A key part of the current reforms to the UK energy system is the introduction of central planning: There will be an overall plan the Strategic Spatial Energy Plan (SSEP) which will provide a blueprint for where the country will need energy, this will link to a Centralised Strategic Network Plan (CSNP) which will plan the network that connects this, and a set of Regional Strategic Energy Plans (RESPs) that show how this will all work at a local level. That’s a lot of Strategies!
There are many ways that these plans can be implemented and enforced. For example, you may only get a connection to the grid, access to subsidy mechanisms like Contracts for Difference and the Capacity Market, and preferential network charges, if you build in line with the plan. Unless you are building on an existing site, it is going to be very difficult to build outside of what is in these plans.
Where does this leave a free energy market, and in particular the electricity markets?
It’s already very difficult to say exactly where the free market is operating in the UK. We already have an energy system where virtually every MW produced is under either a price fixing, subsidy, or taxation scheme. Prices to domestic consumers are also effectively fixed under the Price Cap mechanism.
Furthermore, most electricity supply is either tied up in long term bilateral contracts between generators and suppliers, or vertically integrated energy companies effectively sell electricity to themselves. The market is only visible in the last hour before electricity is supplied through the balancing mechanism, which is where a lot of headlines on gas setting the price (pay as cleared) and constraint costs come from.
Perhaps we should abandon the free market entirely?
We could move to a system of algorithmic dispatch and pricing, whereby each generator provides its operating parameters (cost of generating, load factors, capacity, ramp up times...) to the central system which then decides who should produce what and when. Anti-gaming rules could prevent participants from changing their parameters.
But it’s a brave person who would abandon our beautifully crafted and highly complex current arrangements.
