Market reforms could shield consumers from high electricity bills
“Unprecedented opportunity” to help lower energy bills, says Cornwall Insight
20th century electricity market must be updated for the 21st century
Reforming electricity market essential to lowering bills and carbon emissions
Policy uncertainty could hamper energy investment
Reforming the electricity market is essential to delivering a cost-effective, stable, net zero-ready energy system, according to a new report published today.
The document from leading energy market experts Cornwall Insight urges the government to change the way electricity is transmitted and sold, to encourage investment and reduce the risk of higher energy bills.
The report warns that with investors expecting significant changes in the electricity market, delays to policy action could result in a pause in investment, as investors wait for any changes to be announced and implemented. This could raise the cost of capital and ultimately feed through to consumer bills.
Coming after a series of U-turns on net zero policies last month, the report urges decisive, clear and consistent policy on electricity pricing in order to give investors confidence.
The Government is currently contemplating several changes to the electricity market, under their Review of Electricity Market Arrangements (REMA) proposals. These include a shift to Locational Marginal Pricing, whereby some consumers could see lower electricity bills if they live near to where significant amounts of energy is generated. A second option would split the electricity market into two categories – electricity produced from fossil fuel gas and much cheaper renewable electricity. Other proposals include introducing new incentives for encouraging flexibility in electricity generation and storage so that the grid can be more responsive when demand is high.
Delivering reforms could significantly reduce the risk of future energy price shocks by creating a more stable energy market, attracting investment, lowering the cost of capital and stabilising bills.
The report was commissioned by net zero charity the MCS Foundation, who want to see a rapid movement towards reducing the price for consumers of renewable-generated electricity compared to gas. The MCS Foundation says that achieving this will help incentivise the take-up of heat pumps as part of the shift away from fossil fuel heating for millions of British homes.
David Cowdrey, Director of External Affairs at the MCS Foundation, said: “Our current electricity system was fit for the fossil fuel-powered 20th Century, but not for the renewables-powered 21st. We need rapid action from Government to implement reforms that will help unlock renewable generation capacity, get energy to homes and businesses in an effective way, and bring down bills permanently.
“This report from Cornwall Insight sets out the options available to Government and makes clear the need for urgent action.”
Kate Mulvany, Principal Consultant at Cornwall Insight said: “The government has been looking to reform the electricity market for some time, but plans are progressing slowly. It is vital we do not miss this unprecedented opportunity to build an electricity market which embraces renewable generation, encourages investment, and will help stabilise electricity bills for households and businesses alike.
“We cannot turn the clock back to a pre-energy crisis world, but there are a number of options available to build a renewables-based energy system which embraces the changes we have seen. By taking proactive steps to reshape electricity policy, we can build a system that delivers security of supply and value for money for generations to come.
Simon Francis, coordinator of the End Fuel Poverty Coalition, commented: “Reform of electricity pricing is the missing piece of the jigsaw when it comes to creating a clean, secure energy supply for the future.
“While there is no doubt that it is a complicated issue, the goal must be to pass through the cheaper cost of renewables to customers as quickly as possible in order to bring electricity bills down.
“Once we have this breakthrough, we will then be ready to see an explosion in demand for heat pumps which will not only clean up our energy system, but also break our dependence on imported fossil fuels.”