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Sustainability First responds to REMA consultation

On 3 October, Sustainability First published its response to BEIS’s Review of Electricity Market Arrangements (REMA) consultation.

It notes that the consultation sets out a well-made case for change but raises questions around the end-user impacts of REMA and potential risks which need to be better understood. As such, it suggests that a sixth criterion is added to assess the REMA options – “that likely outcomes for end-users are broadly ‘fair’ or ‘equitable’” – and that a REMA End-User Forum should be established to ensure that end-user voices are heard through the REMA process.

On the issue of REMA leading to cost reflective signals, the response states: “How these sharper economic price-signals – for peak, for periods of scarcity and plenty, for location – eventually pass through to end-users are of fundamental importance. We welcome encouragement of greater end-user flexibility to support lower overall system costs. But, at the same time, winners, losers and significant distributional impacts will arise”.

There are a several high level points which are put forward in the response:

  • REMA has major end-user impacts which will be baked-in via highly technical market-design decisions.
    • For end-users the different REMA options signify not just opportunity but also many potential risks which need to be far better understood.
  • REMA has major cost-implications yet to be understood – including for end-users.
    • The response agrees that a main and urgent REMA outcome is to decouple gas price-setting from renewables in electricity wholesale markets and so drive down average wholesale prices. In addition, informed discussion around the expected REMA costs and benefits and when to expect a draft impact assessment as well as how far new / additional costs and subsidies are best met by end-users (current, future) and/or by tax-payers is very important.
  • The BEIS vision for end-user outcomes in REMA acknowledges ‘winners’ but gives scant attention to potential ‘losers’.
    • Far more thought is needed as to how different industry costs and charges might flow through to end-users via retail tariff structures, who the likely winners and losers might be in particular and associated distributional impacts. These are first order questions which cannot simply be left to the Retail Strategy.
    • It is hard to see how the sheer complexity and / or likely post-code lottery of nodal pricing can be justified from an end-user standpoint, especially if nodal prices are to be applied to customer demand as well as to generation.
  • The approach adopted in REMA raises basic questions of principle – including for end-users.
    • The proposed End-User forum is seen as playing a useful part in helping BEIS & Ofgem to factor-in end-user interests as they develop their own thinking around these major in-principle decisions.
  • The REMA process and consideration of REMA options must tie directly and transparently to real-world end-user outcomes in retail markets.
    • At the end of the day, practical and deliverable outcomes for end-users – whoever they are and wherever they are located – will make or break the REMA reforms in delivering a net zero power system by 2035.

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