The Department for Energy Security and Net Zero is expected to set out its much-anticipated next steps in the Review of Electricity Market Arrangements (REMA) before the end of 2023. REMA presents an important opportunity to design a system that supports large volumes of both renewable generation and flexibility in mutually supportive ways.

For over a year now, we have worked with FTI Consulting to advise Ofgem on the implications of introducing nodal pricing. Under nodal pricing the price paid for electricity varies across the grid to reflect how much it physically costs to deliver electricity to each ‘node’ or supply point. This report presents our assumptions, analyses performed, and key findings.

Key findings

• £28 billion to £51 billion of bill reductions in GB between 2025 and 2040 in a nodal market design, and £15 billion to £31 billion in a zonal market design
• £13 billion to £24 billion of societal benefits in GB between 2025 and 2040 in a nodal market design, and £6 billion to £15 billion in a zonal market design
• Consumers in each GB region benefit, although the size of benefits differs across GB due to variation in wholesale electricity prices between different regions
• Improved utilisation of flexibility assets in dispatch, meaning lower spend on managing constraints and potential significant savings in transmission investment
• 65 to 100 MtCO2 of reduced emissions in GB between 2025 and 2040 in a nodal market design, equivalent to £12bn to £18bn of additional benefits
• Significant changes to asset revenues leading to winners and losers among different stakeholders; policymakers may wish to consider transitional or mitigation measures