Assessment of Locational Wholesale Electricity Market Design Options in GB
A Quantitative Assessment of the Costs and Benefits of Introducing Locational Pricing Into the Wholesale Electricity Market in GB
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November 03, 2023
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In the context of UK’s transition to Net Zero, policy makers are evaluating whether the way electricity markets are currently organised in GB is fit for purpose. One reform option identified by the UK Government is the extent to which the wholesale electricity market design in GB should include a price that varies by location. Ofgem, the GB energy regulator, has been supporting the Government’s decision-making on this potential reform.
As part of this assessment, Ofgem has engaged FTI Consulting, supported by Energy Systems Catapult, to perform a quantitative assessment of the costs and benefits of introducing locational pricing into the wholesale electricity market in GB. We have benefitted from consultation with industry, policy makers and academics in GB and globally. Our analysis has identified significant societal and GB consumer benefits of locational wholesale electricity prices relative to the status quo. It has also shown that consumers in each GB region would benefit from a transition to a locational pricing design, although the size of these benefits would vary across GB. We have also found that these benefits are to a significant extent driven by improved utilisation of existing assets (including flexible assets) in dispatch, meaning lower spend on managing transmission constraints and potential significant savings in transmission investment.
Published
November 03, 2023
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