RenewableUK, Scottish Renewables and Solar Energy UK have questioned plans for locational marginal pricing to be brought into the energy market.
Envisaged as part of a radical overhaul of the energy market, locational pricing would see the UK split up into different regions, allowing prices to be based on local supply and demand, as well as how close power stations are to consumers. This would see the wholesale price of electricity vary across the whole of the country. However, according to the trade associations, this would “inevitably” see the cost of electricity rise.
They cited forecasts, through which it was suggested employing such a scheme could see the cost of net zero balloon by £87bn, while undermining investor confidence too.
Instead, the trio pointed to a report commissioned from Cornwall Insight, through which ideas were explored around reforming the Contracts for Difference scheme, enabling it to deliver even greater benefits to billpayers. Six potential options were cited, including paying generators in innovative ways to ensure that supply always meets demand “even more closely”. Taking this approach would not only help to reach net zero by 2050, but also avoid the risk of a “potentially catastrophic investment hiatus”.
RenewableUK Economics and Markets Manager, Michael Chesser, said: “Injecting further volatility and uncertainty into our energy market would have very real and very negative consequences for billpayers. If Locational Marginal Pricing were to be implemented, it wouldn’t only increase costs across our whole energy system, but it would also create a bizarre regional or local post code lottery of prices for consumers, inflating bills in England especially.”
The alternative, explained Chesser, is something RenewableUK is already working on with the government – “based on evolution rather than revolution” – which promises to keep investors on board and still lead to lower prices for consumers, as well as a decarbonised electricity system by 2035.
