Locational pricing and decentralized energy with Sarah Honan (Head of Policy @ The ADE)

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Sep 26, 2024

Sarah Honan, Head of Policy at the ADE, shares her insights on the future of energy pricing in the UK. She highlights the debate on zonal vs. national pricing and its implications for consumers and investments. The conversation emphasizes the need for demand flexibility to support a decentralized energy model. Honan discusses the role of the National Energy System Operator in implementing strategic changes and the importance of integrating decentralized energy assets. Their recent report advocates for an inclusive approach to meet future energy demands.

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INSIGHT

Grid Designed For Big Generators Is Now Costly

GB's transmission system was built for a few large dispatchable generators and is now strained by distributed renewables causing rising congestion costs.
Congestion payments rose from £170m in 2010 to £1.4bn in 2022–23, with wasted curtailment (e.g. £800m telling wind to turn off) driving consumer costs.

INSIGHT

Patching Markets Won't Fully Integrate Demand

Incremental code tweaks have warped a market originally designed around centralized dispatchable plant and struggle to integrate demand-side assets.
The system's core principles still assume assets behave like big generators, not millions of distributed demand-side resources.

ADVICE

Use Locational Pricing To Cut Congestion Costs

Adopt locational (zonal/nodal) wholesale pricing to reduce congestion and pass savings to consumers.
Government modelling shows up to £24bn benefit 2030–2050 largely by slashing ~£3bn/year congestion payments, so send a strong policy signal to implement it.

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Could zonal pricing be the solution to reducing energy costs while enhancing grid resilience through a decentralized system? Although the second REMA consultation dismissed nodal pricing in the wholesale market, zonal pricing is still being considered as an option for the UK. As the electricity system transitions toward a more decentralized model, what changes are necessary to support the integration of millions of new assets, and how can the system evolve to ensure this transition is successful?

In today’s episode, Sarah Honan, Head of Policy at the ADE joins Ed porter. Over the course of the conversation, they discuss:

The debate on zonal vs. national pricing under a new Labour government.

Key features of successful demand flexibility implementation.

The ADE's position on locational pricing, highlighting its potential to reduce congestion payments and benefit consumers.

Potential impacts of locational pricing on existing investments.

The ADE’s recent report, Demanding More, the importance of NESO to implement a strategic and inclusive approach, considering the needs of both current and future consumers.

Mentioned in the episode

Demanding More - How the National Energy System Operator Can Empower Energy Demand.

Decentralised Energy Conference - 30th October 2024, The British Library, London

About our guest

The Association for Decentralised Energy (ADE) is the leading trade association for decentralised energy, representing more than 150 interested parties from across the industrial, commercial and public sectors. With the goal of advancing the widespread adoption and integration of decentralized energy solutions for a sustainable and resilient energy future, ADE is on a mission is to champion the transition from traditional centralized energy systems to a decentralized model. For more information, check out their website.

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