The current electricity market arrangements were put in place by the Energy Act 2013 which, among other things, established Contracts for Difference to encourage low carbon electricity generation and a Capacity Market to ensure adequate power supplies. The drive to decarbonise the electricity grid by 2035 while simultaneously electrifying transport and heat means that these arrangements may no longer be able to deliver the necessary transition of the electricity system. Government is undertaking a Review of Electricity Market Arrangements (REMA) in Great Britain that aims to identify reforms needed to transition to a decarbonised, cost effective and secure electricity system. High-level options were set out in a BEIS consultation that ran to October 2022. The options included locational pricing and balancing, different arrangements for dispatching electricity generation, and measures to address flexibility, capacity and operability. This POSTnote will summarise the current electricity trading arrangements, their shortcomings with respect to the net zero transition, and the options being proposed. It will assess these proposals in terms of their ability to incentivise innovation and investment and the impact they would have on the operability of the GB power grid.

Work on this briefing will commence in January 2023

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