An introduction to REMA

The second Review of Electricity Market Arrangements’ (REMA) opened on Tuesday 12 March 2024.

The Review of Electricity Market Arrangements’ (REMA) was launched in 2022 as a major review into Britain’s electricity market. The summary from the first review was published in March 2023 following the feedback and responses from 225 electricity market participants and stakeholders.

*REMA vision:

• To deliver a step change in the rate of deployment of low carbon technologies, and reduce the UK’s dependence on fossil-fuelled generation
• Provide the right signals for flexibility across the system
• Facilitate consumers to take greater control of their electricity use by rewarding them through improved price signals, whilst ensuring fair outcomes
• Optimise assets operating at local, regional, and national levels
• Ensure that the security of the system can be maintained at all times

*Source: Review of electricity market arrangements – GOV.UK (www.gov.uk)

Second REMA Consultation

A clear message delivered during the launch of the second consultation is how vital it is in supporting the Government’s plan of delivering a fully decarbonised electricity system by 2035.

Launched by the Department of Energy Security and Net Zero (DESNZ), the purpose of the second consultation is to further progress the outcome from the first consultation, published in the summer of 2022. Of which, feedback from stakeholders offered a clear indication that there are limitations and issues within the energy market which will ultimately fail to deliver the 2035 target.

*The second consultation is structured around the four key challenges:

1. Passing through the value of a renewables-based system to consumers
2. Investing to create a renewables-based system at pace
3. Transitioning away from an unabated gas-based system to a flexible, resilient, decarbonised electricity system
4. Operating and optimising a renewables-based system, cost-effectively

*Source: Review of Electricity Market Arrangements: second consultation (publishing.service.gov.uk)

Consultation content

There has been several alterations and options amended to the consultation process for the second consultation. This was following the feedback from stakeholders, with a view to creating a more specific set of proposals and options.

The REMA options are set out against five criteria listed below. These have been amended following feedback from the first consultation, and are to assist REMA in achieving their objectives of decarbonisation, security of supply and cost-effectiveness:

1. Value for money (previously ‘least cost’)
2. Deliverability
3. Investor confidence
4. Whole-system flexibility
5. Adaptability

Zonal Pricing

One of the main suggestions in the consultation proposes a shift towards zonal pricing within the existing Contracts-for-Difference (CfD) scheme. Both zonal pricing and nodal pricing were the options presented for a locational pricing system within the first consultation. However, following stakeholder input, it was made apparent that the zonal pricing was preferred, as overall it offers more efficient and flexible system, and reduces consumer bills.

The proposition will mean that generators will receive different rates based on where their power generation is located and how close it is to their consumers. With closer generators being able to provide lower costs to the consumer, the proposal will potentially save British household’s millions on their energy bills.

What is zonal pricing?

Zonal pricing, also known as regional pricing, is when electricity costs differ regionally. The transmission system is split into pre-determined geographical regions (‘zones’).

Key dates and milestones

The consultation responses will be summarised this summer. Following the completion of the policy development, (expected to be mid-2025), full-scale implementation will be from 2025 onwards.

Second REMA Consultation responses are required by 11:59pm on 7 May 2024.

Conclusion

It’s clear that further evidence and analysis is required in order for REMA to implement the necessary policies and arrangements to achieve their vision. This next phase they will be working closely with the ESO (Electricity System Operator), Ofgem and other stakeholders to develop the proposals for an electricity system operability strategy for 2035.

We’ll be following this subject closely and sharing updates within future blogs. Share your thoughts on the second REMA consultation or any other energy-related matters with us via email at [email protected].

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