Renewable energy trade associations, including RenewableUK, Scottish Renewables, and Solar Energy UK, have raised concerns about the potential implications of the “locational marginal pricing” scheme, which could drastically alter the energy market.
This proposal is currently under consideration by the UK Government and energy regulator Ofgem as part of a review of the electricity market.
If implemented, the scheme would introduce a system where the wholesale price of electricity varies across different regions of Britain, potentially dividing the country into numerous zones based on postcodes.
Prices would be determined by factors such as local supply and demand, as well as the proximity of power stations to consumers.
While the scheme aims to bring more localized pricing dynamics, the trade associations expect that it could lead to an increase in the cost of achieving net zero.
Estimates suggest that this cost could surge by up to £87 billion, potentially undermining investor confidence and overall market stability.
RenewableUK’s Economics and Markets Manager Michael Chesser said: “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 postcode lottery of prices for consumers, inflating bills in England especially.”
Claire Mack, Chief Executive of Scottish Renewables, added: “Proposals which would introduce increased uncertainty to the market and undermine investor confidence, such as locational marginal pricing, must be taken off the table. Only then will we be able to focus on introducing the evolutionary reforms that will secure the billions of pounds of investment required as quickly as possible to decarbonise our economy and reach net zero by 2050.”
Solar Energy UK’s Director of Policy and Delivery Gemma Grimes said: “Our members are very concerned about this plan. Over £200 billion of investment is needed by 2037 across the electricity sector to deliver on the UK’s climate commitments, so making energy prices more volatile, disrupting investor confidence and increasing the cost of capital at this time would be deeply unhelpful.”