A recent report by Ofgem has shed light on the potential advantages of adopting locational wholesale pricing.
The report underscores that consumers stand to gain significant benefits from this pricing model.
The central idea behind locational pricing is to enhance the accuracy and effectiveness of locational signals, facilitating better coordination of generation, storage, demand and network infrastructure.
This improved coordination is expected to have a twofold effect, according to Ofgem’s report.
First, it could reduce the necessity for constructing new infrastructure, resulting in cost savings for the energy system.
Second, it can help in reducing the costs associated with managing the energy system, particularly in handling residual network constraints.
The report indicates that the adoption of locational pricing is likely to provide “substantial benefits” to society when compared to the existing market arrangements.
The magnitude of these benefits, however, is contingent on key policy choices.
