Electricity market re-design in Great Britain: A proposed new design and lessons on implementation

Abstract

Implementing electricity market re-design within Great Britain is required to facilitate the goal of a net zero electricity system. The electricity market design as an institution determines the services which can access value and therefore the rules embedded within the design are an important influence on future investment decisions as well as current energy economics. A continuation of the current rules which reflect an outdated paradigm based upon large-scale, centralised, and predominantly fossil fuel thermal generating units hinders the UK’s policy objective of a net zero power sector by 2035. Therefore, electricity market re-design is essential to bring forward investment into the technologies, new modes of operation and user practices which are aligned with net zero ambitions. Whilst multiple proposals for changes to the existing design exist, these focus on addressing particular aspects of the electricity market design and do not provide the holistic blueprint required by policymakers, nor do these offer guidance on the process of implementation. To address this gap, the technique of modularisation was employed to identify where alterations to Great Britain’s electricity market design were required. Where issues had been identified, alternative arrangements were sourced from an extensive literature review of 49 papers with proposals for electricity market reform. This led to the creation of a strawperson proposal which was appraised and validated through 41 expert semi-structured interviews, presented at national and international conferences and through the process of academic peer-review. The proposed design provides a blueprint for policymakers which is an augmentation of the current design, aligned to net zero and addresses the issues identified with the current institutional setup. Lessons on implementation were gathered from an additional literature review and insights from the same semi-structured interviews. This led to several key findings. First, there is widespread support for electricity market re-design across the majority of interviewees and within the literature. Second, divergences emerged in how electricity market re-design should proceed; via small-scale incremental changes or a largescale implementation akin to the New Electricity Trading Arrangements. This thesis argues for the latter. Compounding these debates on implementation is the increased diversity of market participants who offer innovations in how the institution operates, but only if 4 their ideas are listened to, which under current framings will be difficult due to the scale of regime resistance. The implications of this research provides policymakers, regulators and fellow actors involved within the field of electricity market design with a case for change and an appraised, holistic blueprint design and lessons on implementation.