A reform of the electricity market is critical for the delivery of a future decarbonised energy system.

That’s one of the findings of the latest National Grid ESO’s report which suggests the current market design, based on a blanket national wholesale price for electricity, is no longer fit for purpose to meet the decarbonisation needs of the future.

The electricity system operator has warned if the current market is left unchanged, it will lead to excessive costs for companies and customers.

The favoured reform option outlined in ESO’s report is a nodal location-based wholesale market.

‘Nodal pricing’ divides the national network into different nodes, each with its own wholesale electricity price which reflects the cost of supplying electricity at that location.

National Grid ESO has predicted this option could create opportunities for low-cost, low carbon electricity to be harnessed when and where it is abundant.

That could contribute to lower electricity prices and reduced network operating costs while helping to decarbonise the grid.

Cian McLeavey-Reville, Senior Manager, Markets Development at ESO, said: “We must transform our markets, not only encourage renewables onto our energy system but also ensure that clean energy can be delivered when and where it is needed for maximum consumer benefit.

“Markets are one piece of a broader picture and cannot be looked at in isolation from holistic network design and capacity adequacy – they must be structured to incentivise dispatch and investment decisions critical for clean energy and consumer value.”

Earlier this year, National Grid ESO set out a plan to support the UK’s energy security.