REMA review with Wendel Hortop and Robyn Lucas (Modo Energy)

Because they don't tell generation and flexibility how to operate. There's like a growing problem with things like interconnectors, storage. So they respond to national price, even though they're located in different areas, and this does create something kind of slightly perverse behaviors where we're importing from Norway to flow that power down to sort of like London, even though we've got constraints. There. So we can't actually do that. So then the control room has to then turn down more wind in Scotland. From system side of things, is is quite a big thing that the Zona pricing can help to solve.

Hello, everybody. Welcome back for another installment of transmission.

In today's episode, Modo Energy's Robin Lucas and Wendell Hortop, join guest host, Ed Porter, to discuss the key takeaways from second consultation, the review of electricity market arrangements, or Rima.

If you're enjoying the podcast, please hit subscribe wherever you listen so you never miss an episode. And with that, let's jump in.

Hello, and welcome to another episode of Moto's transmission.

Today, we're gonna be doing the second part of our Rema two parter.

There we go. And we first visited this on the twenty seventh of October twenty twenty two. So time in energy market regulation does fly. Yeah.

Here we are. Circorating months later. And, yeah, today, really excited. So Wendell, you're joining us as well as Robin to essentially run through all of the latest from from Rema.

Now because of what Rema is, a review of electricity market arrangements, There are some kind of complicated things that will go into this and we won't have time today to run through all of it from scratch, but there are lots of good resources that will steal you in the right direction and we'll put that into the show notes. But just to get started, Wendell, maybe you could kick us off in terms of just very high level what is Remo.

Yeah. So Remer, it's the review of electricity market arrangements, and I think at its most basic level, it's kind of designing the market that will take us from where we are today to essentially a net zero electricity system or the markets that can do that in the best sort of way.

You know, what what exists today was set up, what, like, nineteen nineties, late nineteen nineties, and so clearly doesn't quite fit the sort of world where renewables is Yeah. Is gonna be the biggest source generation system. So, yeah, that's basically the crux of it.

Set up nineteen nineties also updated at several parts, last updated EMR twenty thirteen, twenty twelve, twenty thirteen, twenty fourteen, and now it's feeling a little bit like that AMR. It's slightly out of date for the future system we want to enter Rima.

And and maybe maybe Robin coming to you. So in terms of the process for Rema. We've had the first consultation.

What has changed since that first consultation?

How is this kind of second stage of the consultation different to that?

So that first consultation, the big talking point off the back of it was locational marginal pricing or nodal pricing, And there was a lot of talk about that in the industry amongst a bunch of other staff. So I think the main thing that's gone away as a result of that first consultation in the new one is we are moving away from location of marginal pricing. So nodal is not going to be the future of the UK market. Instead, zoneal is on the table as well as still retaining the national electricity price. So odds on probably zonal.

I think it's probably what we feel like. But yeah, it's it's by no means a certainty. Other things in the consultation are talking about, shortening of settlement periods. So currently, the GB has thirty minute settlement periods.

Other markets, so for example, Australia, some of the US markets, they have fifty minute or five minute markets.

So that is kind of better suited, the shorter the settlement period, the better suited it is to intermittent generation.

So that's one of the things that's in the consultation. Otherwise, we have capacity market reforms, splitting the capacity market in various ways to better fit future. Some stuff around CFTs, long duration energy storage, some of the other, maybe hydrogen to power schemes, which are for evolving technologies which wouldn't necessarily fit within the past few months.

So lots of lots of content in there. We will definitely go through that and kind of pick it off today in as much as we have time for it. So actually let's just go back to that kind of first part. So when we're talking about a Zonal system, what does that mean? Have we got a fully defined set of zones that we're gonna use from now until twenty fifty, or is this up now?

No. It's been for quite a few maps on LinkedIn. Yeah.

But they're all different.

Yes.

Yeah. Everyone's got their different zones. So yeah, the answer is no, like, in the consultation, there's no sort of suggestion of what these zones could look like. Which makes it quite hard then to actually work out what to respond to this with. But, yeah, it's kind of Yeah. There's sort of value out between two to what? Fourteen zones.

So, yeah, the most the most basic setup would be having a north zone and a south zone. You feel like you probably wouldn't capture all of the differences in locations with just two zones, although you will probably get the bulk majority of it, which is onshore Wind in Scotland. Yeah.

And I guess just quickly I mean, by zone essentially just splitting the market up into different areas, different geographic areas.

Just just on that. So when you say you split the market up into different areas, like, what exactly do you mean? So you're saying you get a brand new wholesale price by zone depending on supply and demand in that particular area.

