Warning locational pricing could ‘choke’ wind investment  

Any move towards locational market pricing could stunt investment in major new wind projects in Scotland, the government has been warned.

According to the Scottish Future Trust, the proposal to reform electricity market arrangements “risks a long period of hiatus in significant new renewable electricity generation, at a time when a huge increase is required”.

Locational market pricing is one of many options being considered as part of the government’s ongoing Review of Electricity Market Arrangements (REMA). It would see wholesale power prices vary across a series of zones or nodes across the country.

The Scottish Future Trust report sounding the alarm comes just weeks after Ofgem threw its weight behind the proposal.

In its assessment, carried out as part of the REMA review, Ofgem concludes that “all or most” consumers would be better off from full exposure to locational pricing when compared to the status quo of national wholesale power pricing.

The regulator said locational pricing is likely to produce “significant benefits” for society when compared to the current arrangements.

However, in its own assessment entitled ‘A Review of Electricity Market Arrangements – a Vision for Scotland’, the Scottish Future Trust – a private investment vehicle set up by the Scottish Government – calls on the government to retain a single national price.

The report argues that “whilst some changes to electricity market structures are needed to cope with a system dominated by intermittent renewable generation, this could be achieved through reform of the existing market mechanisms”.

In particular the report recommends:

1. A shared vision and plan should be agreed for Great Britain’s electricity system with a clear, strategic role for Scotland within it.
2. A substantial acceleration of investment in network infrastructure should be delivered to support this plan.
3. Clearer communication of how consumers benefit from the renewable transition, today and in the future, should be prioritised.
4. Retain a Great Britain-wide wholesale market with a single national price, that supports Scotland’s ambition of becoming the engine room of the UK’s renewable energy generation.
5. Investment signals should be improved to encourage new industry (e.g. data centres and green hydrogen producers,) to locate in Scotland.
6. Improve the way Great Britain’s electricity system is operated, ensuring Scottish consumers benefit from the availability of low-cost renewable generation.

Andrew Bruce, senior associate director at the Scottish Futures Trust who leads on this work, added: “This report emphasises that a radical move to locational marginal pricing, at a time of substantial transmission constraints and doubts about the speed of future grid delivery, threatens to choke off or delay the substantial investment required in new on and offshore wind farms. The report sets out a clear vision for an alternative system that is compatible with increased investment, reduced curtailment of available power and a just transition to net zero.