Households face paying higher prices for electricity in London compared to Scotland at certain times of day under wide-ranging reforms to make the UK’s energy market more green.
National Grid wants to rearrange the market so that the wholesale price of electricity would vary depending on how far it has had to travel.
The aim is to make better use of wind turbines proliferating around the British coast as well as solar panels and batteries, rather than having to pay renewable power to turn off when it is generating more than the grid can handle, as sometimes happens now.
National Grid’s Electricity System Operator (ESO), says a blanket national wholesale price is “no longer fit for
purpose” and the costs of running the system will be “excessive” unless changes are made. It is recommending dividing the network into different “nodes” which would have different wholesale electricity prices fluctuating through the day, reflecting the cost of supplying that location.
If the fluctuating wholesale prices are passed on in real time to consumers, it could mean that on a windy day in Scotland, which has lots of wind turbines, houses would pay lower rates for electricity than those further south and further away from sources of generation.
National Grid ESO said nodal pricing “could create opportunities for low-cost, low-carbon electricity to be harnessed when and where it is abundant, contributing to lower household electricity prices and reduced network operating costs, while helping to decarbonise the system.”
Cian McLeavey-Reville, senior manager for markets development at ESO, added: “We must transform our markets, not only to encourage renewables on to our energy system but also to ensure that clean energy can be delivered when and where it is needed for maximum consumer benefit.”
Under the current system, National Grid intervenes to smooth out mismatches in supply and demand if, for example, there is too much wind power generated in one area and demand is low. Under the nodal system, it is hoped that the market would work more efficiently. For example, if there were high wind speeds in Scotland, prices would fall locally, encouraging industry and households to soak up the supply.
“Our modelling suggests that consumers everywhere benefit,” said George Day, head of markets at Energy Systems Catapult. “But consumers would tend to see probably bigger benefits in Scotland and the north, because those are the areas where it’s relatively easier to generate clean electricity.
“But that’s not certain. We might see innovation and new technologies that come along and get sited on the Thames Estuary, for example, that might make electricity cheap in London.”
The Government now needs to decide if it will adopt the reforms.
Nodal pricing is well established in other markets such as Ontario.