Government sets out reforms to create a fair, secure, affordable and efficient electricity system
Government confirms reforms to the national pricing electricity market that will create a fairer, cheaper, more secure, and more efficient energy system.
- Government puts fairness and affordability at the centre of electricity market reform to deliver system that puts working people first
- Government takes decision to reform the existing national pricing system rather than split the country into different zones
- Reforms will protect consumers and secure investment as government drives to deliver clean power mission, protecting families through Plan for Change
Working people, families and businesses will benefit from a fairer, cheaper, more secure, and more efficient energy system thanks to ambitious new reforms of the energy market to protect consumers and secure investment into clean energy.
Working people have suffered uncertainties and worry in recent years from high energy bills spurred on by the country’s dependence on fossil fuel markets controlled by dictators. That is why the government has doubled down on its clean energy mission, which will give families control with clean homegrown power that Britain controls - all part of the mission to bring down bills for good.
In delivering this clean power system, the government inherited a decision on whether to retain the current national system in which all areas in Britain pay the same wholesale price for energy - or undertake an overhaul to split the country into different pricing zones depending on their proximity to where energy is generated.
Following this process, and an extensive consultation which started in 2022, the government has concluded that reforming the system while retaining a single national wholesale price is the right way to deliver a fair, affordable, secure, and efficient electricity system.
The proposals set out today (10 July) will ensure the benefits of clean power are felt by consumers in every part of the country, while giving businesses the stability and certainty they need to continue investing to upgrade our infrastructure - boosting national energy security, creating tens of thousands of jobs, and growing the economy.
Energy Secretary Ed Miliband said:
Building clean power at pace and scale is the only way to get Britain off the rollercoaster of fossil fuel markets and protect families and businesses for good.
As we embark on this new era of clean electricity, a reformed system of national pricing is the best way to deliver an electricity system that is fairer, more affordable, and more secure, at less risk to vital investment in clean energy than other alternatives.
Our package of reforms will protect consumers and secure investment as we drive to deliver our clean power mission through our Plan for Change.
This decision comes as the government takes a step closer to the clean power by 2030 target, delivering the most significant investment in clean, homegrown power in British history over the last year. This includes approving projects that could power the equivalent of 2 million homes, as well as the biggest expansion of new nuclear power in half a century, providing £14.2 billion for Sizewell C, over the Spending Review.
The government is taking a fundamentally different approach to building the energy system and infrastructure that this country needs. After years of delay from previous governments that has seen consumer costs and constraint payments rise, the government is rapidly building the network, reforming the planning system, and transforming the grid connections queue to get the projects needed for clean power and economic growth. It is only by driving the build out of new transmission infrastructure, which the government is doing through our planning measures after years of delay, that the clean power system the country needs can be built.
The further changes announced today will see the government taking on more responsibility for planning the system and determining where clean energy infrastructure is located, based on what is needed for the long-term. These changes will ultimately help to bring down energy bills, by making the current system more efficient, ensuring low-cost investment into cheap clean energy projects, and reducing the cost of running the electricity network.
The key parts of the reformed national package being announced today include:
Strategic Spatial Energy Plan:
- The government has confirmed that the Strategic Spatial Energy Plan, to be published next year by NESO following consultation, will be at the heart of the reforms to improve the efficiency of the electricity system, under the national pricing model.
- Commissioned by UK, Scottish and Welsh governments last year, for the first time the plan will set out how to best spread new energy projects across land and sea in Great Britain up to 2050. This will speed up development, cut grid connection waiting times and help to reduce costs, giving investors confidence on where to build and when.
Transmission charges:
- Under the current system, the more that energy generators rely on the transmission network to move power to where it’s needed, the more they will need to pay – in what are known as Transmission Network Use of System charges. The government will work with Ofgem to drive forward a review of these charges to provide stronger incentives for investors to build generation where it is needed, supporting a cheaper system for all. Crucially this will include changes to make existing charges more predictable for investors – as currently the charges vary year by year, which causes uncertainty during long-term projects and can drive up prices as developers price in the risk of volatility.
Improving the efficiency of the power system:
- The government is already working at pace with the industry to rewire Britain and upgrade the country’s outdated infrastructure to get more renewable electricity onto the grid and minimise constraint payments after over a decade of delay. Independent advice from NESO confirmed that up to £4 billion in constraint payments, caused by historic failure to build the grid infrastructure the country needs, could be avoided by 2030, if critical network upgrades are accelerated to complete by 2030. Many of these projects are already well into development, such as the Norwich to Tilbury transmission line, and the Sea Link offshore cable between Kent and Suffolk.
- The government is also working with NESO to launch a consultation later this year on further reforms that will help to reduce the need for constraint payments. One potential measure could give NESO better access to smaller assets - such as battery storage sites – that can offer greater flexibility when balancing the grid.
- NESO are also currently working with the wider industry to explore further options to help reduce the need for constraint payments – as part of their Constraints Collaboration Project.
Today’s announcement also builds on wider schemes announced by the government that aim to ensure households can directly benefit from hosting clean energy projects. Earlier this year, the government introduced measures in the Planning and Infrastructure Bill that will see eligible households within 500 metres of new or upgraded electricity transmission infrastructure receive electricity bill discounts of up to £2,500 over 10 years. The Energy Secretary also recently set out plans for coastal and rural communities hosting clean energy infrastructure to receive a cash boost for new community facilities, better transport links and investment in apprenticeships.
Notes to editors
This follows the second consultation on the Review of Electricity Market Arrangements, under the previous government. Since taking office, this government has carried out ongoing engagement with the industry, consumer groups and wider stakeholders – and will continue to work closely with all parties as the proposed changes are developed.
Later this year, the government will also publish a Reformed National Pricing Delivery Plan, which will set out the next steps for government to work together with Ofgem, the National Energy System Operator and industry to delivery these reforms.
The government is publishing this decision now to provide certainty for investors ahead of the AR7 auction round.
See the Review of Electricity Market Arrangements (REMA) updates.