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Electricity Market Review Offers New Opportunities for Battery Storage Users

After several weeks of speculation that it was in the pipeline, the UK this week launched the Review of Electricity Markets Arrangements proposals, outlining proposed plans to minimise the exposure to wholesale natural gas prices that sparked the current energy crisis. As our electricity system continues to decarbonise, the current system that directly links power and gas prices becomes increasingly impractical. Decoupling the two is the most significant proposal being tabled, described as the most significant shakeup of the UK electricity market in decades if carried out.

Currently, natural gas prices are responsible for around 80% of the overall increase in the UK’s wholesale electricity prices. While the UK is still overly reliant on gas generation, last year it only made up less than 40% of our total generation. The change in wholesale electricity prices don’t appear to add up.

While the idea of minimising the country’s exposure to volatile gas markets sounds ideal on paper, it is not without difficulties. Despite the go-ahead for a new Sizewell C nuclear power plant this week, it is a long way from coming to fruition. Even a final decision on funding isn’t expected until 2023. The rest of the proposed fleet of new nuclear generation that would solve the UK’s baseload generation woes seems a long way off.

Instead, successfully decoupling gas and power prices requires a focus on flexibility. The Review of the Electricity Market looks to build on an existing strategy from National Grid proposed for what is looking like a difficult winter in terms of supply capacity. End users will be incentivised to minimise their electricity demand during peak times. While there will be an associated cost that will be funded through a levy on energy bills, it is significantly lower than the alternative cost of paying power stations to remain on standby to meet spikes in demand.

Under new proposals from BEIS, end users could also be offered cheaper electricity rates when demand is low and conditions are good for renewable generation, encouraging a more flexible approach to energy usage and a focus on greener, cheaper energy. With the price of offshore wind currently at an all-time low and solar PV continuing to reduce in cost and increase in capacity, decoupling them from gas prices could offer a significant reduction in overall prices. The surge in electricity prices linked to gas is thought to have sent as many as 30 green energy suppliers into administration since the start of the energy crisis.