Review of Electricity Market Arrangements (REMA)

Last updated: 2026-04-04

What It Is

REMA is the UK government's programme to redesign the wholesale electricity market for a system dominated by renewables rather than fossil fuels. The current market was built around gas-fired power stations setting the price. As wind and solar (with near-zero running costs) take over, the pricing mechanism breaks down: constraint payments spiral, locational signals are absent, and consumers pay more than they should. REMA was launched in 2022 to fix this. After three years of consultation, the government decided in July 2025 to keep national pricing but reform it, rejecting the more radical option of splitting the market into geographic price zones.

Timeline

Options Under Consideration

REMA examined four broad areas of reform. The July 2025 decision resolved the first; the others remain in progress.

1. Wholesale Market Design (resolved)

The central question: should GB move from a single national wholesale price to locational pricing?

Three models were on the table:

• National pricing (status quo, reformed): One wholesale price across GB. The government's chosen path. Will be supplemented by better locational signals through planning, transmission charging, and spatial planning.
• Zonal pricing: GB divided into several geographic zones, each with its own wholesale price reflecting local supply/demand balance. Cheaper in areas with surplus renewables (Scotland), more expensive in demand centres (South East England). Used in the Nordic countries (Nord Pool).
• Nodal pricing: Hundreds or thousands of price points across the grid, each node reflecting real-time local conditions. Used in the US (PJM, ERCOT, CAISO) and New Zealand. The most granular option. Was discussed early in REMA but dropped from the shortlist before the second consultation.

The government chose reformed national pricing because: - Zonal pricing creates regional price disparities that are politically toxic (Scottish consumers already pay more through network charges) - Investor uncertainty during transition could raise the cost of capital, wiping out efficiency gains - The planning system is not set up to respond to locational price signals (wind farms are sited based on wind resource, seabed leasing, and planning permission, not wholesale price zones) - Complexity of transition: contracts, hedging, and settlement systems would all need rebuilding

2. CfD Reform (ongoing)

Contracts for Difference remain the main support mechanism for new low-carbon generation. REMA considered several variants:

• Deemed CfD: Payment based on a deemed output profile rather than actual generation, giving generators incentive to respond to price signals
• Capacity-based CfD: Payment for available capacity rather than volume produced
• Partial CfD: Only a proportion of output covered, exposing generators to some market price risk
• Reference price reform: Changing how the CfD reference price is calculated to better reflect system value

The July 2025 Summer Update retained CfDs but was silent on which specific reform option will be pursued. Further detail expected.

3. Capacity Market Reform (ongoing)

The existing Capacity Market pays generators to be available during periods of system stress. REMA considered:

• Reforming to better value flexibility and storage
• Aligning with CfD reform so the two mechanisms work together rather than at cross-purposes
• A separate consultation on Capacity Market changes was promised for late 2025

4. Locational Investment Signals (the reform package)

Instead of zonal pricing, the government is pursuing a package of reforms to send better locational signals within the national pricing framework:

• Strategic Spatial Energy Plan (SSEP): A GB-wide plan mapping optimal locations, quantities, and types of energy infrastructure. First edition late 2026, reviewed on a 3-year cycle. This is the centrepiece.
• Centralised Strategic Network Plan (CSNP): A 25-year roadmap for transmission infrastructure, aligned with the SSEP.
• TNUoS reform: Reforming Transmission Network Use of System charges to reduce volatility, align with the SSEP, and factor in long-term system costs when siting new generation. Ofgem to lead. Target: by 2029.
• Connection reform: Making connection costs more predictable and aligned with planning signals.

Key Positions

DESNZ / Government

Rejected zonal pricing. Chose reformed national pricing to maintain investor confidence and avoid regional price disparities. The decision was driven by political risk (Scottish consumers, "postcode lottery" framing) and fear that transition uncertainty would raise the cost of capital. The government's position: the same efficiency benefits can be achieved through better planning and transmission charging without the disruption of wholesale market restructuring.

Ofgem

Broke with the government. CEO Jonathan Brearley told the Energy Security and Net Zero Select Committee in February 2025 that "we have come to the view that zonal pricing is the best way forward." He argued zonal pricing would reduce constraint costs (GBP 1.5 billion in 2025 alone for curtailing wind and turning up gas) and that rising AI/data centre demand strengthened the case for locational signals. The government overruled Ofgem on this.

