Industry reacts to plans for new gas power stations and electricity market reforms

Leaders across the renewable energy industry have been responding to a plan set out by the Government which supports the building of new gas power stations, and seeks further consultation on reforms to the electricity market.

Consultation highlights 'lack of strategy and investment in clean energy'.

According to the report published by the Department for Energy Security and Net Zero this week, the ‘biggest ever reforms’ to our electricity markets could save up to £35bn over 20 years and reduce energy bills, while maintaining safe and reliable energy sources.

The second consultation on the Review of Electricity Market Arrangements (REMA) states:

“While we build out new sources of low carbon flexibility via batteries, carbon capture usage and storage, hydrogen and more….we will continue to need a limited amount of gas-fired generation as back-up, so we will extend the life of some of our ageing unabated gas assets, where that is needed for our security of supply and it safe and practical to do so.

“But new build will be required too. We will also build a limited amount of new build, traditional gas capacity, capable of providing sustained flexible capacity in the short-term, at the same time as ensuring a smooth transition to low carbon flexible generation sources in the future’.

The report claims the alternative is to ‘risk blackouts’.

Price decoupling

A number of options are also set out to future-proof the wholesale electricity market and decouple gas and electricity prices. These build on the first round REMA consultation and include:

  • Consider strengthening locational signals in the market by assessing zonal pricing and a set of alternative options
  • Consider centralised dispatch, alongside the option of a reformed Balancing Mechanism.
  • Work with NESO, Ofgem and other stakeholders to develop proposals for an electricity operability strategy for 2035.

Nodal pricing and the ‘local markets’ model are both proposed to be discounted as part of the second consultation.

The zonal pricing model would divide the wholesale electricity market into zones with different prices, in theory incentivising generation to locate close to demand and alleviate constraints on the transmission grid.

While some elements of the electricity market review are welcomed, the responses sent to our inbox this week contain little support for the continued reliance on fossil fuels.

You can read some of those views below, alongside the industry comments included as part of the Government announcement here.

‘Lose-lose for customers’ – Naked Energy

Christophe Williams, CEO of British-based solar thermal innovator, Naked Energy, said: “It is a mistake to believe that relying on fossil fuels will lead to cheaper bills and energy security. The North Sea’s gas is running out, and when it does we will be at the mercy of foreign imports and the price volatility that comes with it.

“Considering that none of the CO2 from this gas will be captured, it’s a lose-lose for customers – their bills and our emissions will go up.

“The Climate Change Committee (CCC) has said that a ‘small amount’ of gas generation without carbon capture is compatible with a decarbonised power system, but that might only be two per cent of the market (equivalent to only 15 hours of electricity a month). 

 “As renewable energy takes more of the market share, why would any private sector company invest in natural gas? Two per cent of the market is far too small a portion to encourage investment, unless it comes with significant state-backed subsidies.

 “Regardless of what happens in this year’s election, the answer is renewable energy. It makes far more fiscal sense to invest in modernising the power grid, expand wind farms on our shores and shred the red tape that is slowing down the deployment of renewable technologies. At the end of the day, this is the only way to boost our energy security and achieve our net zero targets – it’s really as simple as that.”

‘Announcement highlights lack of strategy’ – Heatio

Simon Roberts, Heatio CEO, said: “The economy is in recession and energy bills are the number one driver of inflation and the cost of living crisis. We should be focusing investment on energy security and renewable generation here in the UK, not becoming more reliant on foreign gas.

“Improving the efficiency of our ageing power stations will reduce energy consumption in the short term. Still, this announcement only highlights the lack of strategy and investment in clean energy generation, storage and a UK smart grid, which would enable the flexibility we need in both supply and demand to serve UK energy customers. 

“Further investment in, and a reliance on fossil fuels not only contradicts the Government’s commitment to net zero but, more concerningly, it highlights its belief that this will deliver greater energy security. We have seen in recent times the impact of failed government policies to decarbonise industrial and residential buildings, which has led to the energy crisis we face today directly linked to the UK’s reliance on natural gas, which is also one of the most significant contributors to soaring inflation rates. 

“In addition, further investment in fossil fuels will only lead to a prolonged period of reliance on volatile energy markets outside of our control, and UK businesses and homeowners will pay the price in years to come.”

‘Scaremongering about blackouts’ – Good Energy

Nigel Pocklington, Chief Executive, Good Energy said: “In scaremongering about ‘blackouts’ from renewables the Energy Security Secretary appears to be getting her energy policy advice from conspiratorial blog posts published circa 2010. It makes no sense to be pronouncing new gas generation when we are still recovering from the shock of the UK’s unique exposure to global gas prices. Let alone when the UK’s cheapest source of power, onshore wind, is effectually blocked.

“Meanwhile, the announcements on locational pricing have the potential to help make our energy system more fit for a lower carbon future. This is the real energy security measure announced today — more local, home grown clean renewable power brings down bills, carbon and our reliance on volatile gas markets.”

‘It’s right to progress zonal pricing’ – Octopus Energy

Greg Jackson, CEO and Founder of Octopus Energy, says: “Our ridiculously distorted energy market forces us to send electricity to France when we need it most and pay a premium to buy it back from Norway, all while paying Scottish wind farms to switch off.

“With locational pricing, customers will save hundreds of pounds a year on bills and parts of the UK will see the lowest electricity prices in Europe, attracting new industry and reducing the need for new pylons.

“It’s right that the Government is progressing zonal pricing and the energy sector must now work together to get this up and running swiftly so we can attract new industries – from data centres to manufacturing – and customers can benefit from cheaper electricity fast.”

‘Glad to see move away from nodal pricing’ – RenewableUK

Ana Musat, Executive Director for Policy & Engagement at RenewableUK, said: “Consulting on the best arrangements to underpin our future electricity markets is essential given the levels of system transformation we have seen just in the last decade.

“We are glad to see the REMA consultation move away from the concept of nodal pricing, which would have been lengthy and expensive to implement and would have provided a disincentive to investment in renewable generation.

“The consultation is still inviting views on whether zonal pricing can be feasibly introduced while maintaining investor certainty. However, given stronger locational constraints faced by projects – such as planning hurdles, including a de-facto ban on onshore wind in England or grid connections, the influence of zonal pricing on location choices will likely be limited.”

‘Renewables industry doing all it can to deliver carbon-free electricity system’ – Solar Energy UK

Gemma Grimes, Director of Policy and Delivery at Solar Energy UK, said: “While the Government has chosen to emphasise the potential role of backup gas power in its announcement today, the renewables industry is doing all it can to deliver a carbon-free electricity system.

“New, grid-scale energy storage can make this a reality by storing power from renewables, enabling us to use clean, affordable power 24/7, 365 days a year. The storage sector is set to grow leaps and bounds in the coming years, to keep pace with the renewables revolution.

“We welcome this next round of consultation on the electricity market arrangements, as we look to establish a new electricity system: renewables-based and renewables-led, with electricity prices decoupled from the price of gas, and so limiting costs to the consumer.”

What do you think of the plans? We always welcome your views here at REI. Email