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Local electricity pricing could save consumers £2.1bn annually

Cornwall residents could benefit from lower electricity prices when it is sunny. Credit: Centrica.

Cornwall residents could benefit from lower electricity prices when it is sunny. Credit: Centrica.

Introducing local electricity pricing could reduce electricity system costs by as much as £2.1 billion a year from 2030 onwards, according to a new report.

Adopting a system where people pay a different price for power depending on where in Great Britain they are on the basis of local supply and demand would save billions, explained thinktank Policy Exchange.

It forms the key policy recommendation within the its Why local electricity pricing holds the key to a net zero energy system report, using modelling by Aurora Energy Research to show how a local system – akin to those used in Texas or California – could reduce household electricity bills by £37 per year.

Such a system would encourage electric car drivers in Cornwall to charge their vehicles when its sunny and those in Aberdeenshire to charge when its windy, it explained. Additionally, it would encourage energy intensive industries to build factories and data centres in coastal industrial hubs, taking advantage of the offshore wind resources. As such, a local energy price system would act as a catalyst for jobs and other economic benefit from green manufacturing in areas like Aberdeen, Grangemouth, Teesside, Humberside, Merseyside, East Anglia and South Wales.

“I am excited by the potential for local pricing to revitalise the UK’s coastal industrial hubs by giving them access to cheap, low-carbon energy from offshore wind farms,” wrote Bim Afolami MP in the foreword. “Cheaper energy in these regions could make a big contribution to delivering a greener and more productive economy whilst helping to level up the UK’s coastal regions.”

With the amount of offshore wind set to double by 2025, and quadruple by 2030, the government should seek to take full advantage of the abundant resource. The report pointed to the ‘glimpse of the future’ offered during the first lockdown in the UK as demand dropped and renewable generation soared, causing National Grid ESO to rely heavily of balancing tools. This ultimately lead to system balancing costs jumping two-thirds higher for the period compared to 2019, hitting £220 million.

By 2050, customers could save £50 billion through the implementation of local pricing by 2026, helping to avoid such balancing challenges and offshore wind to continue to play an increasingly large role in the country’s energy mix.

Beyond switching from a national pricing system, the report presents 14 other policy recommendations split between three key areas. These include reforming the Contracts for Difference (CfD) scheme to offer a simplified floor price to encouraging developers to build in areas that would reduce costs for customers, and reforming the Capacity Market to include a ‘low-carbon quota’.

“If the government doesn’t reform the GB electricity market, then projects developers will build projects in the wrong places and customers won’t be encouraged to vary their demand to match local supply and demand for electricity,” concluded Ed Birket, the report’s author.

“System balancing costs will continue to rise and customers will pay the price in higher bills. Without further changes, customers won’t benefit from the falling cost of wind and solar.”

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