The Review of Electricity Market Arrangements (REMA) is the UK government's most significant examination of wholesale electricity market design since privatisation. Published consultation outcomes point toward reforms to the capacity market, changes to balancing services, and an ongoing debate over locational pricing. For commercial buyers, particularly those on flexible commodity contracts or with on-site generation, REMA has direct implications for non-commodity costs and the economics of demand management.
Last reviewed: 12 May 2026
What REMA Is and Why It Was Launched
The Review of Electricity Market Arrangements (REMA) was launched by DESNZ in August 2022 as a consultation on whether the fundamental architecture of the UK electricity wholesale market, established during privatisation in the 1990s and incrementally modified since, remains fit for purpose in a system increasingly dominated by renewable generation.
The current market design was built around the economics of dispatchable thermal generation: power stations that can be turned on and off in response to price signals. As the generation mix shifts toward variable renewables (wind and solar, which generate when the weather allows regardless of price), the market signals that worked reasonably well for thermal generation produce increasingly distorted outcomes. Prices can be negative when wind output is high and demand is low, and very high when the wind drops and backup capacity must be called on at short notice.
DESNZ's first REMA consultation in 2022 set out a wide range of options for reform, from relatively minor modifications to the existing wholesale market to fundamental restructuring including a move to locational marginal pricing (LMP), which would produce different electricity prices at different points of the network depending on local supply and demand conditions.
The Published Consultation Outcomes: What Has Been Decided
DESNZ published its second REMA consultation in 2023, narrowing the range of reform options based on responses to the first consultation. The published position as of May 2026 reflects the following settled directions:
Retention of the national uniform price: The government confirmed in its published REMA consultation responses that it does not intend to move to full locational marginal pricing in the near term. A national uniform wholesale electricity price will be maintained, though enhanced zonal pricing signals for network investment and certain balancing services may be introduced as a more limited form of locational differentiation.
Capacity market reform: The capacity market, which pays generators and demand-side response providers to be available when the system is tight, is being reformed to improve the participation of low-carbon flexible capacity including batteries, interconnectors, and demand-side response. For commercial buyers, the capacity market is one of the components of non-commodity electricity costs: the levy paid by suppliers to fund capacity market payments is passed through to business customers.
Balancing services reform: NESO's role in procuring balancing services (the tools used to keep supply and demand in balance second by second) is being reviewed alongside the REMA process. Changes to how balancing services are procured and priced affect the BSUoS charges that appear on pass-through contract invoices for business customers.
Locational Pricing: The Debate That Continues
The most contested element of the REMA consultation was the proposal for locational marginal pricing, under which the wholesale electricity price paid by a buyer (and received by a generator) would reflect the local supply and demand conditions at their point of connection to the network, rather than a single national price.
Proponents of LMP, including some academics and network operators, argue that it would send more efficient signals for the location of new generation and large electricity demand, reducing the cost of network constraints (the situations where wind farms in Scotland must be paid to turn off because the transmission network cannot carry their output to demand centres in the south).
Opponents, including most large industrial energy users and many business energy trade bodies, argue that LMP would create significant uncertainty for businesses making long-term investment decisions in locations with unfavourable locational prices, and that the transition costs would be material.
DESNZ's published position as of the second REMA consultation was that full LMP would not be implemented in the near term, but that enhanced locational signals, potentially including zonal pricing for certain market segments, remained under consideration. The debate is ongoing and the final shape of any locational pricing reform will be determined through further consultation and legislation.
How REMA Affects Half-Hourly Settled Business Customers
For commercial buyers on half-hourly settled contracts, the REMA reforms have the most direct near-term implications. These customers are exposed to the wholesale market through their commodity costs (particularly on flexible or pass-through contracts) and to balancing costs through non-commodity pass-through charges.
Specific impacts to monitor include:
BSUoS charge changes: As NESO reforms its balancing services procurement, the level and volatility of BSUoS charges will change. Businesses on pass-through contracts with BSUoS as an itemised line should model the potential range of cost outcomes under the reformed framework before contract renewal.
Capacity market levy: Changes to capacity market design will affect the per-kWh levy that suppliers pass through to business customers. An expanded capacity market that pays more to low-carbon flexible resources may initially increase costs if the capacity payment level rises, though the long-term intent is to reduce the cost of system balancing as low-carbon flexibility replaces expensive peaking plant.
