Impacts of ‘Beyond 2030’ network plans on zonal pricing

LCP Delta was commissioned to further assess the system impacts of the GB power market moving to a zonal pricing model.

Background

This updated report would incorporate NESO’s updated ‘Beyond 2030’ network plans which recommend an additional £58bn investment to enhance network capacity and support offshore wind connections in Scotland – potentially reducing the benefits of a move to zonal pricing. This analysis builds on previous work for DESNZ (Department for Energy Security & Net Zero), aligning assumptions closely to ensure consistency, while also considering recent strategic energy infrastructure planning developments.

Client needs and key questions

SSE wanted to analyse what impact the Beyond 2030 network plans would have when considering the introduction of zonal pricing. The DESNZ study that we completed on locational pricing considered the NOA7 network, and SSE felt an updated study was essential as network constraints were a key driver of system costs in the previous report.

What we did

• Detailed scenario consideration: The approach involved comparing system costs for a zonal pricing factual scenario with national pricing counterfactuals. Due to significant uncertainty regarding interconnector redispatch in the national market, each zonal pricing factual scenario is compared against two national pricing counterfactuals with varied interconnector redispatch scenarios.
• Sensitivity consideration: To address uncertainties about the future system and potential national pricing reforms, multiple sensitivities were tested to provide a comprehensive understanding of the impacts of moving to zonal pricing under the 'Beyond 2030' plans.

The results

Benefits are significantly reduced under new ‘Beyond 2030’ network plans, with no system cost benefits from zonal pricing if redispatch reforms are delivered

The benefits of zonal pricing decrease under NESO’s ‘Beyond 2030’ network plans compared to the now outdated ‘NOA7 Refresh’ network plans. Benefits decrease from £5-15bn under ‘NOA7 Refresh’ to £0-11bn between 2030-50 under the ‘Beyond 2030’ network combined with offshore wind location being determined by seabed leasing.

If reforms to interconnector redispatch are delivered, the system benefits are eliminated. In addition, a 1pp increase in cost of capital under the new network plans would mean a move to zonal pricing would be a net system cost of £8-19bn.

LCP Delta and SSE recommendations for clean power plan

1. Implement reforms to redispatch for interconnectors under national pricing. Improving interconnector ability to deal with constraints is a fundamental driver of the case for zonal pricing. Making incremental reforms to allow interconnectors to better redispatch their flows under national pricing is more likely to be delivered in advance of 2030, bringing system benefits and reduce reliance on gas for balancing the system.
2. Improvements to the network in the South of England. Grid constraints between England and Scotland are reduced by the ‘Beyond 2030’ network plans, but structural constraints in other parts of the system continue (e.g. SC1 boundary). Reinforcement in these areas could have benefits, with additional value if incremental reforms cannot be delivered.
3. Any zonal decision needs to consider latest strategic energy infrastructure plans. Given the change in zonal pricing impacts from the ‘Beyond 2030’ network plans, a review of the case for zonal pricing by DESNZ will be required, including any upcoming generation and network plans in NESO’s Clean Power Plan for 2030.