UK power costs to rise without net zero market reform

[LONDON] Britain's power market needs urgent reform to allow it to cope with coming changes like a doubling in renewable capacity feeding into the grid as the nation moves toward net zero by 2050.

That's the conclusion of the Policy Exchange think tank who said changes like pricing electricity based on local supply rather than at a national level could save 2 billion pounds (S$3.6 billion) a year.

The British power system got a test run this summer for how it could cope with more renewables when demand dropped due to virus restrictions giving green energy a greater share of demand. Actions taken by network operator National Grid Plc to balance the grid pushed have pushed running costs up 44per cent so far this year to 1.4 billion pounds.

"Events this summer during the coronavirus lockdown showed that the electricity market is not ready to handle increasing volumes of offshore wind," said Ed Birkett, research fellow for energy and environment at Policy Exchange. "If the government doesn't reform the electricity market, then costs will rise." The government said it will address how oversight of the electricity market is divided up in an energy white paper expected later this month.

By 2050, wind and solar could generate two thirds of electricity in Britain, according to the report. This will require customers and energy suppliers to work together to balance variable wind and solar as well as flexible demand to use excess power to produce green hydrogen, charge electric vehicles and heat homes.

Total annual electricity costs, modelled by Aurora Energy Research Ltd, could come down to 50 billion pounds by 2050 with a more regional approach to electricity pricing. This would lead to household bills coming down by 6per cent, it said in the report.

BLOOMBERG