Locational Pricing Assessment

Ofgem is undertaking an assessment of locational wholesale electricity market design options (“locational wholesale pricing assessment”). This aims to assess the potential benefits, costs and implementation requirements associated with moving to zonal or nodal wholesale electricity market design in GB. These market designs are used in numerous jurisdictions around the world but would represent a significant change for GB. 

The assessment aims to:  

• consider how these market designs could operate in GB;
• undertake economic modelling to identify the potential quantitative benefits associated with different wholesale market designs in scope;  
• assess likely implementation requirements and costs; and
• evaluate potential distributional impacts and potential mitigation measures. 

The work intends to support the UK Government’s Review of Electricity Market Arrangements (“REMA”) that is considering a wide range of options for updating GB electricity market arrangements to ensure that the UK’s commitment to a decarbonised and secure electricity system by 2035, at least possible cost to consumers, can be delivered. The UK Government’s first REMA consultation, published on 18 July 2022, highlighted the need for more accurate locational signals as a key cross-cutting issue for GB electricity market reform. More accurate price signals, including prices that vary by time of day and location, have the potential to significantly reduce costs for consumers by incentivising the right demand and supply responses in the right places, at the right time and making the best use of all available resources. 

Regular stakeholder engagement, primarily via a series of workshops with a wide range of interests, is being used to help test and refine the modelling methodology and assumptions, evaluate different design options and stakeholder impacts, and share interim findings for discussion:

The first workshop was held on 26th May 2022 and focused on project objectives, modelling assumptions and methodology, and potential wider policy impacts. A brief note summarising key discussion points and slides from this workshop are available below. Following this workshop, we published a short Call for Input seeking views from all interested stakeholders. Non-confidential responses to this Call for Input are published below and stakeholder feedback has been incorporated into our approach. A second workshop was held on 30 August which focused on emerging modelling results and select quantitative and qualitative impacts of different market designs. A third workshop was held on 20 October which provided further interim modelling results and a high-level overview of potential zonal and nodal wholesale market arrangements. The slides for these workshops are available below.

Any subsequent workshops will be held in 2023, followed by publication of key findings.

We have also published an FAQs document addressing some common questions raised by stakeholders. 

Please contact WMReform@ofgem.gov.uk if you would like to discuss the project or attend future stakeholder sessions.