The Benefits of Locational Pricing: Driving Renewable Generation and Encouraging Transmission Investment

Locational pricing, whether nodal or zonal, can have several benefits. In the UK, where there is a concentration of renewable generation in the north and high demand in the south, a locational pricing system could incentivize renewable generation to match demand. This would mitigate the need to turn down renewable generation due to transmission constraints and replace it with more expensive fossil generation. Additionally, locational pricing provides price signals that encourage the construction of transmission infrastructure between zones, facilitating the flow of excess generation from areas with surplus to those with deficits.