What’s REMA – and why is it important for UK businesses?
The Review of Electricity Market Arrangements (REMA) is a highly significant reform programme. It will affect the commercial, regulatory and policy aspects of the UK power industry, and could have a fundamental impact on all power consumers.
In fact, it’s the most complete review of the GB power market since the early 2000s. That period saw the introduction of the New Electricity Trading Arrangements (NETA) and British Trading and Transmission Arrangements (BETTA).
The aim of REMA is to ensure the wholesale electricity market, and its associated policies, ancillary services and balancing operations, are all suited to delivering a net zero future. While current market arrangements have successfully delivered the early phases of power sector decarbonisation, the government believes the market needs changing to be fit for the future. This is due to the importance of delivering on the country’s decarbonisation ambitions while also ensuring affordability and security of supply for consumers.
These competing priorities have long been termed the ‘energy trilemma’. Can we minimise costs while supporting the transition to a sustainable, low carbon future – and ensuring UK energy security? The intention of REMA is to enable all three, by revising the market arrangements to reflect its changing dynamics - more locationally constrained, becoming more decarbonised and less centralised.
What’s more, a fundamental question underpins the REMA programme. Will the predicted system benefits of the proposed changes outweigh the costs (and the time and trouble) that’s likely to be involved in implementing the reforms? Although we can’t answer that, we can look at why electricity market reform is happening now, and what might be changing. We’ll also consider how those changes might affect the country’s businesses and other organisations.
Why change now?
One of the cornerstones of the GB energy system is the presence of a single national price for wholesale electricity. Even so, it’s one of the key features of the current arrangements that the government’s thinking about changing (to a zonal pricing model). That’s because it questions whether or not the existing approach results in the most efficient operation of the system and the cheapest outcomes for consumers.
Finances are crucial. With the system increasingly congested in certain areas, the country’s spending billions of pounds a year on managing network constraints by getting generators to turn on/off, up or down. This is one of the challenges REMA hopes to address, while also delivering a more cost-effective solution for energy users.
The fact that intermittent renewable sources like wind and solar now play a much bigger role in the electricity system is a key factor. While this evolution delivers greener energy, it also makes it harder for the National Energy System Operator (NESO) to keep demand and supply in balance. Accordingly, certain generation assets, storage technologies and demand side response (DSR) schemes all need to be capable of responding quickly and flexibly.
The transition to wind (and, to a lesser extent, solar) has seen a growing number of power stations being deployed at the geographical edges of the existing system. These deployment areas include the North Sea, the coastline, and the generally wild and windy parts of the country.
In addition, the UK has increased its interconnectivity with Europe, as a means of sharing resources and improving the availability of capacity. With a higher number of renewable power sources now part of the nation’s energy system, we’re using less gas than we did in 2010 (or even 2018).
Increasingly then, gas is transitioning from being a source of baseload power to being a back-up resource the system relies upon when it’s needed. One of the negative impacts of this situation is environmental: gas is a fossil fuel. The economic downside is that, as the ‘marginal plant’ being brought online on many occasions, gas often sets the single national electricity price. This has proved expensive in recent years – particularly since the Russia-Ukraine conflict caused gas prices to rise dramatically.
Having more renewable power on the system also presents a significant challenge in terms of infrastructure. As NESO has stated: “Around four times as much new transmission network will be needed in the next seven years as was built since 1990”.
To help overcome this issue, the Transmission Acceleration Action Plan aims to halve the timeline for building new transmission network infrastructure from 14 to 7 years. If successful, this will help to save money as well as time, since doing nothing will mean delays continuing and – probably – causing annual constraint costs to rise.
In 2023, NESO (then known as the Electricity System Operator, ESO) published its analysis. It suggested these costs may go up from around £2 billion per year (£80 per household annually) in 2022 to £7-8 billion in the late 2020s. Given this timeline, it’s encouraging that the end of the policy design phase is close. In summer 2025, we’re expecting the government to provide a high-level outline of some of its key decisions.
What reform options are available?
Since pretty much every aspect of the GB electricity system is on the table for discussion, it’s easier to start by explaining what’s not in scope. The industry expects the Contracts for Difference (CfD) and Capacity Market (CM) schemes to stay (although with changes to the detail likely – see below). As now, both will be integral to delivering a net zero system.
At the second (and most recent) round of the REMA consultation in March 2024, the following options were still under consideration:
Why do businesses care?
With the exact date of the Government’s REMA announcement still unknown, there’s still uncertainty across the industry and amongst business customers.
In the industry, generators and suppliers (Drax occupies both camps) need clarification as soon as possible to function efficiently and cost-effectively. Those with generation assets need to understand how much their power is likely to be worth in the future, both for existing assets and potential investments. For assets that use biomass or gas, their planning includes securing the feedstock they’ll need (well ahead of when they need it). It may also involve working out when they can schedule maintenance and outages.
Suppliers will already be making similar predictions about how much electricity they’ll need to buy (to ensure they can meet demand) and how much it will cost. Suppliers crucially need certainty on price so they can offer fixed-price, fixed-term contracts to consumers . For business suppliers handling the needs of energy intensive industries (EII) and other high-demand organisations, these calculations can account for contracts lasting many years. In addition, power purchase agreements (PPAs) and corporate PPAs (CPPAs) tend to go beyond even these timeframes, making the uncertainty even more impactful.
Investors considering whether to back renewable power also need clarity. While they remain uncertain, they’re likely to stall their investments – further hindering the transition to a net zero energy system and economy.
Like all the players in the industry, and our customers, we look forward to gaining clarification and certainty about REMA very soon. Once we have it, we’ll be compiling and releasing new Intelligence content to help you make sense of it all.
For more insights into the UK energy market, look at our Intelligence articles.
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