Yeah. So essentially a zone, you would have just this own little holster market. And now if you had enough transmission capacity between each zones, you end with just the same price everywhere, but kind of, I guess, the thing we'll come on to is all that stuff in constraints. And as soon as you've got a constraint, that creates different prices in these zones.

So in effect, you know, if we treat that two zone, system, in the north, you have less demand and more wind And in the south, you have more demand and probably more solar. Those two would therefore lead to slightly different price shapes over the day, different prices. And yeah, when when there's enough transmission capacity so all the power can flow where it needs to without any issues, the price in the north and south would be the same, but as soon as you've got a constrained boundary somewhere you'd get differences in price.

Yeah.

And by a constrained boundary, we mean, like, a transmission wire that is not able to flow any more power across it great example, b six boundary between, the north of England and Scotland, that has quite a severe constraint, which means that you can't get all of the power that's produced in Scotland down to the demand centers in the south.

Okay. And and why, like, why are we seeing some maps that have two zones and why are we seeing some maps that have got fourteen zones? Like, what why are you picking well, why why would you make a zone? Like, what's the point of it?

I guess the I think, yeah, they they put the hurley out in the consultation, like, the the kind of pros and cons of having more zones. Like, ultimately you can just get more more zones, then you end up that nodal pricing And I guess the reason to have less is just to make it simpler to implement simpler to operate in, but ultimately you still need to be able to capture, like, the main constraints And so, yeah, I think it's just a balance that bounce or kind of how deep they wanna go with kind of capturing those constraint, like, all those constraints or whether they just look at the major, like, top four, top five, and balancing out versus like.

Yeah. You also need to balance it with how much liquidity is in that zone as well. So if we were to take just London as a zone, there is only really demand. There's not a whole lot of generation in, you know, within the M twenty five. So that doesn't really make a whole lot of sense from a liquidity point of view. Whereas if you were to do a a larger area, which has a bit more generation in it. Maybe that makes sense.

But that still should serve as a signal for people to build. Right? So if just take your example of London or say the southeast, if you have a lot of demand in that area, then and not so much generation. When you get constraints, you might have a different price for that region, which might be higher, which should incentivize more plant to try and locate in that area. And that's kind of the the the big shift with location of pricing, isn't it? To try and encourage people to build in the right the right places.

Absolutely. It's supposed to incentivize those those investment decisions so that you have the right generation with the right demand.

However, if you think about somewhere like London, and I think this is probably one of the reasons that nodal has fallen by the wayside, it's not feasible.

Like geographically, it's not feasible. Yeah. So, yeah, it's done. It probably makes more sense.

And I think maybe the the the the kind of the the comparison to this is the current system. Right? So the current system, we have a national price, but there are locational elements in it, and whatever system we choose, like, it's all gonna be it's gonna be similar equipment being used. So that how, like, how do we do locational, maybe Wendell, how do we do locational pricing today, and maybe that might give us a bit of a lesson for what the future might look like.

So, yeah, this is a good thing that they they they split this out in station. So it's like today, we do have locational investment signals.

There is like transmission charging, there's distribution charging, There are kind of, all these sort of local constraint markets you can kind of get involved with. But, well, especially the big ones, so transmission and distribution charging, they're like a fixed sort of charge each year. Like, some of them have even been argued. They kind of don't drive good behaviors And so even though it might say, okay, don't put wind in Scotland, it doesn't tell that how to actually operate. It doesn't really give it like a signal to drive that. And so all you Yeah. So that's kind of what we've seen today is it doesn't actually change fundamentally what people are doing.

And in terms of, like, operational today. So how do we manage, so it's like, so let's say we get a constraint, how do we manage that locationally?

Yeah. So then that just all goes into the balance mechanism. So that's kind of like, I guess the fundamental of why this change has been brought up because, yeah, as we get more and more renewables, as we get more and more constraints, the amount that the control room is having to do to balance the system is just growing and growing and growing to the point that, like, it starts to become not really feasible if we're looking like ten years time.

Yeah. So I guess one of the points to touch on there in the consultation is they they're having a central dispatch is still on the table. So if we have a situation where we have more zones, so I don't know, maybe seven, ten, fourteen zones, fourteen being the number of distribution network regions, which is probably where that number from. The National Grid could dispatch everyone from its central location, rather than everyone being self dispatching, which is what we have now. The argument being there is so much volume re dispatched within the BM. It actually looks more like a central dispatch system at the moment in reality.

