Space, time and electricity (part 2)

DEEP DIVE: What exactly is nodal pricing and why does it mean a return to central dispatch?

“We think it is credible to implement nodal pricing and central dispatch within five years.” – National Grid ESO, May 2022

The UK electricity system was designed for simpler times. When the so-called New Electricity Trading Arrangements (NETA) were introduced in 2001, the weather did not drive power generation. Demand was inflexible and highly predictable. Renewables accounted for less than 1% of the mix and consumers were passive recipients of electrons produced largely by baseload coal and nuclear power stations. Fast-forward two decades and NETA is in clear need of an update — and the system operator is pushing for ‘nodal pricing’. But what is it, and what does it entail?

This is part two in a mini-series about proposals to introduce locational pricing in the UK electricity market. Part one is free to read here. This instalment, for premium members only, explains the concept of nodal pricing and central dispatch of electricity. Part three, looking at wind constraints payments in more detail, is here.

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