Citizens Advice published a discussion paper on 14 June 2023 examining locational pricing, a proposed reform in which the wholesale price of electricity would vary between locations1. The charity describes itself as "the statutory advocate for consumers in the energy sector"1.
Under current arrangements, "there is a single wholesale market that covers the whole of Great Britain (GB)", and "participants (generators, storage providers, suppliers and large consumers) face the same wholesale price signal wherever they are"1. Locational pricing would instead mean "the wholesale price of electricity varies between locations"1. The paper follows an earlier discussion paper published in February 2023, which examined a split-market model1.
The paper sets out four findings. It states that "a range of options exist for shielding consumers from locational price signals", but adds that "there will likely be a need to address the distributional impacts of locational pricing"1. It says that "whether or not risks to timely investment in generation can be addressed will determine whether it is worthwhile to consumers to implement locational pricing"1. It also states that "problems with how the grid is operated are too big to ignore" and that "other options to manage constraints are underdeveloped"1. On retail, it says "the impact on the retail market needs more scrutiny" and that "retail reform must specifically consider what provisions should be made if locational pricing were implemented"1.
"This debate should not distract from urgent programs of reform that are already underway. Network buildout, planning reform and the smart meter rollout will all be vital to deliver a flexible and low cost power system."
The paper states that moving to locational pricing "could have a number of unintended consequences if it affects the willingness of developers to invest in new infrastructure", and that "there is also an open question about the extent to which consumers could be exposed to any new price variations"1. It says concerns have been raised about "unfair outcomes for households"1. The paper describes itself as "deliberately provocative in places" and invites feedback by email1. No figures for consumer bill impacts, and no implementation timetable, are given in the paper1.
Why it matters for households
Wholesale electricity prices feed through to the retail tariffs households pay, so any change to how wholesale prices are set is a question about what a home pays for power and how stable that price is. Under the current single GB market, a household's supplier faces one wholesale signal regardless of where the home is; under locational pricing, that signal would differ by area1. The paper does not say how any such variation would reach domestic bills, and states that shielding consumers from locational price signals is possible, with distributional impacts likely needing to be addressed1. For a household considering its own energy independence, the paper's stated dependencies are relevant: network buildout, planning reform and the smart meter rollout are described as "vital to deliver a flexible and low cost power system"1. The paper also notes that the outcome for consumers depends on whether investment risks can be resolved1. Citizens Advice is one of the energy consumer bodies that represent household interests in this area, and the reform sits within wider UK home energy regulation and policy.
What happens next
The paper invites feedback via a named email address at Citizens Advice1. It states that detailed proposals are needed in future consultations so they can be better scrutinised1. No dates for those consultations are given1.