The cost of electricity will inevitably rise for consumers if plans for a drastic overhaul of the market go ahead, say three major trade associations representing over 800 renewable energy companies.

The plans, called Locational Marginal Pricing, are being considered by Government and energy regulator Ofgem as part of a wide-ranging review of the electricity market. The scheme would mean that the wholesale price of electricity would vary across the country. Prices would be based on local supply and demand, as well as how close power stations are to consumers.

Such a scheme could increase the cost of reaching net-zero by up to £87bn and undermine investor confidence. Other countries such as Australia have already considered the proposals and rejected them due to the financial instability they would cause.

A report by Cornwall Insight, REMA: Reform to support Mass Low Carbon Power, commissioned by RenewableUK, Scottish Renewables and Solar Energy UK, found that a different approach could achieve Ofgem’s aims to reform electricity markets without risking the loss of billions of pounds of investment in cheap renewable energy.

The report focuses on reforming contracts to generate clean power, (Contracts for Difference), to enable them to deliver even more benefits for billpayers. These contracts provide a guaranteed price for power. The Government confirmed this month that solar, onshore and offshore wind provide the cheapest electricity for consumers.

RenewableUK’s Economics and Markets Manager Michael Chesser said: ““Injecting further volatility and uncertainty into our energy market would have very real and very negative consequences for billpayers. If Locational Marginal Pricing were to be implemented, it wouldn’t only increase costs across our whole energy system, but it would also create a bizarre regional or local post code lottery of prices for consumers, inflating bills in England especially.”

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