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News & insights

Date: July 2023 | Sector: Energy | Expertise: Energy market modelling

Locational Marginal Pricing

Locational Marginal Pricing (LMP) is one of the most talked-about market reform options being considered by the GB Review of Electricity Market Arrangements (REMA) consultation. The introduction of LMP would transform the GB electricity system by dividing the wholesale market into hundreds of location-based pricing nodes.

Proponents of bringing LMP to GB argue that its implementation can help prepare the electricity system for Net Zero by automatically providing the right operational and investment signals to investors, generators and consumers. A recent study for Ofgem has found that the introduction of LMP to GB could deliver NPV benefits of between £28 and £51 billion between 2025 and 2040.

While the potential benefits of LMP are understood, its introduction also poses a wide set of challenges. These include concerns about implementation, market liquidity and the impact on electricity consumers who may be more exposed to price volatility.

At CEPA, our electricity market experts have the necessary tools and expertise to navigate this debate using evidence-based insights and advice.

We have recently developed a comprehensive nodal model that represents the GB transmission system down to a 132kV level. This exciting new model, developed in collaboration with Dr. Kong Chyong, modelling expert and Senior Research Scholar at Columbia University, has already been used to help our clients assess the implications of transitioning to a range of locational-based pricing structures in GB.

If you are interested in learning more about how CEPA’s energy modelling practice can assess the impact of LMP for investors, generators, suppliers, and consumers. we would be pleased to hear from you.

To find out more, please contact our experts listed below.

Andrei Vladareanu
Managing Consultant United Kingdom
Petra Koulia
Senior Consultant United Kingdom
Stephen Garavan
Senior Consultant United Kingdom