We are pleased to present Aurora’s new strategic insight report, Location, Location, Location: Implications of locational pricing in GB. The report presents our reflections on possible alternative market designs which create locational signals through market mechanisms, rather than administratively set network charges.
Key messages to emerge from the analysis are:
1. Despite the prevalence of locational elements within the current pricing regime, GB continues to see a mismatch of generation and demand. This has led to a rise in congestion costs as renewables growth outpaced network expansion.
2. A number of power markets have adopted locational pricing since the early 1990s for a variety of reasons. Success has been observed in some of these markets, with the PJM experiencing a 50% reduction in congestion costs over the last two decades.
3. Under locational pricing, GB would see an improvement in the mismatch between demand and generation, with production in the south increasing by 17 TWh by the 2030s.
4. Whilst implementing locational pricing would reduce total consumer costs by £90m annually in the 2030s (as compared to building additional transmission cables), policy makers will have to grapple with distributional impacts across GB.
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