A discussion with my daughter this week made me realise how crazy the electricity system we have built sounds. Understanding the history of our system is going to help to explain its complexity.
For centuries our main energy use was heating our homes with wood fires and smelting metals with charcoal. During the industrial revolution we ran out of trees to burn and mined for coal. At the end of the nineteenth century, thanks to Faraday and Edison, we started to electrify our lives.
It was around this time that we first realised the climate impacts of fossil fuels.
We continued to switch to an electric life with lighting, telephones, and fridges. After WWII our demand for electricity grew dramatically and we built a national system with coal fired power stations stretching the length of the country, all connected by the National Grid.
In the 1980s we were concerned about the acid rain caused by the coal, but there was very little discussion on climate change. By 1990 we realised that we were in trouble with the climate, but our demand continued to grow.
The economics of our electricity system were simple, and ‘The Electricity Pool’ determined prices, but we needed to ensure that we had sufficient capacity to meet the increasing demand, so in 2001 the New Electricity Trading Arrangements (NETA) were introduced.
In the past 20 years we’ve added offshore wind to the system. We’ve needed economic measures, collectively known as Energy Market Reform (EMR) to allow a fossil fuel and renewables systems to interoperate – the CfD mechanism guarantees prices for renewables generators, the Capacity Market ensures sufficient supply, and we added carbon pricing mechanisms.
The result resembles a plate of spaghetti, and it’s now the responsibility of the Reform of Energy Market Arrangements (REMA) team to work out what the economic model should be for the next 20 years.