So just to kind of cover those self dispatch, individual market operators get to decide what to do with their own plant. They get to respond to wholesale price wholesale prices and and schedule their plant however they see fit. Central dispatch is where someone centrally could be like a control room decides that certain plants should run at certain times. And so those are the two options traditionally central centralized dispatch really would like nodal plant where it self dispatches more for sort of national or or zone or pricing. Okay. Yeah.

Yeah. Exactly.

Another big element of it is that even though we we do have some of these signals because they don't tell sort of generation and flexibility how to operate, there's like a growing problem with things like interconnectors and storage so they respond to the national price, even though they're located in different areas, and this does create something that kind of slightly perverse behaviors where we're like importing from Norway to flow that power down to sort of like London even though we've got constraints there. So we can't actually do that. So then the control room has to then turn down more wind in Scotland. So I think that's kind of from the system side of things is that it's quite a big, sort of thing that Zona pricing can help to solve.

Mhmm. Yeah. They kind of explicitly call out zonal pricing means storage and interconnection will be working in a more efficient way in a Zonal system versus a versus the national system.

And I suppose maybe the the flip side of that. So if I'm a if I'm a wind, developer or wind owner, right, I'm not gonna be happy about this. Because I don't want to be there are some very good places to build wind in the UK. And so, for example, off the coast of Scotland, north of Scotland, I want to build there. That's where I can get permits for my for my wind, and that's where I've got plans to build, and that takes quite a lot of time to put that together.

Okay. Great. Someone's now telling me that Rima's gonna save the whole system money, but for me, how do I get comfortable? How do I enter into, like, contracts to start building my my wind if you're gonna say, actually, you might be subject to a price that is just for Scotland. That might be might happen quite a lot, so I might see significantly lower prices in a Scottish zone in comparison to to kind of the whole of GB. Like, how do I get comfortable with that?

Yeah. I think it's a it's an incredibly valid question. Right? Your the capture rate that you're suddenly seeing for your Scratchy stone is gonna be way worse than it would be for your national price. Where your capture rate is the average power price you get for your renewable power compared to the average household price, like, all the time. So I think that's where the CFT reforms really come in.

So we still want to be able to incentivize offshore wind. We have as you say, really brilliant locations for wind in this country. So it'll be through another market mechanism, which is where there are reforms to the CFT in Reamer as well, which will ensure that we still build enough wind to meet our net zero goals.

I suppose one of the challenges there would be, so with the CFT contracts for difference, essentially you get topped up to a strike price, no matter what the the the the price is. When I said no matter, actually, if you get negative pricing, then you don't get paid that CFT.

Now, like, what, like, what might be the complications of going to a, like, a zonal pricing with that type of CFT structure?

So I think, well, yeah, as as you get more locational, those kind of that price shape volatility kind of gets, like, extrapolated. And so you're in Scotland, you'd expect to see more negative pricing. And so it's kind of yeah. So then that it's kind of like pushing that even further. So you end up kind of with wind wanting to turn off even more through the CFT. There's kind of a lots of different outcomes that you can see happening.

It's like a And that's that's where some of the changes have been, like, look, I thought the changes to the CFT might be quite useful.

So CFT at the moment, it's all.

Just what? Six hours or eight hours?

The the old one was six hours. The new one is as soon as you get to negative pricing in day ahead. Essentially, you don't get paid your CFT strike price. The things that they're considering are things like deemed CFTs, which is essentially you consider what that wind, site should have been producing, and you get and they they get paid that over the course of the year. But crucially, they have the ability to turn off in negative pricing. And so they don't kind of carry on generating.

So at the moment, there is really no incentive for when to turn off.

Whereas in the new DM c deemed CFT, it was more like an annual figure that you're receiving rather than actually like live generation. Yeah. So you should be turning off when the system needs you to.

Yeah. And we should say here that the within the CFT, so, actually, there have been some areas where they've given sort of certainty maybe certainty. They've given a preferred option of where they want to go to. So for example, with the optimized capacity market, which we'll come on to in a second. But within the CFTs, they haven't said this is what we're going to do. They've narrowed down the number of options, but there's still options on the table. Similar to the National Price and Zonal Price still options on the table, but they haven't given us a kind of a a final view yet.

Yeah. But I think that's because I guess they they're linked. Like, I think that's like the final section of the consultation goes into this detail, like, even though they break break things out into these, like, kind of nice little component parts, they all relate to each other. They all link to each other.

And so some choices will mean it's like more likely that you go with. So for example, I think that if they they say if they go with Zonal, you could look at, like, a capacity based CFT as more of, like, a kind of potential solution than a deemed CFT. Alright. It gets into a lot of detail at that.

Ultimately, we're with a capacity market, with a CFT, and then with the wholesale price, which could be zonal or national, you've got three different places, and then maybe balancing services and, you know, other other other markets too where your generators are gonna get cash flow to warrant the upfront investment.

