What is the Electricity Market Reform?

Electricity Market Reform (EMR) is a government initiative that aims to 'transform the UK's electricity system to ensure that our future electricity supply is secure, low-carbon and affordable'. In practice, it's a set of schemes, funded through electricity bills, that pay for the new generation capacity the UK needs.

The problem EMR solves is straightforward. A large share of the UK's existing generation fleet is ageing out: older gas, nuclear and (until recently) coal plants have been closing faster than market forces alone would replace them. EMR creates the financial certainty investors need to build replacements, from offshore wind farms to backup capacity, so that supply keeps pace with demand as the grid decarbonises.

Is Electricity Market Reform a supplier cost or end user cost?

EMR charges are levied on suppliers, but like most industry costs, they reach the end user. What differs between suppliers is how. Some build EMR costs into their unit rate, so the quote you see already includes them. Others, such as Drax and Pozitive Energy, itemise EMR as a separate pass-through charge on the bill. Neither approach is wrong, but they make quotes hard to compare. A quote that excludes pass-through EMR charges can look significantly cheaper than an all-inclusive one, while costing the same or more once the charges land.

As an illustration, a business using 300,000 kWh a year could face annual EMR-related charges running into thousands of pounds that never appeared on the headline quote. This is exactly the kind of like-for-like check we run when comparing quotes for customers: not just the unit rate, but what's inside it.

The two main components of EMR

  1. Contracts for Difference (CfD). The CfD scheme motivates investment in new low-carbon generation. It's a long-term contract between the government-owned Low Carbon Contracts Company (LCCC) and large-scale renewable generators, such as offshore wind farms, guaranteeing them a fixed 'strike price' for their electricity. That certainty makes projects financeable at lower cost. We've covered [how CfD auctions and strike prices work] in detail separately.
  2. Capacity Market (CM). The Capacity Market ensures there's enough electricity available to meet peak demand, protecting the UK against blackout risk during, for example, still winter evenings when wind output is low and demand is high. Providers, from power stations to battery storage, are paid to guarantee capacity will be there when called on.

Both schemes are funded through levies on electricity suppliers, who pass the costs through to customers. That's the part that matters for your bills.

How does EMR appear on your bill?

If you have a half-hourly meter, EMR charges are usually itemised under the 'Taxes, Levies and Other Statutory Obligations' section of your bill. The lines you may see:

  • CfD Operational Levy: covers the cost of administering the CfD scheme.
  • CfD Interim Levy Rate: the main CfD charge, funding the payments made to low-carbon generators under their contracts.
  • CM Settlement Costs: recovers the administration costs of the Capacity Market.
  • CM Supplier Levy: the main Capacity Market charge, which pays capacity providers for a delivery year.

Note the timing detail on the Capacity Market charges: they're calculated on your half-hourly consumption between 4pm and 7pm on working days from November to February. That's not trivia; it's a lever. The charge follows your winter peak-time usage. That means a business that can shift load out of those three hours, by delaying processes, staggering equipment or charging vehicles overnight, directly reduces its CM costs. Any savings from cheaper off-peak rates come on top.

If you have a non-half-hourly meter, the same costs still apply but are simplified into a single 'taxes, levies and other statutory obligations' line, or absorbed into your unit rate, depending on your contract.

Why are EMR costs rising?

The short answer: the build-out is accelerating. Each CfD allocation round adds more contracted capacity whose payments flow through the levy, and the Capacity Market has been procuring more capacity as older plant retires. As with other policy costs on bills, from the Renewables Obligation to the new Nuclear RAB Levy, the direction of travel is upward. That makes understanding and managing these charges more valuable every year, not less.

I need more help understanding Electric Market Reform.

We have a team of energy experts who can advise you on any questions you may have around the electricity market reform, or the costs linked to it.

If you have any queries about Electric Market Reform or would like help lowering your energy costs contact us on 0161 521 3400 or email us at Info@purelyenergy.co.uk. Alternatively, get a quick quote here

If there are any suggestions or questions - Please get in touch with us.