On 12 March 2024, the Department for Energy Security and Net Zero (DESNZ) published its second Consultation on its Review of Electricity Market Arrangements (REMA). In a much anticipated move, DESNZ rejected nodal pricing as a reform option for the wholesale market. DESNZ remains committed to improving locational signals to dispatch and investment, either through zonal pricing or alternative reforms.

NERA Senior Managing Director George Anstey and Consultant Sofia Birattari comment on the key battlegrounds that will define the expected quantitative debate. The authors review crucial system assumptions (e.g., on decarbonization and transmission build scenarios), reform options, counterfactual design, and practical challenges that are often not captured in modelling studies. These assumptions are important because they materially affect the estimated net benefits of reform. The critical question facing policymakers is whether those modelled benefits exceed the real-world frictions and implementation costs of changing market rules.

DESNZ’s decision to pursue alternative models of introducing locational signals does not end the debate. Introducing locational signals is always going to be challenging for any government. Any modelling of reformed locational signals—zonal, network charges, or otherwise—will need to reconcile the same set of controversial modelling assumptions and design choices.