Electricity market reform: Octopus Energy CEO issues renewed call for shift to locational pricing

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Electricity market reform: Octopus Energy CEO issues renewed call for shift to locational pricing

Setting electricity prices at local rather than national level could help cut energy bills across the UK, Greg Jackson tells BusinessGreen

The new government should overhaul the current electricity market and shift towards locational pricing if it is to unlock the full benefits of a decarbonised power system, according to Octopus Energy CEO Greg Jackson.

The outspoken entrepreneur, who founded the energy supplier in 2015 before overseeing its rapid expansion over the following decade, told BusinessGreen the government should press ahead with a "three-point plan" of electricity market reform, bringing down planning barriers, and fast-tracking grid connections to meet its ambitious 2030 clean power target. 

And, as part of Labour's plan to decarbonise the electricity system by 2030, Jackson reiterated his call for a shift towards setting energy prices at a local rather than national basis - a controversial policy that has attracted both fierce opposition and support across the UK energy sector.

"If we have locational pricing and market reform, [the resulting] investment signals mean we can be building the grid where we need it most to hit the 2030 target," he said. "[We need a] three-point plan of planning reform, connection reform and market reform, and then to be relentlessly electrifying end use, because the more of it we've got, the easier it is to use flexibility to make the most of the system."

Jackson's comments were made last month in a wide-ranging exclusive interview with BusinessGreen published today, in which he set out a raft of grid and energy market changes he argued would be needed to accelerate the UK's transition to a low-carbon electricity system by the end of this decade.

Jackson described Labour's 2030 clean power target as "challenging", but said it would help to "force decision making". "If you don't have strong targets, you won't achieve great results," he added.

During the interview, the CEO doubled down on his support for the UK to transition to a locational pricing system for electricity, arguing concerns about opposition of regional variations to electricity prices were overblown. "Housing and transport costs vary by region - we're all used to [price variations]," he said. "But the key here is that under locational pricing, every region will see a fall in price."

A consultation response published by the previous Conservative government earlier this year endorsed the shift to locational pricing, but the new Labour government has yet to decide on whether to implement the approach.

Opponents of locational pricing - which include trade bodies Energy UK and Renewable UK - have argued it could hurt investment in renewable generation and transmission infrastructure and create an unfair "postcode lottery" where prices for electricity are more expensive in some parts of the country than the other.

But Jackson said shifting to locational pricing would result in a more efficient and cheaper energy system, and dissed concerns that such a move could have a detrimental impact on investment in the sector.

"Every time you introduce new mechanisms, industry claim it will prevent investment," he said. "All the same arguments were made during the move from the Renewable Obligation to the Contracts for Difference [in 2014]. But that [subsidy policy change] unleashed investment."

To read BusinessGreen's full interview with Greg Jackson click here.

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