Review of electricity market design in Great Britain
AFRY study finds a move to locational pricing in UK electricity market would be high risk for little reward.
Since 2022, AFRY has conducted a number of multi-client studies exploring potential new electricity market arrangements for Great Britain. Between July 2022 and September 2023, AFRY completed a major multiclient study in two phases. Using its power modelling expertise, AFRY assessed proposals to switch to locational electricity markets. Following the second Review of Electricity Market Arrangements (REMA) consultation published in March 2024, which ruled out further consideration of nodal pricing, AFRY conducted another multi-client study, focusing on the challenge of operating and optimising a renewables-based system cost-effectively. Building on the work undertaken in 2022-2024, in February 2025 AFRY completed a 4-month study to develop enhanced national market designs and quantify the potential benefits. All of the public reports associated with the studies can be found below.
Changing to a zonal or nodal market could dent investor confidence and comes with little modelled benefit. Investor confidence is particularly important considering the recent offshore wind auction that received no bids, in the context of the target to decarbonise the power system by 2035 and the limited window to do so. Due to the risks associated with changing the market design radically, a more evolutionary approach to improving to market arrangements is recommended.
Background
The Phase 1 study was initiated in response to the electricity transmission operator National Grid’s programme for net zero reform, and the Review of Electricity market Arrangements (REMA) process, which was launched by the Department for Business, Energy & Industrial Strategy, now the Department for Energy Security and Net Zero (DESNZ) in July 2022. One of the most divisive topics in the first REMA consultation was whether the current national wholesale energy market should be subdivided into zones or nodes, in which energy wholesale prices would vary by location. This change would result in a locational energy market.
After the Phase 1 report was published in October 2022, AFRY quantitatively addressed the issue of locational energy pricing. The Phase 2 report was published in September 2023, and was informed by a wide range of market participants, and detailed modelling of proposed electricity market arrangements. Phase 2 of the study confirmed that evolutionary change is advisable to maintain the investment momentum which is required to deliver a decarbonised power sector by 2035.
Following the publication of the second REMA consultation in March 2024, AFRY has carried out further work qualitatively examining enhanced national and zonal market designs (published in May 2024) and a quantitative assessment of the potential benefits of enhanced national market designs (published in February 2025). In May 2025, AFRY assessed alternative analysis and found that zonal welfare benefits are overestimated by the use of "off the shelf" scenarios with unrealistically high levels of network constraints that are sustained into the long term.
AFRY Management Consulting works globally on market design and provides commercial analysis, strategic and operational advice for private investors and operators. With experience of a wide range of global electricity markets, AFRY Management Consulting experts possess a deep insight into the merits of alternative electricity market designs.
