Consumers could be offered cheaper rates to use energy when demand is low or the wind is blowing, according to proposals drawn up by the government.
The Department for Business, Energy and Industrial Strategy on Monday launched a 12-week consultation on “the biggest shake-up of the electricity market in decades” in response to very high bills and the UK’s move towards energy sources renewable.
One proposal suggests introducing incentives for consumers to extract energy from the grid at cheaper rates when demand is low or if the weather is especially sunny and windy, saving money on homes.
Officials said the move could send “sharp” signals to encourage consumers to be more flexible in their use and look for cheaper, greener energy at certain times. The initiative would minimize grid costs by bringing electricity demand closer to supply.
If introduced, the policy would be based on a scheme that National Grid is developing to address prices this winter. It plans to reduce the risk of blackouts by paying consumers to use less electricity during peak hours.
The consultation Review of Electricity Market Agreements (REMA) also proposed a “decoupling” of gas prices from electricity prices to ensure that the benefits of cheaper wind and solar power reach consumers.
At the moment, the wholesale price of gas effectively determines how the price of electricity is set, regardless of whether energy is produced through renewables, which are often priced lower.
This mechanism has increased the costs of green energy suppliers since the beginning of the energy crisis, in which almost 30 suppliers have failed, as well as for households.
The price of offshore wind energy in the UK has fallen to an all-time low and new contracts are expected to add about 7 gigawatts of clean energy capacity to the British turbine fleet by 2026, enough to power 5 million homes .
More than a quarter of UK electricity comes from renewable sources. However, rising gas prices, exacerbated by the Ukrainian war, has raised overall prices and deepened the crisis of the cost of living.
The government also plans to consult with industry on whether a form of localized pricing should be implemented in the UK. This system could cause large cities like London to split into areas with different pricing structures, or residents of different regions to pay different rates to each other.
The price structure could depend on the availability of nearby local renewable energy sources, although the idea is in its early stages. Any such system should alleviate the concern that consumers in some parts of the country may receive much higher energy bills than elsewhere.
Consulting firm Cornwall Insight found that 63% of energy industry professionals agreed that a drastic reform of the electricity market was needed. However, 61% were against moving the market towards local wholesale pricing due to concern about the disruption of existing and planned investments.
Business Secretary Kwasi Kwarteng said: “We have just seen the price of UK offshore wind power fall to an all-time low and gas is a declining part of our electricity generation mix. , so we need to explore ways to ensure the The electricity market is adapting to the times.
“This includes ensuring that the cost benefits of our growing cheaper energy supply reach consumers, but also that our system is fit for the future, especially with electricity demand doubling in 2035.”
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Changes are unlikely to occur until at least the end of next year. Ministers are still examining the state of the energy market before this winter amid fears that gas shortages in Europe could lead to high prices or a restriction of supply in the UK.
Separately on Monday, National Grid released its annual Future Energy Scenarios report, which sets out how the UK can meet its net zero carbon target by 2050. The company said it wants to run a fully decarbonised electricity system on 2035.
He suggested measures that include a regional approach to decarbonizing residential heating systems; increase the availability of flexible “usage time” rates; and the improvement of large-scale geological storage projects for hydrogen and electricity.