And we need to be very careful that they complement each other, and we're kind of doing it in a technology neutral way Okay.

So we don't have, you know, I don't know, if wind's getting all of its cash in the CFT, which is setting in the, a zero wholesale price the whole time. How is is is, you know, how is gas gonna respond to that? How is gas gonna pay for itself? That's all through the CM. So who's gonna be participating in the wholesale market? If it's storage, like, are we gonna actually have any price shape within wholesale markets for storage to respond to and interconnectors to respond to, and it makes it a very much a non level playing field for all of those different technologies to compete. So I think when we're bringing all these things together at at the end of the consultation, being mindful of actually how these different technology types will be making money when we split up the wholesale market so much, or no, split up the revenue stack so much.

Think that's probably something that that actually gets flagged a fair bit in the consultation, which is like this perverse outcome type thing where effectively if government get too involved in the process, they ask for too much of a certain thing through a CFT or they ask for too much of a certain thing within the classy market. They can essentially block the wholesale market from doing what it should be doing, which is finding the lowest generator by zone if we end up going that way or just by by the entire country. So, yeah, I think there's a lot of there's a lot of that conversation which which flags up that risk. So they are aware of it, but it's a hundred percent the right thing to be to be calling out.

Last thing on zones. So and this one surprised me a little bit. So it's not like the zones get fixed. So the zones aren't kind of fixed from now until two thousand and fifty. They have some ideas around often they might be reviewing it. So if you thought that when we decided on a final version of Remer and implemented it, we still won't be done in terms of like, what might what changes might come down the road?

I mean, that makes a huge amount of sense, right?

Because you get more generation built out over time. The transmission infrastructure is gonna get reinforced over time as well. So for example, what we know, twenty twenty four, with by twenty thirty, we accept We expect the EC five boundary, which is in East Anglia. All that's fairly constrained at the moment.

We're gonna have Hornsey coming in, Hornsey three. Is gonna constrain it even further. But that boundary is gonna get reinforced and it's essentially gonna go away as a major constraint. So right now, it might make sense to have east of the EC five is zone zone, whereas by two thousand and thirty, that doesn't make sense at all.

So it it really like, it sounds quite sensible to me to have changing zones over time in sponsor how the transmission network and the generation stack evolves. However, on the flip side of that, it does present some investment risk and some, you know, uncertainty around policy and regulation, which means that essentially the cost of capital is gonna go up.

Yeah. I saw one of the stats from there said cost of capital, potential impact zero to three percent, three percent on the cost of capital is massive. For for and it kinda quotes for decades. And that's that's a huge, yeah. I think they quite rightly kind of say, well, how much of this is really gonna come through. Like, if we if we set out what we want to do and we are very clear about the regulation we want to follow, like, will you then see a three percent increase in cost of capital? I think I think there's a there's a there's a fair challenge from government on that, but clearly they're being lobbied hard on it.

I think that's a good way to, like, look at it. Is that if If you move to a Zonal system and some areas of the country then have cheaper pricing, so it's like a big thing that comes out of it is saving consumers money you can see how that could happen because, you know, if all of a sudden, if I'm in Scotland, my price electricity isn't being set by gas. It's being set by wind most of the time. But if you're doing that, you're just shifting that what that where that bit of money was before.

It needs to go somewhere. Like, it needs to come from somewhere. And so you might just end up where like, okay. Instead of that coming from the wholesale market, yeah, that comes from the pasty market, comes from the CFT.

Oh, that all has to be paid for Yeah. In some bit of tax or other.

Yep. Okay. So so moving on from from Sonal, let's go to changes in assessment period. So Robin, what's the what what's the plan here?

Okay. So we touched on this earlier. Currently, we have thirty minute settlement periods. One of the option is to change this to fifteen minutes or to five minutes.

Reason being you can better submit what you were gonna do in smaller chunks. If you're ramping up a gas plant, you might ramp, I don't know, within an hour. If you've got two blocks of which would be, you know, the first settlement period in my ramp, I'm gonna be, I don't know, a hundred megawatts. And in the second, settlement period, I'll be at two hundred megawatts. If you've got shorter settlement periods, you would much better fit your actual physical ramp with what you are telling the control room you would do. And therefore, if they know better what's gonna happen, they can react accordingly with balancing the system ultimately.

I guess importantly as well, you get pricing, like wholesale prices, which sort of shaped around that ramp.

Yeah. Which would which which means you would probably get a bigger spike in the morning and a bigger spike in the evening.