Triad charge reform: The future of Transmission Network Use of System (TNUoS) Triad charges for large commercial customers is being examined as part of the broader non-commodity cost reform programme associated with REMA. Any change to the Triad mechanism would materially affect the cost management strategy of large businesses that currently shift load away from peak periods to minimise Triad exposure.
Implications for Businesses With On-Site Generation
REMA has potentially significant implications for businesses with on-site solar PV, battery storage, or combined heat and power (CHP) installations that export to the grid or participate in demand response programmes.
The capacity market reforms are explicitly intended to increase the participation of small-scale flexible capacity, including commercial batteries and demand-side response from business customers. If implemented effectively, this could open revenue streams for businesses able to aggregate their flexibility and participate in balancing markets through an aggregator or directly.
Any move toward locational pricing, even in a limited zonal form, would affect the economics of on-site generation and export in areas where locational prices are lower than the current national average. Businesses planning significant investments in on-site generation should monitor the REMA outcomes closely, as the return on investment calculations will change if locational pricing is introduced.
The Implementation Timeline
REMA is a long-term programme. The first consultation was published in 2022; the second in 2023. As of May 2026, further consultations on specific elements of reform (including capacity market modifications and the detailed design of any zonal pricing elements) are expected before primary or secondary legislation is introduced to implement the changes.
The most significant structural changes, including any form of locational pricing, are unlikely to take effect before 2028 to 2030 at the earliest, given the legislative and market design work required. More incremental changes, including capacity market modifications and BSUoS reform, may be implemented earlier through modifications to existing market codes.
Frequently Asked Questions
Editorial disclaimer: The answers below reflect the published state of REMA as of May 2026. The programme is ongoing and specific reform outcomes may change through further consultation. Monitor DESNZ published REMA updates for current status.
What is locational marginal pricing and does the UK plan to adopt it?
Locational marginal pricing (LMP) is a wholesale electricity market design in which the price of electricity varies by location on the network, reflecting local supply and demand conditions. It is used in several US electricity markets. DESNZ's published position is that full LMP will not be implemented in the near term, though limited zonal pricing for specific market functions remains under consideration. The UK will retain a national uniform wholesale price as its core market design for the foreseeable future.
How do REMA changes affect my electricity bill today?
The most immediate REMA-related impacts for business customers are in non-commodity costs on pass-through contracts: BSUoS charges and capacity market levies, both of which are being reformed. For customers on fixed-price contracts, these changes are absorbed by the supplier until the next renewal. For customers on pass-through contracts, changes in published balancing and capacity costs flow through to invoices as they occur.
What is the capacity market and how is it changing under REMA?
The capacity market is a mechanism through which National Grid (now NESO) procures commitments from generators and demand-side response providers to be available during periods of system stress. Participants receive a capacity payment funded by a levy on electricity consumption. REMA reforms are aimed at expanding participation of low-carbon flexible capacity and improving the efficiency of capacity market auctions, with the long-term goal of reducing the cost of capacity payments as the system becomes less reliant on expensive peaking plant.
Does REMA affect businesses with Power Purchase Agreements?
Businesses with Power Purchase Agreements (PPAs) for renewable electricity are exposed to wholesale market reform through the basis risk between their PPA price and the wholesale market price at which the contracted electricity is valued in settlement. Locational pricing reforms, if implemented, could affect the value of PPAs for generation in areas with lower locational prices. Businesses reviewing PPA terms should consider REMA scenarios as part of their long-term energy cost modelling.
Where can I find the latest REMA consultation documents?
DESNZ publishes all REMA consultation documents, response summaries, and policy decisions on gov.uk under the REMA programme pages. Ofgem publishes associated market code modification proposals on its website. The Climate Change Committee's published analysis provides independent commentary on the relationship between REMA reforms and the net zero pathway.
How we verified this
This article draws on DESNZ's published REMA consultation documents (2022 and 2023), Ofgem's published analysis of electricity market reform, Elexon's published documentation on balancing services and settlement, and the Climate Change Committee's published analysis of the net zero implications of electricity market design. Legislative references are verified against legislation.gov.uk.
Sources
- DESNZ REMA consultation documents and published outcomes
- Ofgem electricity market reform programme publications
- Elexon balancing services and settlement documentation
- Climate Change Committee Sixth Carbon Budget and electricity market analysis
For the half-hourly metering context that determines whether REMA non-commodity cost reforms apply directly to your site, see half-hourly meter business UK. For how capacity charges currently appear on business electricity invoices, see business electricity capacity charges UK.
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