Enhanced National electricity market designs for Great Britain
AFRY study finds that an enhanced national market design could deliver positive benefits with limited downside risk. The alternative option of a zonal market has a wider range of outcomes, with higher possible benefits but also potentially resulting in significant net overall costs.
AFRY has developed two market design options for improved operational efficiency within an enhanced national market, and quantitatively compared the potential benefits with zonal market alternatives. The study found that improved arrangements for interconnectors, small-scale and storage assets within a national market could deliver significant operational efficiency gains. The potentially higher operational efficiency gains in a zonal market could be wiped out by small increases in investment risk, and are at greater risk from delays to implementation, and the possible political outcome of EU negotiations.
Key conclusions
- Whether they result from a zonal market or an enhanced national market, in a scenario based on the latest network development plans, possible welfare gains from operational efficiency improvements are small (less than 1% of consumer bills).
- An enhanced national market design with improved arrangements for interconnectors, small-scale and storage assets has the potential to deliver significant operational efficiency gains.
- Of the enhancements to a national market design which we have considered, improved arrangements for interconnection have the largest potential to deliver benefits but are dependent on collaboration between transmission system operators (with political support where needed) to bring mutual benefit; more ambitious arrangements may require EU-level negotiation.
- The potential welfare gains from improvements for small-scale and storage assets within an enhanced national design are smaller but more easily achieved than changes for interconnectors.
- A zonal market alternative could have a more positive welfare gain, but also a significantly negative one if operational efficiency gains are outweighed by increased investment risk, delayed implementation, and any measures taken by interconnected countries to limit welfare transfers to GB.
With several interacting areas of reform, failure in one area of an enhanced national market design does not mean that all or even most of the potential welfare gains would be lost. Many of the required changes would add significant value, even if a zonal market is ultimately implemented.
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Background
AFRY has undertaken a 4-month study to develop enhanced national market designs. The study builds on work undertaken in 2022-2024 by AFRY.
The latest study was funded by 7 industry members and supported by 4 observers. The views presented represents the independent opinion of AFRY, and the opinions may not be attributed to any of the parties who supported the process.
AFRY Management Consulting works globally on market design and provides commercial analysis, strategic and operational advice for private investors and operators, state owned entities, governments, and regulators. 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.