Because your your control room will already see, like, the shape of those ramps in terms of what gets submitted by the big transmission through the various dynamic parameters.

Exactly. I suppose is is kind of what Wendell is saying is that actually it's bringing a little bit of out of the balancing mechanism and into the wholesale So you might better see in the wholesale market where you've got supply and demand balancing, not balancing.

So you can We've been looking at we've been looking Texas market where they have five minute settlement in the real time market. And you can really see the impact of ramping, and it causes quite significant spikes in the morning and the evenings. As you deal with, you know, things can't change their outputs that quickly, and the implication that that has on price, it's quite interesting.

Well, I guess one of the big benefits of short seven periods from, like, kind of operations is like if I'm a solar farm, I can submit, you know, I don't generate electricity in half an hour chunks. I generate electricity kind of continuously, and maybe five minutely, I can try to capture that shape. And so if I'm setting power, then all of a sudden I can do that in a much better way, or I can then kinda trade that power a little better if I know, like, there's gonna be a cloud coming over in five minutes time or something. But Yeah. That then goes to the gateway point. So how far ahead of time do I tell the control room that?

Because it's all about, you know, how good your renewable forecast is.

And your renewal forecast is just because it's in five minute blocks instead of half an hour blocks. It's not actually gonna be any better because you're still having to produce that. Sort of an hour and a half out. Okay.

So I think the impact in terms of like increased granularity for renewables Although great, I can, as as Wendell says, submit a much more precise solar profile, Actually, I'm still having to make that forecast in an hour and a half ahead of time. So the position is gonna change within that gate closure. So a much You know, it would make more sense to also shorten gate closure to me because you're you're much, you you know, the closer you are to real time, you're the better your forecasts are. Yeah.

And essentially you're trying to forecast Nib, which is really difficult to do.

So a lot of stuff in there. Maybe let's let's do a little bit of a recap. Right? So currently we're saying half assessment periods If the first half of that, we were particularly short to power.

And in the second half of that, we had excess power. So we were long on power, that really wouldn't show up in the whole surprizes too much. And we would leave it up to the control room to to kind of deal with that and and and balance that out. If we make assessment periods shorter e g fifteen minutes, you can bring that into wholesale pricing and get people to respond to those price signals, which means that hopefully the market will be more balanced by the time it gets to the control room.

So that's the kind of that's assessment period. Yeah.

It should take some some volume out of the BM.

Should take some volume out of the BM. And then we kind of seamlessly moved into the second part of this, which is gate closure. And I think we should, like, I think we should kind of just cover this a little bit, which is essentially the point at which the wholesale market, so all of the trading that's done by people who are buying or selling power they handed all over to the control room, and then and then after gate closure, the the control room is then responsible for making sure that essentially the lights don't go out. And they have an hour ahead of delivery to to to to deal with this.

And now in the consultation, they've said, they were looking at shortening that period, which is called gate closure, to less than an hour. But that's where I like this conversation comes from, which is like, okay. What the value of shorting that period, could you get better forecast for it? And so that's where we end up in this period.

And we're saying, actually, better short assessment periods is a good thing, but if gate closure is still an hour out, you're still having to make guesses a long time in in advance. So maybe that diminishes the value of short assessment period?

Yeah. It massively diminishes the impact of improved forecasts when you still have to produce them at the same time ahead of delivery. Yeah.

It's like the precision for accuracy.

Like you can be more precise, but it's still You're not gonna be any more accurate.

More accurate. I think, I mean, so yeah, because you mentioned the tech Ecot market. I think it'll also be like Australia.

Like, so Australia got five minute settlement periods, but then gate closures, like five minute ahead of time. And so means every five minutes, you can kind of be responding to what is gonna be happening in that five minutes. Like, you have a lot better idea, but then that goes back to the that's all centrally dispatched And so that might be the thing here is, like, if we want to keep self dispatch, then I don't think I don't. Yeah.

There's like a limit to how put the So I think we've we've taken out the six shortening that sixty minute gate closure because it's not feasible to do it within the time frames of Rima.

That's what it says in the consultation, which comes down to, again, technology within the control room being able to dispatch all of the system and then make sure the system is balanced within that. They don't think they can shorten that from sixty minutes quickly.

Yeah. So so self dispatch, everyone decides what they want their own plant to do. It kind of means you then have to have this period where some central dispatch steps in and makes sure everything works. But if you have a central dispatch slightly earlier, then you could bring gate closure much closer because it's already essentially already managed.

Okay. Alright. And then maybe a question for just just like more on the storage side. So what does like what would this mean for storage if we were to go from half hourly settlement to maybe five minute assessment periods.

