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There is growing awareness of the importance of electricity market frameworks in supporting the delivery of key Government ambitions in Britain including delivery of net zero across the economy. The ongoing UK Government Review of Electricity Market Arrangements (REMA) explores a wide variety of options including the concept of Locational Marginal Pricing (LMP). This option has gained significant attention in the sector, with advocates arguing that it will provide incentives to provision of ‘flexibility’ on the power system and reduce the impact of network constraints on the cost of energy. This report forms part of an independent review exploring LMP, how it might be applied in Britain and how the costs and risks faced by different market participants might change were it to be introduced. Ten semi-structured expert interviews were conducted as part of the project. Interviewees included multiple domain experts active in the GB energy policy and electricity market reform debate. Additional views were gathered from experts from the USA, discussing existing implementations of LMP, and Australia, discussing their own consultation on market reform and debate around transitioning to a nodal LMP market. This wide range of stakeholders included representatives with current or previous experience spanning market design and regulation, investment in generation and storage, system operation, research, consultancy and government. Interviews were conducted under ‘Chatham House’ rules and this report provides an anonymised summary of the key points that were raised across a range of topic areas.

There is growing awareness of the importance of electricity market frameworks in supporting the delivery of key Government ambitions in Britain including delivery of net zero across the economy. The ongoing UK Government Review of Electricity Market Arrangements (REMA) explores a wide variety of options including the concept of Locational Marginal Pricing (LMP). This option has gained significant attention in the sector, with advocates arguing that it will provide incentives to provision of ‘flexibility’ on the power system and reduce the impact of network constraints on the cost of energy. This independent review by researchers at the University of Strathclyde explores LMP, how it might be applied in Britain and how the costs and risks faced by different market participants might change were it to be introduced. It describes some key features of existing LMP markets and, through review of existing literature and a series semi-structured interviews with industry experts, identifies key challenges for implementation in GB. The work concludes that whilst there may be some theoretical benefits to LMP, there are likely to be huge challenges in delivering an LMP market that is well adapted to the GB system. Massive investment in low carbon sources of generation and flexibility is required in the coming years. The work cautions that, unless it is part of a well designed package of reforms and there is investment in sufficient network capacity, the introduction of LMP has the potential to put the UK Government’s commitment to decarbonise the electricity system by 2035 at significant risk.

The integration of Inverter Based Resources (IBRs), which displace traditional Synchronous Generators (SGs), presents new challenges to power system operation. SGs naturally provide voltage source behaviour, allowing them to be represented by a voltage source behind an equivalent impedance. In contrast with SGs, IBRs' behaviour during faults is typically like a controlled current source, and their responses to network faults are driven by their control strategies and the current limited capacity of the converter, resulting in a reduced fault current infeed during network faults. As a fault level can be seen as a measure of the equivalent system impedance, based on the 50 Hz Thevenin equivalent, it has also been used as a measure of "system strength", e.g. through the use of various Short Circuit Ratio (SCR) metrics. As a result, the terms "fault level" and "system strength" are sometimes used interchangeably, which may be largely valid for SG dominated systems. However, the fault level metric does not always capture all aspects of system behaviour in the context of high IBR penetration. Hence, particularly in systems which have a high number of IBRs relative to SGs, this paper argues that there is a need to make a clearer distinction between the low fault level issues and other challenges. The fault level remains a useful metric in the context of power system protection and to assess system characteristics during faults, such as the voltage depression. Meanwhile, other system challenges include a high voltage sensitivity during quasi-steady state system conditions, such as IBR control interactions. This paper has assessed fault levels in the Scottish transmission area of the Great Britain (GB) power system, an area which has a high number of IBRs and very few large SGs, some of which are close to retirement. These factors have motivated the system operator (SO) to launch a tender exercise – the Stability Pathfinder (SPf) Phase 2 – that is seeking new sources of fault current to connect to the system. Although the SPf has been motivated by closure of SGs, it is shown in this paper that, at many locations, equipment outages can reduce local fault levels more than the status of the available large SG units, and that fault level contributions from SGs are relatively localised. In addition, a sub-synchronous oscillation event in August 2021 suggests that challenges related to a high voltage sensitivity also exist in Scotland. Moreover, the fault levels during the event were not unusually low. Hence, considering the limitations of fault level as a metric for quasi-steady state voltage sensitivity challenges and that the observed fault levels can already be low and are not very sensitive to the anticipated closure of SGs, it is concluded that procurement of fault level alone may not be adequate to address some of the operational issues in the Scottish transmission system with further integration of IBRs. More work should be done on defining the exact metrics for quantifying the system needs in order to ensure security of supply in the most cost-effective manner.