Industry ‘vested interests’ are blamed for REMA dilution

Fuel poverty campaigners have blamed “relentless and well-funded lobbying” by industry for the government’s REMA (review of electricity market arrangements) proposals being “drastically watered down”.

In its response to the House of Commons energy security and net zero committee’s inquiry into energy economics, Fuel Poverty Action (FPA) criticises the government’s failure to deliver REMA.

It is two years since the initial consultation on REMA was published and the second round of consultation, which only concluded last month, ruled out more radical reform proposals, such as introducing nodal pricing and breaking up the wholesale market to create a bespoke green power pool.

The FPA said the government had failed to deliver radical reform of the energy market. It added: “There is relentless and well-funded lobbying from the energy industry to resist change and protect profits. This has led to a lack of progress by government and Ofgem.”

The campaign’s response identifies the “powerful influence of vested interests in the energy industry” as a key barrier to electricity market reform.

It says the government has struggled to resist the demands of the “enormously profitable” industry, partly because it relies on the same firms for investment in the UK’s energy infrastructure.

These powerful industry lobbying efforts, it said, have led to REMA being “drastically watered down”. It adds that the axing of the more fundamental reform options in the initial REMA consultation is “hugely complacent” and leaves customers very exposed to future gas price spikes driving huge increases in electricity prices until generation from renewables projects or Contracts for Difference projects builds up.

As a result, the response says it is critical to act urgently to break this “dangerous and damaging link”.

A host of energy companies warned that the government’s more radical reform proposals in REMA, particularly the introduction of nodal electricity pricing, would lead to an investment hiatus and drive up the cost of capital for energy projects with knock on consequences for the timing of efforts to decarbonise the UK grid.

Companies and industry bodies said in their responses to the committee’s inquiry, which has been suspended following the dissolution of Parliament for the upcoming general election, that the government should steer clear of a radical reform of the electricity market.

But the Energy Systems Catapult (ESC) says radical reform in the UK energy market is “necessary to deliver the scale of transformational change and the level of innovation required by net zero”.

It says the government’s latest set of proposals in the REMA consultation document is “insufficiently future-proofed” and the more incremental reforms to current arrangements leave major issues unaddressed.

The response urges the government to push ahead with zonal pricing, which should be adopted and implemented in a way that allows for the introduction of the more granular nodal approach to locational pricing.

The current and more incremental approach to REMA is likely to require further supplementary interventions over time to deliver net zero, the ESC says.

“There is a risk that it will result in a dynamic of sequential technology-specific interventions, as well as inefficient locational patterns of generation investment, which in turn create the need for costly grid reinforcements,” it adds.