Managing Decline - A regulated asset base for legacy gas in the age of clean power

Gas plants currently set the wholesale price 98% of the time while providing 30% of our power needs. They have considerable market power, and even under a CP2030 system they will still set the power price for a substantial portion of the year, with all that implies for us being in hock to overseas gas suppliers in an ever more chaotic world.

Part of the original intention of the REMA process was to rectify this, but this has largely failed. Officials have been unable to find a way of breaking this link within the market, for the simple reason that the payments gas receives reflect a real scarcity when it generates - which often it is the only asset capable of doing. Splitting the market would only result in traders buying power in one market to sell it in the other.

Currently, officials plan to over-reward gas plants through a capacity market carve-out that will pay them over the odds to reflect increased uncertainty around wholesale market revenues. This will load additional costs onto consumers. 

Our paper argues for a radically different alternative. We recommend pulling gas out of the market entirely and putting it into a strategic reserve dispatched by NESO. Gas financing will be replaced with a RAB-style arrangement to cover fixed costs and a central buying arrangement for gas to hold down costs. We are working separately on the total consumer benefit this represents, but we believe it to be substantial.

Read the full paper linked below.