This week’s headlines about the Department for Energy Security and Net Zero’s Review of Electricity Market Arrangements (REMA) concentrated on one aspect of the project: the role of gas in the next ten years of electricity supply. Behind those headlines, the launch of phase two of REMA contains a lot of significant detail that will have far-reaching implications as the electricity industry decarbonises. We are particularly pleased to see the important role that flexibility will continue to play in supporting the electricity system, with estimated need of up to 105GW of combined flexibility forecast for 2035.
Flexitricity has taken part in the ongoing, sometimes heated market reform debate across the energy sector, and we commend UK Government for driving forward this complex project. By discounting certain options and committing to further assessment of others, we are gaining much-needed clarity as to how investors and flexible energy users can begin to plan for the near future. We will continue to champion solutions which promote secure and cost-effective pathways to net zero by unveiling the true value of whole-system flexibility.
A Cost-Effective Pathway to Net Zero
The big positive from today’s announcement is a commitment to increase renewable generation at pace. The foundation of net zero is obviously the ability to generate large volumes of green electricity. If organised well, wind and solar are capable of decarbonising a lot of the economy.
It seems reasonable to enable this by building upon well-established and effective mechanisms, including a future-proofed Contracts for Difference (CfD) scheme. As the first demand response provider to enter the Capacity Market (CM) and having held contracts for every delivery year, we particularly welcome the commitment to retain and improve the CM. Flexitricity and our customers expect to work closely with Government to achieve their design principle of explicitly encouraging more flexibility in the Optimised CM.
The Effective Storage of Green Power
The questions which Government is still wrestling with in this consultation are about how to most efficiently get that green power to where it can be used, and how to balance the ebbs and flows of naturally-varying renewables. One of the suggestions for addressing the transport problem uses prices that vary from place to place, so that a consumer close to wind or solar farms would see lower prices than someone in the centre of a large city, on the basis that it’s easier to get the electricity to the first consumer than the second. There’s debate around how much effect this would have on where people might choose to build a factory, for example. There are obvious reasons why wind farms are where they are, but now that offshore wind is a mainstream technology, it’s a little easier to favour locations closer to demand in southern England.
However, there’s one thing about geographically-varying pricing that is clear: it has the ability to affect when people consume if they are in an area with lots of green energy. If prices drop when it’s windy, that’s when you’ll charge your car, top up your heat store or max out production in your factory. This works much better when prices vary from place to place, because the value in doing this is greater when you’re closer to the wind farms or solar farms.
Government has ruled out the most granular version of this, discounting the ‘nodal’ option. We think this is a pragmatic decision. However, geography still features in the two options that are still on the table: a zonal market, with around a dozen different prices across GB, or a tweaked version of our current single national price. Either has the potential to advance something Flexitricity has been working on for some time: rewarding customers for using renewable energy when and where it’s available. We don’t need to wait for REMA to do that, but a good outcome from this review could turbocharge this project.
Balancing Flexible Demand
That leaves balancing. We’ve always believed at Flexitricity that customers who can flex their demand should be at the heart of electricity balancing, so we’re delighted by the urgency in the consultation around accelerating progress to support market-based deployment of flexibility. Low-carbon flex technologies such as demand response and energy storage need fair market access so that they can compete day-by-day and hour-by-hour with fossil fuel. That’s not fully secure yet. We will support the announced investigation of barriers for co-located assets, while advocating that every market distortion between fossil fuel assets and flexible assets needs to be tackled.
The importance of ramping up deployment of non-gas technologies which can ensure a secure and reliable system that avoids blackouts has been made clear, and understandably this has been the focus of mainstream responses to the REMA publication. Emerging technologies like some long-duration energy storage systems need to be supported through their technology development so that they can move into the truly competitive phase of their technology life cycle. This is what solar, offshore wind and lithium-ion batteries all did, each in their time confounding their sceptics, and each now saving all of us a great deal of money by slashing the nation’s gas bill.
As we reach the end of coal power in GB, the next decade of decarbonising electricity principally means burning less gas in large power stations to produce it. Gas still generates around 40% of the electricity that we use, so there is work to do to progressively move fossil fuel power stations into more of a security and stability role. There has been some good progress on that in recent years, but there’s more to do. Government should make sure that low carbon flexibility competes on level terms with other sources. Today’s announcement doesn’t give much detail on how that will be achieved, so we will be working with them and others to develop that detail and move GB towards a true net zero system. It can be done.
There are some dangers for Government in this next stage of REMA, and some opportunities. We intend to be fully engaged throughout, speaking up for small, distributed resources, energy storage and flexible energy users and looking for a solution that secures electricity supplies at lowest cost and delivers net zero.