Local electricity pricing ‘could cut billions off bills’, study claims
Locational pricing could save £30bn for electricity consumers in the switch to a net zero grid, according to a new study from Energy Systems Catapult, commissioned by Octopus Energy.
It found that moving to a market with locational pricing for wholesale electricity would help deliver a more affordable, flexible and clean electricity system. Users in Scotland and northern England would benefit the most because of the concentration of wind farms in the region, however savings would extend to users across Great Britain.
The report states that wholesale electricity markets are currently based on a single wholesale price across England, Wales and Scotland. However, this is viewed as incompatible with the aims of managing supply and demand on a low carbon grid.
Local pricing could encourage more efficient operation and the right balance of investment in generation, grid distribution, and technologies that provide flexibility and storage.
It could also incentivise investment in places that are not only good for generation (e.g. good wind resources) but also offer best value for delivering that power to users.
The report says that without reform to current arrangements, there is a risk of consumers having to pay spiralling costs to balance the electricity system. Currently electricity generators can sell into the national market even if the power network cannot physically transmit the electricity to where there is consumer demand.
George Day, Energy Systems Catapult’s senior advisor: net zero policy, said: “The UK’s generation mix is regionally diverse – a single price across GB masks the underlying reality of major variations in the supply and demand balance across regions.
“This regional variation is growing more marked as we decarbonise the grid and rely more on renewable generation located further from demand. Reforming our wholesale electricity markets – as other countries have already done – can unlock major benefits such as incentivising to switch to smarter, cheaper and more flexible technologies.”
Octopus Energy’s director of regulation and economics Rachel Fletcher said: “Going green should lower energy bills for all consumers and strengthen Britain’s energy security. To get to net zero quickly and cheaply, we need to transform the energy system that was designed for a different era. This important report shows that radical changes to the wholesale market are needed to make the most of local green electrons when they are abundant, drive investment to places where it is needed the most and make green energy cheaper for all.”
