Locational marginal pricing (LMP) is a key aspect of the UK government’s Review of Electricity Market Arrangements (REMA). The current system is changing to one dominated by renewables and flexibility, meaning value is increasingly specific to particular times and places; yet much about Britain’s market design fails to reflect this. LMP systems have been found to operate successfully in multiple countries: from zonal systems in Australia, Europe and Japan, to nodal systems in the US, yet the different forms of LMP could render differing outcomes for Britain compared to the current system.
Access the report for key findings, such as:
- In a scenario where Net Zero by 2035 isn’t achieved, a switch to LMP would likely result in increased costs to the consumer with little benefit
- Under Net Zero, a switch to LMP by 2045 could result in decreased total system costs—sooner is only better if there is minimal impact on WACC
- In spite of sustained grid build-out, intrazonal congestion in our nodal model inflates wholesale prices, whilst boundary upgrades in the zonal model reduce congestion to the extent that, on average, prices resemble those in the national case towards the end of our forecast