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Posted 2 years ago | 3 minute read
UK power sector needs flexibility focus, says Energy UK
The UK’s electricity sector is in a process of profound transition, but reform of the wholesale market could improve efficiency and minimise system costs, according to a report from industry body Energy UK.
Published on 15 July, the report noted that as the UK seeks to continue to transition the energy sector towards net zero, electricity demand is expected to increase by more than 50% by 2035. Creating a power sector that can produce only clean electricity by the middle of the next decade, subject to security of supply, will require significant private sector investment in both generation and network infrastructure.
To deliver a secure, reliable, and net zero energy sector the market must deliver:
- A dynamic energy system that incentivises flexible technologies, which will be crucial to ensuring the country makes the most efficient and cost-effective use of its generation. But the report raised concerns that the current framework does not incentivise sufficient investment in – and development of – these technologies. According to Energy UK, solutions can be found in a rapid acceleration of investment in battery technology, demand-side response, green and blue hydrogen, pumped hydro storage, and interconnectors. But reforms will be needed to a wide range of existing markets such as the Balancing Market, Ancillary Services, and other markets run by the Electricity System Operator to maximise flexible assets’ participation. Changes are also required to the Capacity Market (CM) and Contracts for Difference (CfD) mechanisms to encourage flexibility across the value chain of the power sector.
- A rapid expansion in generation capacity. This includes a continuing role for the CfD and CM mechanisms but with evolutionary changes to ensure they remain fit for purpose in a net zero future
- Reduced future system costs. According to the report, reform of the wholesale market could improve efficiency and minimise system costs. This could first be achieved by incremental changes, such as to charging, while carefully assessing the evidence for longer-term reform such as locational pricing.
GridBeyond Managing Director UK and Ireland Mark Davis said:
“To meet our net zero and energy security targets, the UK faces a complex challenge. The combination of increasing levels of variable renewable generation and the closure of thermal power stations, has resulted in a system that is becoming less flexible, and will be less able to manage day-to-day variation in supply and demand patterns. If the UK’s decreasing flexibility is not addressed, the result will be higher bills, and a more expensive, less efficient, energy transition.
“The government, regulator and wider industry have already recognised the importance of flexibility in delivering a secure net zero energy system at lowest cost to consumers, while ensuring security of supply. It is vital that as the government works through the Review of Electricity Market Arrangements (REMA) it ensures that market and charging arrangements correctly reflect the value and costs of flexibility. This requires incremental reform of pre-existing policies to enable a level playing field for all technologies that have historically provided flexibility services and GridBeyond is working with the regulator to achieve this.”
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