Plans to introduce “Locational Marginal Pricing” in the UK’s electricity market could lead to higher costs for consumers, warn three major trade associations representing over 800 renewable energy companies. The proposal, currently under consideration by the UK Government and energy regulator Ofgem as part of an electricity market review, would involve varying the wholesale price of electricity across different regions of Great Britain based on supply and demand dynamics.
The associations—RenewableUK, Scottish Renewables, and Solar Energy UK—commissioned a report by Cornwall Insight that suggests an alternative approach to achieve Ofgem’s market reform goals without jeopardizing investment in affordable renewable energy. The report focuses on reforming Contracts for Difference (CfD), which provide a guaranteed price for power generated from renewable sources, such as solar and wind.
The report outlines six reform options, including innovative payment structures to ensure a closer match between supply and demand. It suggests that incremental and evolutionary changes to CfD contracts could deliver electricity at the lowest cost to consumers while maintaining investor confidence.
The associations express concerns that implementing Locational Marginal Pricing could inflate energy costs across the system, creating regional disparities in pricing and potentially burdening consumers. Instead, they advocate for a more considered and stable approach to market reform, emphasizing incremental change over a disruptive overhaul.
The report highlights the need for consistent and investor-friendly policies to secure the significant investments required to meet the UK’s climate commitments and transition to a net-zero carbon economy by 2050.