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What Does The UK’s Electricity Market Shakeup Mean For Consumers?

  • The UK has launched a review of its electricity market.
  • The country’s government aims to drastically reduce its exposure to volatile natural gas prices.
  • The move would de-couple costly fossil fuel prices from electricity produced by cheaper renewables. 

Fossil fuel prices could be separated from the costs of electricity produced by renewables, radically reducing the country’s exposure to volatile global gas markets. The Government has launched a review of the UK’s electricity market, which includes a consultation on a number of proposals for reforming the sector.

This includes de-coupling costly global fossil fuel prices from electricity produced by cheaper renewables, a step to help ensure consumers are seeing cheaper prices as a result of lower-cost clean energy sources

Under the current system, gas prices often end up dictating the wholesale electricity price, because it is often the last source of supply to meet demand.

Gas prices have spiked this year – peaking at a record £8 per therm following Russia’s invasion of Ukraine – helping to drive up household energy bills to new highs.

This contrasts with all-time low prices for offshore wind of £37.35 per megawatt hour, achieved after the latest Contracts for Difference (CfD) auction that secured a record capacity of almost 11GW of clean energy – almost double the capacity achieved in the previous round, and enough to power around 12m British homes.

The ever-increasing participation of renewables in the system means over time, the Goverment believes cheaper electricity produced by renewables energy will determine the price more often.

The idea was hinted at by departing Prime Minister Boris Johnson in an interview on BBC Radio 4 last month.

This consultation will explore ways of updating this pricing system to further reflect the rise in cheaper renewable electricity – which could have a direct impact on reducing energy costs.

The Review of Electricity Market Arrangements (REMA) will seek views on how to address the challenges of higher global energy costs, the need to further boost energy security and to move the UK to a cleaner energy system.

This is increasingly vital amid forecasts that energy demand is set to at least double over the next 13 years.

Some of the other changes being consulted on include introducing incentives for consumers to draw energy from the grid at cheaper rates when demand is low or it’s particularly sunny and windy, saving households money with cheaper rates

It also includes consultation on reforming the capacity market so that it increases the participation of low carbon flexibility technologies, such as electricity storage, that enable a cleaner, lower-cost system.

Related: Biden Likely To Leave Saudi Arabia With No Oil Supply News

The consultation forms part of the government’s comprehensive review of the electricity market, first announced in the British Energy Security Strategy (BESS).

BESS significantly raised ambitions for building low carbon and cheaper-to-run technologies such as offshore wind, solar and nuclear to reduce the UK’s reliance on overseas suppliers.

Energy Minister Greg Hands said: “Today’s launch of REMA is a major step in delivering a secure energy future for Britain, putting in place the electricity market design we need to allow us to make the most of our world-leading diversity of power sources while offering more value for money for consumers.”

The price cap is expected to rise to over £3,000 per year this winter, putting increasing pressure on the Government to find ways to ease household energy bills and ensure higher prices are not baked in beyond the current crisis.

By CityAM

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Leave a comment
  • Mamdouh Salameh on July 18 2022 said:
    British government reviews whether for energy prices or any other things normally start with a flourish but end up in oblivion.

    So consumers shouldn't build great hopes on them.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert
  • John Jurasin on July 21 2022 said:
    "The move would de-couple costly fossil fuel prices from electricity produced by cheaper renewables. "

    I am an avid reader of your publication so I say this in full constructive criticism. Can anyone of you demonstrate the statement above that comes directly from your article. The following quote is equally outrageous.

    "The Government has launched a review of the UK’s electricity market, which includes a consultation on a number of proposals for reforming the sector.

    This includes de-coupling costly global fossil fuel prices from electricity produced by cheaper renewables, a step to help ensure consumers are seeing cheaper prices as a result of lower-cost clean energy sources"

    The premise of the article is that with natural gas at such high cost that renewable are cheaper. This is like saying, If you cut off water supplies to Europe by 75% the water from desalinization is a much cheaper resource for the public to buy.

    Of course the same statement can be said for all products from Lumber, i.e., if you stop any harvesting lumber is Europe, then artificially made wood is much cheaper, to most products. What the politicians are doing to their constituencies is an outrageous abdication of moral authority and a complete morass of mismanagement. One begs to ask if on purpose. Follow the money.

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