We look at the UK Government's REMA Summer Update and what's next to come on electricity pricing reform.
Last week, the UK Government issued its eagerly anticipated summer update with regards to the Reform of the Electricity Market Arrangements (REMA), confirming that it will be retaining a single national wholesale price for energy.
The REMA programme, initiated in 2022, sought to overhaul the UK's electricity market to align with the country's clean energy goals. Throughout this process, the government has had to decide between two critical routes – either reform the existing national pricing mechanism or move to zonal pricing (which would involve the electricity wholesale market being split up into several zones).
In its update, the government noted that retaining the single national wholesale price for electricity is the right way to deliver "a fair, affordable, secure and efficient electricity system". The government has promised to deliver a package of reforms to improve the effectiveness of the existing model which will seek to address the current network constraints and inefficiencies impacting the current system.
So why not zonal pricing?
In the update, the government outlined its concerns with zonal pricing, in particular:
- Risks with regards to the degree it would create stable long term locational investment signals for new generation;
- The risk that this would not be fair on consumers, as a result of the disparity in wholesale electricity prices across the different zones in the country;
- Investment concerns as a result of the additional risk and uncertainty created by zonal pricing; and
- The challenges in delivering zonal pricing due to the complex reforms it would require (and timing, with the Government estimating it would take seven years to implement should there be no delays).
What next?
The government has confirmed that it will be publishing a Reformed National Pricing Delivery Plan, which will focus on moving from design to delivering the reforms. It is at this point that the government will also publish a more in-depth REMA analysis which will explain the cost benefit analysis taken to reach its decision.
SSEP
The government is also working in partnership with NESO to deliver the Strategic Spatial Energy Plan (SSEP) by the end of 2026, which is 'at the heart of the reformed national pricing package'. The government anticipate that SSEP will be driven by some of the following:
- Planning reforms
- Seabed leasing
- Network building via the Centralised Strategic Network Plan (CSNP)
- Connections reform
- Network charging
Transmission Network Use of System (TNUoS) reform
As anticipated, the government will also be working with Ofgem to reform the TNUoS and connection charging regimes as part of their package of reforms (for both generation and demand), acknowledging the concerns from investors over the volatility of the current charges.
The government has confirmed that it will be seeking to introduce primary legislation as soon as possible to expedite the implementation of these reforms which are expected by 2029, at the latest. A delivery plan on TNUoS will be published later this year and Ofgem will also shortly be issuing an open letter, spanning a review of TNUoS objectives, changes to increase predictability of TNUoS and updates to the cost drivers in the TNUoS methodology to reflect impacts of spare network capacity and network constraints.
Operational Efficiency
The summer update also confirms improvements will be made to the operational efficiency of the UK's electricity system, to facilitate NESO's ability to balance real time supply and demand and reduce the expense in managing network constraints (partially via the Constraints Collaboration Project). The government is also working with NESO and Ofgem in considering shortening the imbalance settlement period to 15 or five minutes to create more granular signals and enable greater market participation by smaller, flexible and more responsive assets.
The summer update has delivered a simple and transparent decision on REMA, essential in its timing with the upcoming launch of CfD allocation round seven expected next month. The decision, although comprehensive, omits details of the design of the reformed national pricing model, which we understand will be published later this year. The summer update also fails to include details on the CfD reform options confirmed in earlier REMA publications, such as a capacity based CfD. While the decision delivers some comfort to stakeholders in advance of the next CfD allocation round opening, more robust analysis will be required to ascertain the impact of the reforms.
Key dates/publications to come:
- Reformed National Pricing Delivery Plan (later in 2025)
- Full REMA analysis with cost benefit analysis (later in 2025)
- Delivery Plan with regards to TNUoS (end of 2025)
- SSEP (end of 2026)
The government will be holding two REMA briefing webinars to provide an overview of the publication and to allow questions on the REMA process on:
- Thursday 17 July 14:00-15:00
- Wednesday 23 July 10:00-11:00
You can register for one of the webinars using this REMA update briefing webinar registration form.
Further consultations will be launched later this year by the government with NESO with regards to balancing reform, and consultation on the draft SSEP will be launched in early 2026.
If you are interested in hearing more on REMA and what this means for your company, please get in touch with one of our energy regulatory specialists below.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
