Government Confirms Direction of Electricity Market Reform in REMA Update

This update brings much-needed clarity to stakeholders after two years of extensive engagement. Government has decided to retain a single national GB-wide wholesale market and introduce a package of reform to improve the efficiency of our future power system, there for their decision is not to implement zonal pricing.

The Strategic Spatial Energy Plan (SSEP) is central to delivering reformed national pricing, using levers like planning reform, seabed leasing, network planning (CSNP), connections reform, and network charging. Aiming to spatially optimise infrastructure across GB, the first SSEP covering electricity and hydrogen will be published in 2026, providing regional assessments and greater clarity for industry while preserving market competition.

The Government has confirmed it will not proceed with zonal pricing at this time. Following evidence and feedback, DESNZ concluded that the costs, complexity, and potential investor disruption outweighed the benefits. The current national pricing model will remain in place, with improvements to better reflect locational signals through existing mechanisms.

As part of delivering the Strategic Spatial Energy Plan (SSEP) under reformed national pricing, the Government will reform the Transmission Network Use of System (TNUoS) and connection charging regimes for both generation and demand. This aims to address investor concerns over volatility and unpredictability in current charges, which increase consumer costs and reduce investor certainty. By aligning TNUoS with the long-term system benefits of generation, the reforms will send clearer, more predictable locational signals that support better siting of new projects without the complexity of zonal pricing. A detailed delivery plan will be published later this year, with full implementation expected by 2029 at the latest and legislation introduced as early as possible. Ofgem will launch the review shortly, covering:

To improve the operational efficiency of the electricity system, particularly around managing network constraints, the Government, NESO, and Ofgem have identified a package of reforms. These measures aim to enhance real-time balancing, reduce system costs, and increase flexibility, delivering savings for consumers and improving system transparency.

Additionally, the Government is supporting code modification P462, which would prevent generators from factoring subsidies into BM prices—making balancing costs more transparent and cost-reflective. P462 is under cost-benefit analysis with Ofgem expecting final recommendations in 2026.

These operational reforms may require legislative support, and the Government will work with NESO and Ofgem to assess the timing, benefits, and feasibility of each measure as part of broader electricity market reform.

A package of reforms to the Capacity Market (CM) will be brought forward to ensure the scheme supports low carbon flexibility and system security. This includes a focus on enabling investment in long-duration storage, demand side response, and hydrogen.

The CfD scheme will be retained as the main route to market for low carbon generation, with reforms to enhance market responsiveness, support dispatchable low carbon technologies, and ensure better locational and system value.

The Government will continue to reform ancillary and flexibility services and improve price signals across markets. This includes work with Ofgem and National Grid ESO on reforms to support efficient dispatch in a high-renewables system.

We are glad to finally see a decision, and while zonal pricing has been ruled out for now, we welcome the focus on unlocking flexibility, reforming legacy schemes, and improving market signals, with more clarity in implementation being expected.

The UK cannot sustain a globally competitive digital economy while data centres, critical to AI, cloud computing, and high-performance technologies, continue to face disproportionately high industrial energy costs. Unlike other energy-intensive sectors, data centres are currently exposed to the full burden of network, policy, and balancing charges, despite playing a leading role in renewable energy investment. In light of the REMA decision to retain national pricing while seeking to improve locational signals through existing mechanisms, for which we would hope to receive more clarity, our hope is that energy pricing structures will be modifiedd to reflect the strategic importance of digital infrastructure. If the UK is to be a tech maker, not merely a tech taker, these barriers to growth must be addressed as a matter of urgency.

We look forward to working with DESNZ and Ofgem on the next stages of policy development, particularly around how digital technologies and innovative business models can support a more dynamic and efficient power system.

techUK will be working with members through our working groups to ensure that our sector is appropriately represented in energy planning, policy and regulation, and pricing control.

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