I think, I mean, ultimately, if you're, say, a battery, you can respond essentially, like, instantaneously.

And so you can, like, fit a five minutely, like, if there's like a five minute price shape, then you can kind of very accurately respond to that. So it really does benefit those like flexible technologies that can kind of ramp within that five minute period.

But that is limited by, yeah, that kind of price volatility and what actually the wholesale market's telling you. And so if that's limited by closure. Yeah.

I think it will it will make prices more volatile, which is good for storage. Okay. And storage is perfectly placed to respond to those sort of settlement periods.

Where actually other flexible technology types like gas is less able to do so. So it's really good for storage.

Alright. Let's move on to the capacity market. So, here we have a preferred option, which is progress.

The optimized CM is what's being looked at. What is the optimized CM?

The kind of the throughout this term is optimized CM, like, with minimum.

It's almost like because everyone knows what that means, and it's like, actually I don't think anyone, does. But when you dig into the detail a bit, it basically means you have a capacity market where you've got kind of like still got like a single overriding capacity target you need to meet. But within that, you kind of have these minimum targets for different types of capacity.

And so the kind of examples would be, so for example, so low carbon capacity or, like, kind of sustained response. So something that can kind of continually keep providing power or for so amount of time or stuff that can respond maybe within five minutes, so more of like a reserve type capacity.

And so what that could lead to is you've got these different pots of technologies competing within the wider wider kind of capacity market then you end up with different prices.

And so all of a sudden, if I'm sort of a battery, maybe I get a different price in the capacity market to a CC GT get So I suppose that already happens today, right, though.

So we have derating for storage. And so Yeah. We're already see we already see different prices in the capacity market, even though there is a single clearing price.

So it's it's kind of it's kind of carving it out so that there'll be a like almost like a separate auction that happens with a separate price.

So it feels a bit it feels like the better solution to what we have now, which is derating factors, because derating factors are entirely struck around loss of load. Mhmm. And this concept of having enough capacity on the system to make sure the lights stay on in scarcity events which is probably, you know, it's quite an old way of looking at having the security of supply on the system and is, you know, around really winter peaks. Where we're trying to cover two, three, four, you know, maybe up to ten hours worth of of of loss of load through the loss of load.

Calculation, which is valued at six thousand pounds, which is, you know, god knows where that comes from. Whereas with these minima, you're perhaps targeting different kinds of needs within the system. So long periods of like a hundred plus hours where there's no wind.

Or very short periods, which is much more such like intraday volatility, which is much more suited to storage. And as long as we carve out these minima to be completely technology agnostic. You just have a requirement of what you need. It might be low carbon, long duration reserve as Wendell says. It makes kinda more sense than what we have now, which is not really fit for for purpose. I don't think.

And to and to turn this into kind of the the the wording of the consultation or like how government have put this together before. So we're we're talking about the reliability standards. So this kind of concept that you design an electricity market to meet a reliability standards. So you have no more than three hours of loss of load expected over the course of a year. That's then suggested by national grid. Government then decides to do whatever they want to that in terms of bumping it up or bumping it down. But effectively, that's kind of how the centimeters comes through in terms of how much capacity it's procuring.

Which has a massive impact on the price, which ultimately the consumer has to pay.

Yeah. And and so I think a little bit what you're saying here is, okay, we we we had that in twenty thirteen, twenty fourteen, and that was very much setting out, or how do we start to introduce renewables, but still have dispatchable power, we're now saying, okay, the types of problems we might have might be different in the future So we might have winter weeks where we have low wind and high demand. It might be cold. And so we might need something to generate for, say, two hundred three hundred hours consecutively.

But at the same time, we also those technologies might not be the same technologies or the right technologies to provide intra day, so stuff that happens within a day balancing of renewables, things like storage. And so don't use one mechanism to procure both things at the same time because it'll be quite complicated. Potentially use something like a minima to have two runs at it.

And it's not really we don't really see the value that storage is getting. Through the very heavy de rating factors we have now. So storage is massively benefiting the system for that intraday volatility.

But we have like an eleven percent derating factor compared to say wind or gas, which are somehow seen as firm are because they don't have you know, obviously storage is duration limited, and that duration limited nature is very, very heavily penalized in the current calculations.

Whereas if we have these different minimum, perhaps storage would do better.

Yeah. I think one, like, one interesting thing with this question mark and stuff is You had like two press well, two press release, two big press releases that went out with the Remo consultation. So the first one was all talking about the Zona pricing, which I think gives an indication of where the government wants that to go. But the second one was all around gas. And the fact we're gonna keep there, we're gonna, like, you know, keep gas the system, we're gonna keep we're gonna build new unabated gas. But then if you look in the consultation, like, that's not mentioned anywhere. There's nothing which says this is how we're going to build more gas.

