UK explores ‘locational pricing’ to green grid and lower energy bills

The UK Government is currently exploring the possibility of implementing locational pricing for electricity. This system would involve varying the wholesale price of electricity based on location, ensuring that energy generation and usage are better matched.

By introducing regional variations in wholesale prices, the government hopes to incentivise the development of renewable energy generation and storage in specific areas. This could encourage the installation of wind turbines in southern England and gigafactories in Scotland, known for its abundant renewable energy resources.

Support and Opposition

While supporters of locational pricing believe it will drive the growth of renewable energy and enhance regional energy security, the proposed changes have not been without controversy. Some energy investors have expressed concerns about the fairness and effectiveness of this pricing model.

In a recent report, Citizens Advice said: “Reviewing how consumers have been exposed to locational prices in other countries, it is clear that a great deal of options exist to protect against distributional impacts for domestic consumers. Moreover, it is our view that there could still be a case for locational pricing even if domestic consumers were entirely shielded from it. More work is urgently needed to understand how locational pricing could affect the retail market, which should not be left as an afterthought.”

A Department for Energy Security and Net Zero spokesperson said: “We are considering a range of options and incentives to better match where energy is generated and used – Locational Marginal Pricing is just one of these and we will always aim to ensure a fair deal for consumers. This is part of our wider efforts to cut our use of fossil fuels in favour of cheaper, cleaner and more secure energy sources including those from our world-leading renewables industry.”

The rise of wind

Great Britain’s exposed position in the north-east Atlantic makes it one of the best locations in the world for wind power, and the shallow waters of the North Sea host several of the world’s largest offshore wind farms. New wind power records are set regularly, and between 6:30pm and 7:00pm on 10th January 2023 British wind farms averaged a record 21.69GW of generation.

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