A look at Locational Marginal Pricing (LMP) in the US, focusing on Texas, to better understand the potential implications of an LMP based market design for GB net zero investment.

Author: Johnny Gowdy, Director, Regen

National Grid Electricity System Operator (SO) and Ofgem have launched reviews of Locational Marginal Pricing (LMP) as a potential basis for GB market reform. This focus on LMP has been prompted by the rise in balancing mechanism costs and a belief that constraint costs will continue to escalate in a high renewable energy, net zero scenario. A parallel Review of Electricity Market Arrangements (REMA) being carried out by the Department for Business, Energy and Industrial Strategy (BEIS) also plans to consider LMP, but is taking a broader view of potential market reform to deliver net zero electricity by 2035, ranging from radical change to a more incremental modification to existing arrangements.

This insight paper looks at existing LMP markets in the US to better understand: LMP working in practice; the impact that this type of market design may have on both low carbon generation and strategic network investment; and whether there are lessons that can be learned and applied to the reform of the GB market.



Distribution of wind energy in Texas, also showing main transmission lines, Competitive Renewable Energy Zone investment connectors and demand centres.


WEBINAR: Unpacking the Review of Electricity Market Arrangements

We are expecting the UK government to publish a consultation document on REMA before the summer recess. It is also clear the government is considering, alongside REMA, short term market changes to try and address high power prices. Given the potential importance of these changes for our industry and net zero Regen will be running a webinar on 13 July to discuss the impact these changes could have on renewables, storage and other low carbon technologies. 

Unpacking REMA (5)


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