BELECTRIC is one of Europe’s leading EPC service providers in the development, construction, and operation of solar power plants. With more than 23 years of experience, the company is leading the way in solar and battery storage solutions. Louis Green of BELECTRIC’s UK subsidiary provides insight on the UK’s second Review of Electricity Market Arrangements (REMA)
The UK has set itself a net zero target to reduce greenhouse gas emissions by 2035. The government plans to increase solar capacity fivefold to 70GW by 2035. EPC (engineering, procurement, construction) companies know firsthand that policy shapes the generation mix of the future and influences project opportunities.
The downside of locational pricing
A hot topic in the UK was the potential change from uniform to locational pricing (nodal or zonal). Effectively, nodal pricing would see a different price at each node (substation) on our network, with zonal pricing being based on broader geographical zones instead. If we had a blank canvas, locational pricing would be a no-brainer. Price signals, in the absence of grid and land constraints, would direct generation to where it is most needed. Unfortunately, investors have already taken a leap of faith into a UK renewables market defined on the premise of a uniform price. Changing a fundamental rule so soon would be unfair and undermine investor confidence.
How to handle negative pricing
The policy safety net must be versatile, moving both retrospectively and proactively. The Contract for Difference (CfD) is a prime example. For contracts awarded from the fourth auction round onwards, all CfD payments freeze during periods of negative prices. Although historically infrequent, this will change as renewable penetration grows and outpaces load flexibility and energy storage. In 2021, we only had seven hours of negative pricing, 107 in 2023 and already 66 in 2024 (as of mid-May). This current trajectory looks certain to materially affect a project’s bottom line by the decade’s end.
Superficially, the rule makes sense: why should generators be paid when electricity isn’t needed? Not only is this poor value for the consumer, but it introduces grid stability issues. However, this overlooks the CfD’s main objective: encouraging the deployment of low-carbon generation. Focusing narrowly on payments during negative prices misses the broader picture of financing green generation over its lifetime.
Thankfully, REMA’s policy toolkit is at work to address this. One suggestion is deemed payments, where generators are paid on live ‘forecasted output’ instead of actual output, removing the incentive to generate when prices fall below marginal cost. We at BELECTRIC support the fundamentals of this idea but question its practicality. A simpler solution might be promising generators fixed annual revenues based on forecasted yearly output. The forecast can determine the budgetary impacts of the project and real time output can be centrally dispatched when appropriate. Granted, consumers may overpay at times, but this is an inevitable byproduct of a transitioning grid.
Lower consumer energy bills will naturally follow once our demand profile becomes flexible enough to exploit the zero-cost photons and wind that supply the grid. In fact, the CfD has already saved consumers £18 on average last year. But conversely, we’ve handed PV an intriguing congratulatory gift: a lower budget for AR6 (pot 1) and lower PV reference prices, likely reducing the final PV strike price.
Improved grid connections
At BELECTRIC, we recognise that the CfD has promoted green technology remarkably but will require more iterations to support our final net zero goal. In an industry often criticised for being ‘slow moving’, we must ensure PV and other generators aren’t penalised because the rest of the transition hasn’t ‘caught up’. More flexible demand and energy storage will help, and the CfD can expect TMO4+, the National Grid ESO’s First Ready, First Connected approach, to help deliver this.
In one sharp policy brushstroke, it will permit the National Grid to retrospectively perform due diligence on hundreds of projects. Those with planning submissions will be fast- tracked and offered improved connection dates.
Facilitation of BESS
BELECTRIC was an early player in Battery Energy Storage Systems (BESS), building our first system in 2017. We’re excited by the network’s growing receptiveness to battery technology. Years of unwelcoming capacity market derating factors may disappear under a reformed capacity market. The threats to a contemporary energy system are better addressed by BESS, which should be rewarded accordingly. This is already evident in the balancing mechanism, where the door has been swung open to BESS since the launch of the opening balancing platform.
BESS pairs brilliantly with intermittent generation and the resulting periods of over-supply. It’s like over-ordering at a restaurant: plates of untouched food (renewable generation) can be wasteful. But with takeaway boxes and a fridge (BESS), you can enjoy chow mien for breakfast the next day. At BELECTRIC, our clients realise the value of co- location, and we seldom see PV plants being planned without energy storage. What we now need is a supportive regulatory environment, with metering and planning regulations that enable us to bring our innovative ideas to life.
BELECTRIC stands ready at the crossroads, poised to deliver. The UK’s net zero targets are achievable, but to meet tomorrow’s goals, we need policy-driven business cases that make sense today. We are supportive of the reforms being taken, but as ever, the devil will be in the details.
About the author
Louis Green is a BESS Analyst at BELECTRIC Solar Ltd., BELECTRIC GmbH’s UK subsidiary. He started his professional career as an economist in 2020 and then joined BELECTRIC later in August of 2023.
This work is licensed under Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International.
