The government is on the cusp of a major decision that could reshape the electricity market as we know it. Zonal wholesale pricing. While the relative merits of zonal pricing have been hotly debated, one thing is for certain, no large-scale reform of the wholesale electricity market will ever happen overnight.
Part of the government’s Review of Electricity Market Arrangements (REMA) programme, zonal pricing’s central premise is that the cost of moving power across the system should be accurately reflected in the wholesale price. These cost-reflective locational signals should then, at least in theory, influence investment decisions and encourage more efficient dispatch of power. However, it will not be a short process.
In our latest insight paper, Revolution Takes Time: Implementing Zonal Power Pricing in GB, we explore the practical challenges and potential timelines if zonal pricing is adopted. Drawing on Cornwall Insight’s new Zonal GB Benchmark Power Curve, the paper examines the complexity of the reform looking at the key points on the way including:
- The lengthy consultation process on the market’s design. Making sure to minimise negative consumer impacts, avoid disincentivising investment and maintain generation in the transitional period.
- The need to include organisations across the economy. GB's decarbonisation progress means there are hundreds of companies and public sector bodies which would be impacted, and therefore need to be included in the process, including those that run renewable energy generation assets and batteries
- New legislation required to enable the changes, which will face parliamentary scrutiny
- Significant Code Reform to update industry frameworks and licence conditions
- Transitional arrangements to avoid disruption for existing assets and markets
Crucially, we consider what this could all mean for investors, developers and market participants, and why clarity, not speed, may be the real game-changer.
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