Risk and Reward of Transitioning from a National to a Zonal Electricity Market in Great Britain
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| Format: | Preprint |
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2025
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| _version_ | 1866912417063108608 |
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| author | Franken, Lukas Lyden, Andrew Friedrich, Daniel |
| author_facet | Franken, Lukas Lyden, Andrew Friedrich, Daniel |
| contents | More spatially granular electricity wholesale markets promise more efficient operation and better asset siting in highly renewable power systems. Great Britain is considering moving from its current single-price national wholesale market to a zonal design. Existing studies reach varying and difficult-to-reconcile conclusions about the desirability of a zonal market in GB, partly because they rely on models that vary in their transparency and assumptions about future power systems. Using a novel open-source electricity market model, calibrated to match observed network behaviour, this article quantifies consumer savings, unit-level producer surplus impacts, and broader socioeconomic benefits that would have arisen had a six-zone market operated in Great Britain during 2022-2024. In the absence of mitigating policies, it is estimated that during those three years GB consumers would save approximately £9.4/MWh (equalling an average of more than £2.3B per year), but generators in northern regions would experience revenue reductions of 30-40\%. Policy interventions can restore these units' national market revenues to up to 97\% while still preserving around £3.1/MWh in consumer savings (about £750M per year). It is further estimated that the current system could achieve approximately £380-£770 million in annual welfare gain during 2022-2024 through improved operational efficiency alone. The drivers behind these benefits, notably wind curtailment volumes, are expected to become more pronounced towards 2030, suggesting that purely operationally achieved annual benefits of around £1-2 billion beyond 2029 are likely. It is found that the scale of these benefits would outweigh the potential downsides related to increases in the cost of capital that have been estimated elsewhere. |
| format | Preprint |
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arxiv_https___arxiv_org_abs_2506_04107 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Risk and Reward of Transitioning from a National to a Zonal Electricity Market in Great Britain Franken, Lukas Lyden, Andrew Friedrich, Daniel General Economics Economics Computational Engineering, Finance, and Science Data Analysis, Statistics and Probability Physics and Society More spatially granular electricity wholesale markets promise more efficient operation and better asset siting in highly renewable power systems. Great Britain is considering moving from its current single-price national wholesale market to a zonal design. Existing studies reach varying and difficult-to-reconcile conclusions about the desirability of a zonal market in GB, partly because they rely on models that vary in their transparency and assumptions about future power systems. Using a novel open-source electricity market model, calibrated to match observed network behaviour, this article quantifies consumer savings, unit-level producer surplus impacts, and broader socioeconomic benefits that would have arisen had a six-zone market operated in Great Britain during 2022-2024. In the absence of mitigating policies, it is estimated that during those three years GB consumers would save approximately £9.4/MWh (equalling an average of more than £2.3B per year), but generators in northern regions would experience revenue reductions of 30-40\%. Policy interventions can restore these units' national market revenues to up to 97\% while still preserving around £3.1/MWh in consumer savings (about £750M per year). It is further estimated that the current system could achieve approximately £380-£770 million in annual welfare gain during 2022-2024 through improved operational efficiency alone. The drivers behind these benefits, notably wind curtailment volumes, are expected to become more pronounced towards 2030, suggesting that purely operationally achieved annual benefits of around £1-2 billion beyond 2029 are likely. It is found that the scale of these benefits would outweigh the potential downsides related to increases in the cost of capital that have been estimated elsewhere. |
| title | Risk and Reward of Transitioning from a National to a Zonal Electricity Market in Great Britain |
| topic | General Economics Economics Computational Engineering, Finance, and Science Data Analysis, Statistics and Probability Physics and Society |
| url | https://arxiv.org/abs/2506.04107 |