NESO (National Energy System Operator)

Supported locational pricing. NESO's published position was that "a locational pricing model is likely the best way of mitigating the risks and maximising the opportunities of a decentralised power sector." Like Ofgem, NESO was overruled. NESO is now tasked with delivering the SSEP and CSNP -- the main planning instruments of the reformed national pricing approach.

Industry: Against Zonal Pricing

RenewableUK, Solar Energy UK, Energy UK and eight other trade bodies signed an open letter to the government opposing zonal pricing. Their arguments: - Zonal pricing would increase cost of capital for renewables projects, raising rather than lowering bills - Creates a "postcode lottery" for consumers - Wind farms are sited based on wind resource and planning, not price signals -- so locational pricing would not meaningfully change where projects are built - Investment hiatus during transition would delay Clean Power 2030

Scottish Renewables was particularly vocal, framing zonal pricing as "postcode pricing" that would penalise Scotland despite it hosting most of GB's wind resource.

Industry: For Zonal Pricing

Octopus Energy was the loudest corporate voice in favour. CEO Greg Jackson argued zonal pricing could save GBP 3.7-5 billion per year and avoid 3,000 km of unnecessary grid infrastructure. After the government's rejection, Octopus launched a billboard campaign and Jackson called the decision a missed opportunity. Jackson was subsequently appointed as a non-executive member of the Cabinet Office Board.

FTI Consulting (commissioned by Octopus and others) produced analysis claiming GBP 25-27 billion in benefits from zonal pricing over 2030-2050. This was contested by AFRY's counter-analysis.

Think Tanks

Tony Blair Institute (Langengen): Strongly pro-locational pricing. TBI's flagship "Cheaper Power 2030" paper (October 2025) called for nodal pricing as the centrepiece of market reform, citing GBP 55 billion in potential savings by 2050. TBI was on the losing side of this debate.

Policy Exchange: No clear published position identified on the specific zonal vs national pricing question within REMA.

E3G: Engaged critically throughout REMA. Called Helm's EFP proposal the "right question, wrong answer."

The Locational Pricing Debate

This was the single most contentious question in REMA and consumed most of the political energy over 2024-2025.

The Problem Everyone Agrees On

GB's single national wholesale price means generators are paid the same regardless of where they produce electricity. A wind farm in Scotland, far from demand centres in England, gets the same wholesale price as a gas plant next to London. But moving that Scottish electricity south requires transmission capacity that does not exist in sufficient quantity. The result: GBP 1.5 billion paid in 2025 to curtail Scottish wind farms and fire up southern gas plants instead. These "constraint costs" are rising fast and are paid by all consumers.

Arguments For Locational Pricing

1. Efficiency: Prices would reflect the true cost of electricity at each location, including transmission constraints. Generators in constrained areas would face lower prices, incentivising them to site closer to demand or invest in storage.
2. Savings estimates: FTI Consulting estimated GBP 25-27 billion over 2030-2050. TBI cited GBP 55 billion by 2050. Octopus claimed GBP 3.7-5 billion per year.
3. Cheaper bills in surplus areas: Scotland, with its wind surplus, could see significantly lower prices, accelerating electrification of heating and transport there.
4. Demand-side response: Lower prices in over-supplied areas would attract demand (data centres, hydrogen electrolysers, industrial users) to where cheap power is.
5. Grid efficiency: Reduces the need for expensive new transmission lines by encouraging co-location of supply and demand.
6. International precedent: Nodal pricing works in the US (PJM, ERCOT), Nordic zonal pricing has operated for decades.

Arguments Against Locational Pricing

1. Cost of capital: The central killer argument. If investor uncertainty raises the cost of financing renewables by even 1 percentage point, the efficiency gains are wiped out entirely (AFRY analysis). Renewable developers would demand higher returns to compensate for locational price risk, making projects more expensive.
2. Investment hiatus: The multi-year transition would create a pause in investment at exactly the wrong moment -- when the government is trying to accelerate deployment to meet Clean Power 2030.
3. Siting decisions are not price-driven: Wind farms go where the wind blows, planning permission is granted, and the seabed is leased. Price signals would not meaningfully change where projects are built. The locational signal would be noise, not signal.
4. Regional inequality: Consumers in southern England (high demand, low generation) would pay more. Politically framed as a "postcode lottery."
5. Complexity: Rebuilding contracts, hedging instruments, settlement systems, and regulatory frameworks is a multi-year, high-risk undertaking.
6. Planning system incompatibility: Locational pricing assumes coordinated central planning of generation siting. GB's planning system is decentralised. The price signal and the planning signal would conflict.
7. Contested evidence base: The headline savings figures varied wildly (GBP 8.9 billion to GBP 55 billion) depending on assumptions about cost of capital, transmission investment, and demand response.

