A recent report from the Scottish Futures Trust (SFT) has cautioned that the United Kingdom must prudently navigate its transition to locational marginal pricing or face potential setbacks in deploying new renewable energy capacity.
The SFT’s report, titled ‘A Review of Electricity Market Arrangements – a Vision for Scotland,’ asserts that a measured evolution, rather than a drastic revolution, in electricity market structures is imperative for the UK to achieve its ambitious net-zero targets.
Locational marginal pricing, proposed as a primary reform option by the UK Government and endorsed by significant stakeholders in the electricity sector, is singled out in the report as a potential source of prolonged stagnation in substantial new renewable electricity generation. This warning comes at a critical juncture when a significant surge in renewable energy capacity is required compared to the past decade.
While acknowledging the need for certain adjustments in electricity market structures to accommodate the dominance of intermittent renewable generation, the report suggests that achieving this objective can be realized through a thoughtful reform of existing market mechanisms.
Moreover, the report underscores the importance of maintaining investor confidence. It argues that failure to do so could leave consumers vulnerable to volatile gas prices and result in fewer job opportunities in emerging sectors such as hydrogen and new power generation.
Andrew Bruce, Senior Associate Director at the Scottish Futures Trust, leading this initiative, commented on the report’s findings. “This report emphasizes that a radical shift to locational marginal pricing, especially in the face of substantial transmission constraints and uncertainties about the pace of future grid development, poses a risk of stifling or delaying the significant investment needed in new on and offshore wind farms.”
He further stated, “The report outlines a clear vision for an alternative system that aligns with increased investment, minimizes curtailment of available power, and ensures a just transition to net zero. Scotland plays a pivotal role in achieving the UK’s 2035 target of a fully decarbonized power sector, and initiatives like Scotwind are crucial in this endeavor.”