Optimal spatial pricing for electricity and its impact on renewable and
embedded generation
This PhD investigates the importance of implementing adequate locational
signals and their possible effects on generation technologies and the performance and
regulation of the electricity system, with particular reference to renewable energy in
the British electricity market.
For over twenty years economists have known how to calculate the optimal
spatial pricing for electricity, known as nodal or locational marginal pricing.
However, such knowledge appears to have been ignored by the designers of most
electricity markets, with the key exception of a few US and international markets.
Furthermore it has been suggested that there may be a conflict between the
implementation of adequate locational signals and the development of renewable
energy because the former may lead to higher network charges which may
compromise the profitability (and therefore the feasibility) of renewable energy
plants. The literature appears to have already addressed several of the key issues
considered by this PhD: spot pricing, optimal spatial pricing, renewable policies,
network investments, integration of renewable energy into the power grid. However
there seems to be a theoretical and empirical gap in terms of combining these issues
together: e.g. given the adoption of optimal spatial pricing, how does this affect the
level of production from renewable energy (wind in particular)? Thus this thesis
investigates how different forms of spatial pricing may affect renewable
technologies, with regards to both their investment and operating decisions, and what
regulatory or other policy implications this might imply. In particular this PhD
focuses on the British case, where it is alleged that the introduction of more efficient
spatial pricing might compromise the development of generation technologies
located in particular areas, especially on-shore wind farms in the north of the
country. The research contributes to an important area of current policy debate, given
the strong targets for growth in renewable as part of climate change policy and
growing concern about energy security.