RSE contributes to national debate on electricity market reform

The President of the RSE, Professor Sir John Ball, has written to Prime Minister Sir Keir Starmer to highlight the findings of a recent forum on electricity market reform. The letter draws attention to the debate of zonal pricing and the need for evidence-based decision-making.

Dear Prime Minister,  

I am writing to you as President of the Royal Society of Edinburgh (RSE), Scotland’s National Academy. In the light of recent debates about electricity market reforms, particularly the proposal for zonal pricing, we would like to draw your attention to the work the RSE has recently been involved in.  

In December, we hosted Scotland’s first forum on electricity markets in collaboration with Edinburgh University and ClimateXChange. The session brought together over 40 experts from academia (from the UK, Europe and the US), the Scottish and UK Governments, the energy industry, the National Energy System Operator, consumer bodies, and representatives from Highlands and Islands communities to examine the future of Scotland’s electricity market—the design of the electricity market and its role in enabling a least-cost and equitable transition to a net-zero power sector in Scotland.  

Subsequently, a report was drafted detailing the forum’s findings, including the potential benefits of locational pricing and, of course, the challenges. For example, the argument for locational pricing is that it would reduce constraints on the network, reducing payments to generators to adjust their output due to network congestion within the system, thus benefiting consumers. However, fundamental market reform brings risks. If these cannot be managed by investors, the cost of financing large scale wind projects will increase, putting in jeopardy a key pillar of Scotland’s energy and economic strategy.  

Proponents of a ‘reformed national market’ argue that there is scope to significantly improve aspects of the current market design as an alternative to zonal pricing. Alongside reforms to balancing and charging mechanisms, developments in long-term transmission planning were seen as key. A clear understanding of the realistic timeframes for reinforcing the transmission system is needed, as this forms a key part of the argument for a reformed national market. 

Further technical and modelling studies can help inform the decision to reform the existing national market or transition to a zonal design, but it is, in essence, a political judgement about the distribution of costs and risks across society. To this end, we want to ensure that decision-makers have access to all of the available evidence to make an informed decision when considering the reformed energy market arrangements. Please find the full report at https://rse.org.uk/programme/advice-paper/first-scottish-forum-on-future-electricity-markets/  

The forum provided a neutral space for stakeholders to openly discuss these challenges. It’s important to note that there are a range of views on the topic, both within the energy industry and across broader civil society. The purpose of the forum was to enable all perspectives to be voiced. The RSE and our co-collaborators wish to remain engaged in the debate on shaping the UK’s future and hope to continue to provide the space for candid and evidence-based discussions in Scotland. If you wish to discuss this further, please contact Stephanie Webb at swebb@theRSE.org.uk.  

Yours sincerely   

Professor Sir John Ball PRSE FRS
President 

CC – First Minister of Scotland; Secretary of State for Scotland