The second Review of Electricity Market Arrangements (REMA) consultation was published on 12 March 2024. It seeks feedback on a wide variety of options, many of which have the potential to reduce thermal constraint costs1. The consultation sits within the government's wider review of electricity market arrangements, a process covered in our guide to energy consultations and how policy is made.
The Electricity System Operator (ESO) set out the context in its first Annual Balancing Cost Report, published in May 2024. Overall balancing costs fell to £2.4 bn in 2023/24 from £4.1 bn in 2022/23, and net balancing volumes fell to 10.8 TWh from a 2020/21 peak of 21.4 TWh1. Thermal constraint costs were the most significant component of balancing costs, contributing 40 per cent in 2023/24 compared with 36 per cent in 2022/23. The ESO said the volume of thermal constraints remains high and is expected to increase in future years as the network becomes more congested1.
Balancing Services Use of System (BSUoS) charges contributed to about 4 per cent of electricity bills for an average domestic consumer in 2023/24, which the ESO put at about £4 a month on a typical domestic electricity bill1. The ESO projects balancing costs to rise out to 2030, with constraints the main driver, and says its own initiatives create savings worth around £18bn before 20301.
"The second REMA consultation (published on 12 March 2024) seeks feedback on a wide variety of options, many of which have the potential to reduce thermal constraint costs."
The ESO also cited Nick Winser's June 2023 independent report on accelerating electricity transmission network deployment, which outlined the need for unprecedented development of Britain's transmission infrastructure to meet the government's commitment for a fully decarbonised system by 2035, subject to security of supply considerations1. In March 2024 the ESO outlined its Beyond 2030 report, setting out network recommendations for investment into the 2030s1. It noted that new network can take up to 14 years to build, far longer than connecting a new renewable generation source, creating a lag between new generation connecting and the infrastructure to transmit it1.
Why it matters for households
Balancing costs are the charges that pay for the tools, such as the Balancing Mechanism and balancing services, that keep the electricity system stable and secure second by second1. They reach households through BSUoS, which the ESO measured at roughly £4 a month on a typical domestic electricity bill in 2023/241. Thermal constraint costs arise when the network cannot carry all the power that could be generated, so the ESO pays generators to turn down or up. That is a cost of the physical network rather than of a home's own supply, and it is one of many components making up energy bills1. The ESO states that balancing costs are not fixed and can be lowered through proactive measures from itself and industry, and that it welcomes the government's Transmission Acceleration Action Plan and progress with REMA as measures that can bring balancing costs down further in the coming years1. The report focuses only on costs related to balancing the electricity system, and notes that the integration of more renewables is often linked to reductions in the wholesale cost of energy1.
What happens next
The consultation was published on 12 March 2024. The ESO report records that the government is progressing with REMA and that key decisions affecting balancing costs include those considered in REMA, alongside network development, connections and new markets to aid balancing1. No decision date or outcome for the second REMA consultation has been reported.
Sources1 cited
- PowerPoint Presentation, neso.energy