30 April 2024
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Locational pricing still on the table for GB electricity market

To The Point
(5 min read)

In our second Insight on the UK's Review of Electricity Market Arrangements (REMA) we look in more detail at the proposals for locational pricing and the alternatives. Locational pricing would involve splitting GB into different areas ('zones'). Each zone would have a different wholesale price, reflecting the balance of supply and demand, and the network capacity, in each location. So areas like Scotland, where there is high supply and low demand, would have a lower electricity price than the South East of England, where the opposite is true. We look at what this could mean for generators, investors and customers, and whether the benefits outweigh the risks. See our first Insight for an overview of all the REMA proposals in this latest consultation.

Why have locational pricing?
Who could benefit from locational pricing?
Alternatives to locational pricing
Other system options

What happens now?

The REMA policy development should conclude in 2025, then it will move to the implementation phase. Locational zonal pricing would take at least 5 years to implement, but until there is a decision, investors may be nervous to commit to new projects. DESNZ say that any potential move to locational pricing would be introduced carefully to give electricity end users time to adjust and enable adequate protections to be put in place where appropriate. Interactions with existing government schemes that protect some electricity consumers would also need to be carefully managed.

There is still a lot to decide: how many price zones to have; when and how to review zone boundaries; self-dispatch or central dispatch; whether demand customers should be exposed to different locational zone prices or a national average; and, how to buy and sell power across zones.

Key contacts

Head of IPE and Co-head of Energy and Utilities
United Kingdom

Partner, Infrastructure Projects & Energy

Partner, Infrastructure Projects & Energy
London, UK

Partner, Infrastructure Projects & Energy
Leeds, UK

Managing Associate, Infrastructure Projects & Energy

Managing Associate, Infrastructure Projects & Energy

To the Point 

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