Government Abandons Green Power Pools Proposal in Electricity Market Reform
The Government has today formally abandoned the Green Power Pools policy proposal in its Review of Electricity Market Arrangements (REMA).
The REMA is the Government’s flagship programme aiming to reform key aspects of the electricity market, including how electricity is priced, how renewables are supported, and the structure of the Capacity Market. Power Pools, previously adopted in France, Italy, and Greece, were proposed due to their potential to deliver a more efficient energy system and provide lower energy costs for industry. Major supporters of this model included energy experts such as Professor Michael Grubb of UCL, the Aldersgate Group, Green Alliance, and UK Steel.
The Government has confirmed it will only proceed with a locational marginal pricing (Zonal LMP) model. Under this model, the UK electricity network would be divided into numerous zones, each with its own price. While this approach aims to incentivise new generation close to demand, it poses challenges for industries like steel, where relocation is not feasible. Steel producers are likely to face higher wholesale electricity prices for years before new local generation facilities are developed.
UK steelmakers already pay nearly twice as much for electricity compared to their counterparts in Germany and France. Over the past decade, the UK steel sector has suffered electricity costs between 60% and 80% higher than European competitors. Given the energy-intensive nature of steel production, these costs can account for up to 180% of a steel producer’s Gross Value Added (GVA) in the UK. With the industry’s shift toward electric arc furnace technology, electricity consumption is expected to double.
The Green Power Pool was considered a critical proposal in the REMA consultation process, offering the prospect of significantly lower power prices for trade-exposed, energy-intensive industries. Its abandonment raises serious concerns about future competitiveness and sustainability.
Frank Aaskov, Energy and Climate Change Policy Manager at UK Steel, commented:It is incredibly disappointing that the Government has dropped the Green Power Pool proposal, which promised to deliver competitive electricity prices for the steel industry. Government is missing a golden opportunity to ensure electrified, green steelmaking can thrive in the UK.
As the steel industry switches to electric furnaces to reach vital Net Zero targets, we must not lose sight of how important electricity costs are in the move to green steel. We paid £117 million more for our electricity in 2023 than our European competitors. Discarding the Green Power Pool proposal makes it unclear how the Government seeks to fix this.
The Government has worked hard to deliver its Industry Supercharger package to reduce industrial electricity costs, only for it to go forward with wholesale market reforms which could increase power prices. This is like giving with one hand, while taking with another.