Glide into net zero.

There's like there's a wide path.

There's a wide path. Yeah.

But then I guess it all just comes into the capacity market. And I think essentially the way Hopefully, this would be set up is that if low carbon technologies can compete and can come to the market, that provides, say, that sustained response, then maybe we don't need that gas. But because you've got this minimum, you got you got this minimal target for having, like, say, yeah, at, like, hundred hour responsible crime, and if that low carbon technology can't provide that in the market, then we will go and buy more gas. Yeah.

Yeah.

Can we talk about can we talk about gas replacement, please?

Yes. Let's talk about gas. So one of the things that will always go on Slido in any national grid event will be procuring gas or or designate's event, will be procuring gas in a fifteen year contract when we have twenty thirties slash twenty thirty five net zero targets. How's that compatible?

Yeah. It's not. Is it? It's just it's just not. I think we have to be a little bit honest.

So on the on the on the gas front, so the the recent team on this four auction had a seventy pound clearing price, and we had no new build gas come in. The new build gas that wasn't in the, you know, in the prequalification mounts dropped out. So a seventy pound clearing price, which is a three billion pound cost to the consumer, was not enough to incentivize new build gas generation in twenty twenty four. How on earth are we gonna be bring in new build gas off, like, later and having a dear contract for an unabated gas is just completely incompatible Mhmm.

With twenty thirty five net zero.

So so in the capacity market sort of a separate, yeah, there's all these different consultations going on, which is makes it quite hard to keep track of, I guess, yeah, a separate capacity market reform, bit of work, which was done last year, looks at being in these, like, yeah, emission limits. I guess it kind of looks at this this point. So if you are new build gas, it were unabated technology, you would start to have emissions limits from twenty thirty four, and that, I guess, gets you up to that twenty thirty five.

But it it doesn't at all, because that's one year.

Yeah. But then, I guess, but then, also within this consultation, this latest consultation, there's a bit of, like, backsliding on that. So that's kind of been pushed back at least.

It's just in, like, the background of the fairly weak cop in December as well. It just feels like twenty thirty five is so far away from actually happening, which is quite sad.

Can I start saying maybe the, like, maybe actually a lot of this isn't to kind of one of the charts that came through in there was something about the how often things are price setting? And in one of their in in in one of their charts, they were trying to highlight that in twenty thirty, for the marginal price or the things that sets sets the pricing GB under ten percent of the time that will be unabated gas. And so I think the thing that we're really trying to highlight is, although you might, for the reliability standard of maybe a hundred or two hundred hours, you might need some gas to deal with a winter period By the time you add enough solar and wind to the system, plus other types of low carbon flex, you might actually not have gas being price settings so often.

And so Although the kind of lot of headlines that came out from the Rima piece, I think actually a little bit the detail underneath was very much like, yes, there'll be this gas. Yes, it will be capacity for those particular times. But, no, it's not gonna be the backbone of how the how the market functions as it is in kind of today's market.

Yeah. I think that's kind of like what you're seeing out of, so, yeah, some people at Desno's, like, government, it's it's clear that, like, especially as we're progressing, those low carbon alternatives, So like hydrogen CCS, long duration energy storage, they're still, like, kind of even though we keep talking about it each year, they're not kind of closer to reality.

And so if that doesn't happen, you need you need something you can rely on. Yeah. And I think that I guess that's kind of what is driving us.

Government, we're we're expressly calling that out as well. So whilst we're talking about an optimized CM, which is what they see as the future system for bringing capacity through various minima, etcetera, they also call out DPA, CCUS.

EPA is.

Dispatchable power agreement. Yep. Yep. Yeah. Then we got, Eldez, so long duration energy storage, and CCUS. So carbon capture and use of carbon capture and storage.

Yeah. Utilization storage. Thank you. And those are effectively schemes where they're not within the capacity market at the moment.

They want them to be within the capacity market, but they aren't gonna be at the moment because those techs aren't commercially viable and in today's market. And so they want to treat them through what they call bespoke schemes. For a period of time until they can prove they are viable, and then they'll bring them into the centimeters later on. So I think that's probably another one of these kind of really interesting areas that's come out, which is government has kinda been very frank about those schemes to say, okay, they're not quite there yet, but we still want them because they're one of the ways that we could do this in twenty forty, twenty forty five.

We need to see them through to some sort of maturity.

If they then get there, then we'll put them into the kind of the the commercial competition of the CM.

