| 26/05/2022

Challenges for implementing locational pricing in the UK

The Electricity System Operator National Grid has recently proposed a radical change to the way the UK’s power market sets prices. This would move the UK from a single national price for power to potentially hundreds of hyper local prices.

This Stonehaven paper considers the experience of Texas in implementing a similar model and highlights the challenges it would face in being implemented in the UK. We find that by focusing on prices paid to generation above other key locational factors such as the relative value of network components it may be a less optimal model for our future generation mix.

In the UK, where the locations of key generation technologies are bound by both planning and resource constraints, a model that focuses on improving connectivity or maximising the efficiency of existing connections may be preferable, and we present several alternatives.

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