Where It Landed

The government sided with the trade bodies and against Ofgem, NESO, Octopus, and TBI. The political risks of regional price disparities and investor disruption outweighed the theoretical efficiency gains. The question is not permanently closed -- several commentators have noted that if the reformed national pricing package fails to address rising constraint costs, locational pricing will return to the agenda.

Character Positions

Tone Langengen (TBI)

Position: Strongly pro-nodal pricing. It is the centrepiece of her market reform agenda.

Langengen argues locational pricing is the structural fix for a system that "buys volume rather than value." Her GBP 55 billion savings figure (from the "Cheaper Power 2030" paper) is the highest of any published estimate. She also wants half-hourly settlement for consumers, demand-side flexibility markets, and "first ready, first connected" grid access. The government's rejection of locational pricing was a direct defeat for TBI's flagship recommendation.

Dieter Helm (Oxford)

Position: Sceptical of zonal pricing as currently proposed, but for different reasons than the trade bodies.

Helm sees the REMA debate as captured by competing lobby groups. His preferred solution is not locational pricing but Equivalent Firm Power (EFP) auctions, where generators must demonstrate they can deliver reliable power. He considers the zonal pricing debate a distraction from the more fundamental problem: CfDs pay intermittent generators as if they deliver firm power. The government dropped EFP from REMA early in the process. Helm's June 2025 blog argued ministers should "ignore lobbying on all sides" and focus on security and competitive prices.

Michael Liebreich (Liebreich Associates / BNEF founder)

Position: Supports locational pricing. Advocates splitting the UK power market.

Liebreich has argued that "if we try and fix this by building a few more transmission lines, it will take decades and will fail." His broader framework -- that market design should let cost curves drive outcomes rather than picking winners -- aligns with locational pricing as a market mechanism. He is sceptical that reformed national pricing will deliver the efficiency gains needed. However, REMA is not a central focus of his work; his primary energy policy interventions are on hydrogen, batteries, and technology cost curves.

Arthur Downing (Octopus Energy / LSE)

Position: Sceptical of market design solutions that ignore ownership structures. His employer, Octopus Energy, was the loudest corporate advocate for zonal pricing -- but Downing's own intellectual framework cuts against pure market reform.

Downing's "Central Return Generating Board" critique argues that the problem is not the absence of locational price signals but the underlying structure: the state takes planning risk while private capital extracts profit. Locational pricing without addressing ownership is, in his framework, just another market mechanism layered on top of a broken institutional arrangement. He would challenge both sides: the trade bodies defending the status quo and the reformers who think price signals alone will fix siting and dispatch.

Sources

• GOV.UK: REMA Summer Update 2025
• GOV.UK: REMA collection page
• REMA Summer Update PDF (July 2025)
• REMA Autumn Update PDF (December 2024)
• REMA Second Consultation PDF (March 2024)
• Cornwall Insight: What is REMA?
• Norton Rose Fulbright: REMA Summer Update analysis
• CMS: REMA Summer Update analysis
• techUK: Government confirms REMA direction
• AFRY: Enhanced National Market Design report
• RenewableUK: Open letter against zonal pricing
• Scottish Renewables: Postcode pricing
• Solar Power Portal: Ofgem CEO backs zonal pricing
• Octopus Energy: Zonal pricing savings report
• Dieter Helm: Zonal pricing blog
• RenewableUK: Costs of LMP outweigh benefits
• Brevia Consulting: Is zonal pricing inevitable?
• TBI: "Cheaper Power 2030, Net Zero 2050" (October 2025) -- see ~/knowledge/think-tanks/tbi/
• TBI: "Why Britain Needs an Energy-Strategy Reset" (February 2026) -- see ~/knowledge/think-tanks/tbi/
• Helm positions -- see ~/knowledge/characters/helm/
• Liebreich positions -- see ~/knowledge/characters/liebreich/
• Downing positions -- see ~/knowledge/characters/downing/