ABSTRACT
This chapter examines how policy and market design in the electricity sector will influence the decarbonisation of Great Britain’s power system. Although Great Britain has made significant progress in reducing electricity-sector emissions, rapidly rising demand from heat, transport, and technology advances, combined with network constraints and slow transmission infrastructure development, threatens progress towards the United Kingdom’s legal commitments to achieve a net-zero economy by 2050 and a largely clean power system by 2030. The chapter begins by providing an overview of the GB electricity system and the current suite of markets and policy instruments, including the wholesale, balancing, and capacity markets, Contracts for Difference (CfD), transmission charges, and interconnector arrangements. It highlights how a national pricing model designed for large, controllable fossil fuel plants fails to provide adequate investment and operational signals for variable renewables, storage, and flexible generation. The UK Government’s Review of Electricity Market Arrangements is then assessed, with a focus on proposals for locational pricing—both zonal and nodal—and reform of CfDs. The chapter evaluates how these options could improve system efficiency, manage network congestion, and support low-carbon investment, while also exploring concerns about market liquidity, investor confidence, political feasibility, and regional equity. Finally, three potential futures are compared: First, continuing with current national pricing arrangements; second, a zonal market with moderate locational signals; and third, a nodal pricing system with centralised dispatch. The analysis concludes that continuing current arrangements is incompatible with net-zero goals, zonal pricing offers some benefits and a politically easier transition, while nodal pricing provides the strongest theoretical pathway to a renewable, flexible system but entails significant transitional, distributional, and governance challenges. The chapter argues that successful reform will require stable policy frameworks, upgraded transmission and distribution networks, redesigned CfD that benefit system operation and the consumer, carefully targeted financial hedging instruments to manage locational price risk, and a clearly managed just transition that addresses regional equity concerns. Only through such comprehensive reforms can the GB wholesale market become an effective instrument for delivering a clean, affordable, and reliable power system aligned with national climate commitments.
