On Tuesday 12 March, the government published its long-awaited second consultation on the Review of Electricity Market Arrangements (REMA). Included in the second consultation is the government’s further consideration of a zonal pricing market in GB. This would introduce different wholesale prices in different zones across GB. DESNZ commissioned modelling considers that introducing zonal pricing could reduce the cost of running the electricity system in the region of c.£5-15bn over 2030-2050, and that consumer benefits could be in the region of c.£25-60bn over the same period. As an alternative to zonal pricing, DESNZ is also considering whether network charging reforms could deliver the required locational signals as well as some locational changes to the Capacity Market (CM) and Contracts for Difference schemes. The government is also considering whether a more granular settlement period is needed (i.e., less than 30mins); whether centralised dispatch alongside a reformed Balancing Mechanism would be beneficial and how these changes may impact market liquidity. The government also intends to retain the CM as its capacity adequacy mechanism, but with further changes. The preferred direction of travel is to introduce a minimum procurement target (‘minima’), into the CM (called an ‘Optimised CM’) as an enduring mechanism for supporting investment and deployment of low carbon flexible technologies. The consultation is open until 7 May 24.
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