I think I'd like one of those areas that feels to me to to be actually something where they really got it right, which is like let's back some of these techs let's see them through to maturity. And then let's put them into the the the c m.

It it needs support. Like, we we had that kind of CCS support, which was announced of I don't want ten years ago, and then it got kind of pulled. And so, yeah, we we see it with renewables. You you need that kind of probably a bit of the push. I think what's important is how they transition from those support schemes into like a capacity market because at some point you do need they do need to move into more of a competitive sort of market based model.

And maybe to touch on one of those. So long duration energy storage, that is kind of linked within the whole Reamer piece. Now that is looking for six hours of duration potentially up to fifty potentially fifty gigs of six hour duration, but isn't including lithium as one of the options. What do you think about that as a as a structure?

I think there's been quite a lot of consultation responses questioning the decision to exclude lithium from.

From the LDS funding.

Yeah. Clearly, it needs to be changed.

Okay. Yeah. I think it's like if think it goes into this, like, definition of it. Like, I I I would still argue, like six hours is not long, like, hundred hours is long, fifty hours is long, six hours is not that long. And so, you know, if if you do want if you are gonna define it as that, then let lithium compete for that, but otherwise change Yeah.

It just it comes back to the same thing again and again and again, which is what requirement do you need and let the market deliver the lowest cost solution.

And storage is commercially proven. It is at scale. It works. And it can easily do six hours because you can derate it.

We saw that through the latest derating factors where we had a bunch of storage coming in the CM, at nine hours. To exclude a technology type because it's perceived as being commercially viable seems like you're missing a trick. It's, yeah, it's it's commercially viable at a one and two hour system. It's not really a six hour if you're actually building six hours worth of storage.

So so here we would say If you generally need things that run for a hundred hours, go out and procure things that run for a hundred hours, but we would we would also still say similarly to CC CCUS and, like, hydrogen to power, for example, that it's probably worth doing some incubators to this. It's probably worth, like, testing this stuff out But don't chuck a load of money at it until you've actually got some some real proof points that can show you that this is this text actually delivering.

Yeah. Yeah.

Okay. Okay. Cool.

Opportunity usually do the anything you'd like to plug. But given that it was just a purely internal podcast, I think we'll I think we'll skip over that. But in terms of contrarian view, would be great to to get on.

So my contrarian view is that Remark is quite heavily dominated by the National Grid ESO or now N ESO, NesO. So the National Grid team is very large compared to some of the other parties in the energy system, so Desnez ofgem. Alexon. As a result, they've got a lot more kind of saying what goes on and some of the decisions that be are being made.

And National grid is ultimately in its current form. I know it's transitioning to be more of a public body, but it is a private company. And it feels a little bit like the government have outsourced reforming our electricity markets to a private company. So I just think for any listeners, if they you know, to get your views into Rema, try and get those board positions, within the Rema, the consultation, do respond to the consultation with your opinions.

Because some of the decisions might be, you know, I'm sure it's not intentionally, but they will be vested for a system operator, for example, that gate closure decision, whereas that might not actually be for the benefit of the wider consumer So, yeah, that's my contrarian view.

And maybe to put some numbers on that. So we, yesterday, we're having one of the spin off things from Rema that was webinar the number of people attending that. It's about a hundred and fifty who's like interested parties. So if you listen to this and thinking, oh god, I, you know, I'm interested, but I see do do do I really wanna get involved?

Like It's difficult if particularly with smaller companies, you don't have masses of resource to spend on policy.

So it's a bit of a risk.

Yeah. But that is a kind of like hundred and fifties almost the sample size of people who are kind of really closely in the detail. So as you say, like, the ability to join that and to contribute to it does actually move the needle.

Mhmm. For sure.

When touched on what Robin said before, like, every, like, sort of everyone involved in the sort of, like, Rema process government, like, yeah, National Grid, all the kind of private companies of, they've all got like vested interests and sort of they all have Yeah. But, you know, they they operating within the system at the moment. They've all got a preferred route. And I think no ultimately, no one's gonna be, like, kind of completely happy with the final outcome.

So at some point, you just need to kind of make a decision and kind of commit to it. And so, yeah, I think you know, that whatever gets decided, there'll be lots of kind of arguments against it, but kind of just need to make a decision at some point.

Maybe it's the the thing that if everyone's a little bit annoyed already done a really good job.

Okay. Okay. Yeah. That's that's actually a good a good place to end it. So Robin Wendell, thank you very much for the update Remer part two.

We'll give it another eighteen months, and we'll have the final outcome. So, keep posted. Keep keep keep your ears on the lookout for that. Thank you very much for listening to today's, today's podcast, and we'll see you next time.