Eon calls for wholesale market reform by 2029

Eon is calling on the next government to implement reforms from the Review of Electricity Market Arrangements (REMA) within the next five years to avoid an investment hiatus.

The supplier warns that failing to implement reforms before Labour’s 2030 grid decarbonisation target will have detrimental impact on investment.

In its response to the House of Commons energy security and net zero committee’s inquiry into economics of energy – which has been suspended following the dissolution of Parliament for the upcoming general election – the supplier expresses concern that the government has retained a number of “radical” wholesale market reform options in its latest REMA consultation.

These proposals, such as zonal pricing and cutting settlement periods to five minutes, would require long periods to consult on and implement.

This means it could take “more than five years to deliver new arrangements to take effect”, Eon says.

The government said in the REMA consultation that zonal pricing would take five years to deliver but international experience suggests that such a major reform will take longer, industry sources have countered.

The introduction of new wholesale market arrangements must be settled and delivered in the next Parliament, which could be up to five years and will end before Labour’s target grid decarbonisation date of 2030, Eon says: “Waiting longer than that will result in an investment hiatus and that is time that we simply do not have.”

Overall many of the ingredients required to fulfil REMA’s objectives of are already in place in the wholesale market, it says: “Improving on the current framework as opposed to scrapping it and moving to a completely new set of arrangements is not only our clear preference but given the timelines involved, is more likely to be a successful strategy for delivery.”

Eon’s call for  incremental reforms of the wholesale market are backed up by other companies in their responses to the committee.

SSE warns that radical changes, like introducing zonal pricing, will “disrupt” the ability of the UK to deliver accelerated targets for decarbonising the grid while ensuring security of supply.

The listed network operator and generation company instead calls for REMA to focus on incremental reforms to Great Britain’s electricity market arrangements.

And Centrica says that the electricity market  doesn’t require a radical overhaul and that “measured, strategic reform” is preferable. It calls for existing mechanisms, like Contracts for Difference and the capacity market, to be incrementally reformed rather than overhauled.

A package of such measures, also potentially including reforms of interconnector dispatch and the balancing mechanism, could be implemented faster than zonal pricing, says National Grid

“Reforms introduced sooner offer the greatest benefit by alleviating existing constraints,” it says.

Energy UK says that while the retail market must change fundamentally, this doesn’t require “root and branch” regulatory reform of wholesale arrangements.

But Energy Systems Catapult counters that radical reform of the UK energy market will be necessary to deliver the “transformational change and the level of innovation” required to deliver the government’s 2050 net zero goal.