Do Britain’s power markets and policies need to change?

Researchers from Imperial College London say the UK’s electricity market needs gradual reform, not radical changes, to accommodate renewable energy.

Over the last decade the amount of renewable energy on the UK grid has increased fivefold, and last year provided over a quarter of the electricity used in Britain. In the middle of this revolution the UK’s Energy Act 2013 introduced a set of arrangements known as Energy Market Reform (EMR). But are these changes enough to provide long term support for renewables and create a low-carbon energy system?

Energy Futures Lab’s new Briefing Paper, Electricity markets, incentives and zero subsidy renewables, looks into this question, investigating the strengths and weaknesses of the existing system and critically compares them to new proposed arrangements.

“There has been talk of a complete rethink of how our energy system works, but we weren’t sure what the evidence was for these ideas or their benefits compared to the status quo,” says Dr Aidan Rhodes, lead author of the report, “Massive changes could bring uncertainty but we wanted to know if maybe it might be worth an overhaul or even just a re-evaluation of the current schemes.”

EMR was introduced in 2013 but it was not till late 2017 that some of the key provisions of the Act began to take effect. The cornerstones of the legislation, the Contract for Difference auctions and the Capacity Market, have clearly met their objectives. The CfDs have allowed for a base price that has kept renewables competitive and the Capacity Market has secured the power needed to meet peak demand at costs much lower than expected.

Change does need to happen, EMR can only do so much, but let’s not throw the baby out with the bathwater but keep what works and change what doesn’t. Dr Rob Gross Director of Policy, Energy Futures Lab

However the industry has started asking whether these current arrangements are sustainable or if they can continue to drive down the UK’s carbon emissions. This has led to various suggested changes, some more radical than others, from splitting up the domestic and wholesale markets to full blown renationalisation. There are also the questions around how we can build more renewable generation and fund it.

However the report comes to the same conclusions around both of these questions. Fundamental, or radical, changes are not needed and would lead to substantial disruption. The team behind the paper do recognise that changes will be needed but a slower evolution with iterative changes will benefit all stakeholders from consumers and investors to asset owners and energy providers.

“We believe that EMR has been very good for the UK’s energy system, helping transition away from our old 20^th century electricity grid to something more suitable for a low-carbon sustainable world,” says Dr Robert Gross, co-author of the paper, “Change does need to happen, EMR can only do so much, but let’s not throw the baby out with the bathwater but keep what works and change what doesn’t.”

The report was launched at an event last night featuring a panel discussion with experts and stakeholders within the energy sector.

You can download a copy of the report as a PDF from the Energy Futures Lab website.