Today we are trying to run both renewables and fossil fuel generation through the same market. The failures of this have been well documented: The headline grabber is that gas is setting the UK price of electricity over 90% of the time. Whether our electricity would be cheaper if it didn’t is another Friday Post!
Even in the optimistic CP2030 scenario, we still have gas generation, probably around the same amount that we have today of around 30 GW of capacity. By 2030 around a third of this will have reached end of life and will need replacement.
This replacement creates the opportunity to redefine our markets.
This new gas generation could be put into a new market that reflects the different economic model that these new plants will have compared to the increasingly dominant renewables. Market structures could have Capacity Markets to cover the capital build costs and Central Dispatching of plants in return for payments linked to the wholesale cost of gas.
Over time core electricity markets would see the percentage of fossil fuels decline and with it the percentage of time when gas sets the price would also decline.
This is an alternative approach to the ‘green pool’ that has been suggested, rather than taking the renewables out of the market, we progressively take the fossil fuels out and then reform the core markets.
This change would be gradual, but in ten years’ time we could be ready to consider moving away from marginal pricing for renewables and to a layered electricity pricing model where consumers more directly see the cost components of provision.
