credible in delivering a decarbonised power sector by 2035.
On electricity market reform to achieve a fully decarbonised power sector in Great Britain, AFRY Management Consulting concludes:
- While there is a case for change, existing arrangements have had significant success in delivering decarbonisation and radical change is likely to deter the necessary investment.
- All credible decarbonisation visions require centralised long-term contracting for renewables and flexible capacity, at least until 2035.
- A necessary feature of any revised market arrangements will be improved operational efficiency within the wholesale energy and flexibility markets, particularly in the intraday period.
- In the long-term, a world of state-backed long-term contracts is unlikely to be a desirable final position, and a pathway will be needed to encourage more forward contracting, retail innovation and market-led investment.
AFRY Management Consulting also notes that electricity market reform alone is not enough; action is also needed in network investment, planning policy, retail markets, and in related areas such as carbon capture and storage as well as hydrogen infrastructure to meet the UK’s decarbonisation goals.
This seminal piece of work is available to help guide policy makers as they grapple with what is a difficult set of challenges. There are, as always, no easy answers in market design, and all options have both positives and negatives. What we feel is critical at this juncture is that we do not harm the prospects for much needed investment in all forms of needed capacity as we look to tackle the urgent challenge of climate change
says Stephen Woodhouse, Director at AFRY Management Consulting and market design expert.
In the next stage of the work AFRY will be undertaking further detailed quantitative analysis to assess various options for market reform.