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National and Zonal electricity market designs for Great Britain

AFRY study finds that while there is a case for change related to the challenges of operating and optimising a fully decarbonised power sector by 2035, the possible benefits of improved operational efficiency from revised market arrangements have to be weighed against potential increases in investment risk.

AFRY has qualitatively assessed four options for revised market arrangements in response to the 2nd REMA consultation. The study found that while a move to a zonal market could be the best option in the long-term, deliverability of the transition could mean that proceeding with an Enhanced National market is the most attractive option overall.  

Key conclusions Arrow pointing right

Key conclusions

  • Market designs with central dispatch would increase risk for market participants while also facing challenges on deliverability and enduring robustness
  • An Enhanced National decentralised dispatch market could be the most attractive option overall if all measures identified could be implemented quickly and if the enhancements could achieve a reasonable share of the operational efficiency gains of a zonal market
  • Moving to a well-designed decentralised zonal market should provide the most operational efficient outcomes and could be the best enduring solution
  • However, a decentralised zonal market should only be implemented if accompanied by an extensive risk management framework and grandfathering of existing rights to deal with wealth transfers  

In the context of the investment needed over the next decade, the choice for policy makers between zonal and enhanced national market designs may be quite finely balanced; However, if the ultimate decision is to proceed with a zonal market design, delaying the point at which the transition begins would be the worst of both worlds, both extending the current uncertainty over market arrangements, while also delaying the possible benefits that could ultimately result.

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Background

AFRY has undertaken a 6-week study, in response to the second REMA (Review of Electricity Market Arrangements) consultation, that was published in March 2024. The study builds on work undertaken in 2022-2023 by AFRY.  

The latest study was funded (in whole or in part) by 13 industry members and supported by 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.

About AFRY

We combine our deep energy market expertise, engineering, and consulting experience to provide leading insights for clients in navigating the energy transition.

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View the webinar

Discover more about AFRY's review of electricity market arrangements in Great Britain, related to the challenges of operating and optimising a fully decarbonised power sector by 2035.

For further information contact

Stephen Woodhouse - Director, AFRY Management Consulting

Stephen Woodhouse

Director, AFRY Management Consulting

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